The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Securities Commission (SCB) yesterday addressed uncertainty over its proposed crowdfunding rules by defining what qualifies as a small or medium-sized business.

Christian Adderley, the Commission’s deputy manager of policy and compliance, told a seminar on the Rules that while definitions of small and medium-sized enterprises vary, the regulator had made its own determination.

“For the purpose of these Rules, and after initial consultation with market participants, the Commission has determined that a small enterprise will be defined as an enterprise that employs fewer than 20 employees, with a net income not exceeding $1.5 million,” Mr Adderley said. “It must meet both thresholds.

“For a medium enterprise, the Commission has determined that a medium enterprise represents a company that employs between 20 and 49 employees, with a net income not exceeding $3 million.”

The definition is important, because it determines how much a Bahamas-based company will be able to raise from investors via the proposed crowdfunding Rules.

The Securities Commission is proposing that both small and medium-sized businesses can raise capital on the over-the-counter (OTC) market, via registered broker/dealers and investment houses.

They will only be allowed to conduct one offering per year, with capital raising-limits of $2 million for small businesses, and $3 million for medium-sized enterprises.

Mr Adderley, meanwhile, said businesses must be independent, non-subsidiary companies.

“You cannot be a subsidiary and decide you want to access crowdfunding. Our purpose is to grow businesses that are Bahamian,” he added.

As defined in the proposed legislation, crowd financing refers to the “financing of a project or venture by raising money from members of the public utilising an Internet platform” or the over-the-counter market, and includes “equity-based crowdfunding”. The consultation period on the draft legislation began on March 21, and ends on April 18.

  Christina Rolle, the Securities Commission’s executive director, said: “It is our intent that these Rules will provide a feasible avenue for start-ups and businesses to access capital via the general public, and provide other ancillary benefits such as fuelling innovation and growth within the Bahamian economy by opening additional investment opportunities for all Bahamians.”

Ms Rolle added that the Rules also address investor protection, and seek to ensure that the market is fair and equitable, maintaining the appropriate mechanisms for disclosure requirements and investment limits within certain categories.

“Entrepreneurs will be able to directly access the public and allow them to view the merits of a particular idea, and decide whether it is worth committing funds to,” said Ms Rolle.

“We hope that the Rules will spur economic growth in the Bahamas. It is our hope that these new Rules will bring forth innovation, creativity, development and job growth within the Bahamian economy.”

The Commission’s proposed Rules attempt to create a formal, regulated market for crowdfunding while striking a balance between ‘ease of capital access’ and investor protection.

Start-ups raising equity capital via an Internet ‘platform’, as opposed to the over-the-counter market, will be limited to a maximum of $1 million, with less sophisticated investors unable to invest more than $1,000 in any single offering in a year. Their investments are also capped at a maximum $3,000 per start-up.

On the over-the-countermarket, less sophisticated investors are again unable to invest more than $1,000 in any single offering per year. Their investments per company, though, are capped at a higher maximum of $5,000 per start-up.

Prime Minister Perry Christie, who attended yesterday’s seminar, said “special attention” will have to be given to the Bahamas’ exchange control regulations and how they will impact crowdfunding.

“Transactions with non-Bahamians over the Internet that result in equity ownership and lending to Bahamian companies  will require exchange control approval, and the necessary due diligence by the National Economic Council,” he said.