03/20/2014 01:30 EDT | Updated 05/20/2014 05:59 EDT

OSC Proposes New Crowdfunding Rules

The Ontario Securities Commission has proposed a set of new rules that would regulate the popular trend of online crowdfunding for new businesses.

The proposed regulatory regime would allow start-ups and small businesses to raise $1.5 million over one year online through a registered crowdfunding platform.

The proposal also limits how much an investor can invest in a single project, with a maximum of $2,500 in a single investment and $10,000 per year.

Crowdfunding sites like Kickstarter and Indiegogo have already helped to launch thousands of projects and ventures worldwide. On those sites, backers are usually contributing to a charity, or receive special rewards in return for their contribution.

It's the equity crowdfunding model that the OSC is proposing new rules for — when people are asked to invest in a startup in return for securities. Currently, that is not allowed in any jurisdiction in Canada.

That type of funding could offer small companies access to capital they might not otherwise be able to get.

"Today we have proposed new tools, which will transform Ontario's exempt market by providing greater access to capital for businesses and expanding investment opportunities for investors," OSC Chair Howard Wetston said in a statement.

"We have done so in a balanced and responsible manner that is intended to facilitate capital raising while maintaining an appropriate level of investor protection."

The proposed rules are open for public comment until June 18.

Concern for the regulator

But there are obvious concerns that emerge from crowdfunding arrangements – including fraud and abuse, risk disclosure, difficulties in re-selling investments and valuation difficulties.

There are also questions about whether equity crowdfunding would be suitable for some companies.

The provincial regulator began its investigation into allowing equity crowdfunding in December of 2012.

The regulator has opened the proposed rules to public comment for a 90-day period.

Regulators in New Brunswick, Nova Scotia, Manitoba, Saskatchewan and Quebec are concurrently publishing the proposed rules.

Other changes proposed by the regulator include one plan to allow a company to raise money based on a comprehensive disclosure document and another that would allow family, friends and business associates to more easily invest in start-ups and early stage businesses.

Another change would allow publicly-traded companies on the TSX, TSX Venture and Canadian Securities Exchange to raise capital from existing investors provided they have demonstrated a good record of public disclosure.

Also on HuffPost

Photo gallery Top Business Started In College (PHOTOS) See Gallery