Nova Scotia and New Brunswick are two of six provinces that announced Thursday they will allow entrepreneurs to raise equity capital through crowdfunding.

Equity crowdfunding – soliciting equity investments from a range of individuals through an online campaign – has been studied by regulators in Canada and the U.S. for several years. Finally this year, regulators have decided that investors can be protected while allowing companies to raise capital through crowdfunding campaigns.

“Crowdfunding has become a popular method of raising money using websites such as Kickstarter,” Jeff Harriman, Capital Markets Specialist with the Financial and Consumer Services Commission of New Brunswick, said in a statement. “These rules allowing equity crowdfunding support our efforts to foster the capital markets and provide protection to safeguard investors from the risks of investing in issuers during early stages of their development.”

The two Maritime provinces’ securities regulators announced the new rules simultaneously with their peers in British Columbia, Saskatchewan, Manitoba and Quebec.

The new rules will allow startups to use approved crowdfunding sites raise as much as $500,000 a year, though no more than $250,000 in a single campaign. Individuals can invest a maximum of $1,500 in each campaign and they will have the right to pull out within 48 hours of making their commitment.

The rules apply only to small companies and not to large companies that already distribute securities.

The FCSC statement said there are now no portals ready to carry out equity crowdfunding campaigns and so no campaigns will be launched until there are such sites. Donation-based crowdfunding  sites like Kickstarter or Indigogo are not approved sites.

"The startup crowdfunding exemption reduces the regulations around the raising of capital for smaller Nova Scotia companies and introduces a modern, cost-effective way to connect with investors," said Sarah Bradley, chair and CEO of the Nova Scotia Securities Commission. "This exemption also creates an opportunity for investors to find local investment options and help grow our provincial economy."

The announcement is part of a global movement toward more equity crowdfunding for startups. As mandated by the Jumpstart Our Business Startups Act of 2012, the Securities and Exchange Commission in the U.S. this year ruled companies could sell as much as US$50 million in shares each year through crowdfunding.

Opinions on crowdfunding among Atlantic Canada entrepreneurs vary. Some founders are anxious to test the waters. Others believe the effort needed to attract hundreds of investors to come up with at most $250,000 could be a drain in management time.

The FCSC also urged investors to be cautious.

“The failure rate of start-up businesses is high compared to established businesses with a history of successful operations,” said Harriman. “Business failure may be the result of a poor business plan or economic factors beyond the business owner’s control. A failed business is unlikely to return your capital, let alone provide a rate of return. The best way for investors to protect themselves is to be informed.”