Improving the Framework for Venture Capital Investment

On November 7, 2023, the Governor in Council of Nova Scotia issued an amendment to the Venture Capital Tax Credit Regulations (N.S. Reg. 173/2020). This amendment, known as N.S. Reg. 197/2023, arises from a recommendation by the Minister of Finance and Treasury Board and seeks to improve the regulatory framework for venture capital investment in the province. The primary objectives include updating terminology, adjusting eligibility criteria for investors, and making application requirements for venture capital funds more efficient. These changes are designed to foster a more favorable investment environment while ensuring compliance with existing tax legislation.
Changes include a new definition of “major investor,” which encompasses individuals or entities holding 10% or more of voting rights in a corporation or limited partnership. This change clarifies the previous term “major shareholders” and includes affiliates. Additionally, the regulations now prohibit a qualifying venture capital fund from investing in a qualifying small business if any major investor in the fund has also been a major investor in the small business within the preceding two years. This provision aims to mitigate conflicts of interest and support diverse funding sources. The amendment also alters the documentation required for qualifying small businesses seeking funding. An authorized officer must now confirm that the business complies with specific criteria, particularly that funds will not be used for prohibited purposes outlined in the regulations.
Another notable change is the geographical focus, shifting from “Atlantic Canada” to “Nova Scotia,” reinforcing the intent to concentrate venture capital efforts locally and provide targeted support to businesses within the province. Furthermore, the timeline for certain processes has been extended from 90 days to 6 months, providing more flexibility for venture capital funds and small businesses in managing investments and applications.
These amendments are expected to have varying implications for various stakeholders, including venture capital funds, small businesses, and investors. By clarifying definitions and expanding the scope of eligible investors, the regulation’s intention is to create a more robust investment climate in Nova Scotia, potentially increasing funding opportunities for small businesses and stimulating economic growth and innovation.
By updating terminology, clarifying investor criteria, and making administrative adjustments, the government seeks to bolster venture capital activity in the province. This regulatory adjustment is intended to create a more conducive environment for both investors and small businesses, ultimately supporting Nova Scotia’s economic development goals.
Nova Scotia (197/2023) November 17, 2023