New – Reporting Requirements for Prospectus Exemptions

Further amendments were made to the Prospectus Exemptions on July 7th 2016. The Ontario Securities Commission has introduced a new harmonized report of exempt distribution. The amendment aims to reduce reporting requirements for foreign issuers conducting offerings into Canada and creates a new reporting form (Form 45 -106F1). Previously, all issuers and underwriters were required to identify whether a purchaser is a registrant or an insider of the issuer. The amendment now excludes certain issuers from this reporting requirement. Those issuers who are (a) a foreign public issuer, (b) a wholly owned subsidiary of a foreign public issuer or (c) distributing eligible foreign securities only to permitted clients will not need to disclose whether a purchaser is a registrant or an insider of the issuer.

 

The amendment follows concerns expressed by foreign issuers and dealers conducting offerings into Canada about the reporting requirements. Following the amendment and relaxed reporting requirements offerings into Canada should appeal to foreign issuers and dealers.

 

If you have any questions or would like more information regarding the Exempt Market or Private Placement Exemptions, call or email Koby Smutylo at 613 869 5440 or koby@lawyercorporation.ca.

 

The Prospectus and Registration Exemptions can be found online here and links to amendments and announcements from the commission can be found here.

 

The Exempt Market provides four new ways to raise capital in Ontario

The Ontario Securities Commission (“OSC”) is adopting four new private placement exemptions:

• a crowdfunding exemption;
• an offering memorandum exemption;
• a family, friends and business associates exemption; and
• an exemption that allows a reporting issuer to issue securities to its existing security holders.

Crowd Funding Exemption

The emergence of crowdfunding as not only a viable but popular method to raise capital has induced to Commission to include a crowdfunding regime as a Prospectus Exemption. The crowdfunding regime will allow businesses to raise capital through a registered online portal. The portal will be registered with the securities regulatory authorities and allow businesses to raise up to $1.5 million during a 12 month period. The intention of the Commission is to develop crowdfunding as capital growth option for start-up and SMEs.

Investments must be made through a single registered crowdfunding portal and must be accompanied by a risk acknowledgement form. The limits imposed on investors taking advantage of the crowdfunding regime are as follows:

Investors who do not qualify as an accredited investor:
○ $2,500 per investment
○ In Ontario only, an annual limit of $10,000

Investors who qualify as an accredited investor:
○ $25,000 per investment
○ In Ontario only an annual limit of $50,000

A special limit applies to those who qualify as a permitted client, those who have net financial assets exceeding $5 million are not subject to any investment limits in Ontario only. The crowdfunding exemption will come into effect in Ontario on January 25, 2016.

Offering Memorandum Exemption

The offering memorandum exemption will allow businesses to raise capital on the basis that an offering memorandum is made available to investors. Operating under this exemption will exempt investors from the Prospectus Requirements. The offering memorandum exemption requires that a comprehensive disclosure document is delivered to investors at the point of sale and various reports are provided to investors, such as audited annual financial statements.

Investors who utilize this exemption are subject to investment limits. Non-eligible investors as defined by the Commission are limited to $10,000 in a 12 month period while eligible investors are limited to $30,000 in a 12 month period. Those eligible investors that receive advice from a portfolio manager, investment dealer or exempt market dealer that an investment above $30,000 is suitable may invest up to $100,000 in a 12 month period. Investors who wish to utilize this exemption must sign a risk acknowledgement form. The offering memorandum exemption came into force in Ontario on January 13th, 2016.

Family, Friends and Business Associates Exemption

The family, friends and close business associates exemption (“FFBA”) allows issuers to raise capital from a range of persons in close proximity to them. Those that fall under this exemption range from immediate family such as parents, spouses and siblings to close personal friends and affiliates. In Ontario, the issuer must obtain a risk acknowledgement form from those employing this exemption. It is worth noting that investment funds are unable to rely on the FFBA Exemption in Ontario. The FFBA exemption into force in Ontario on May 5, 2015.

Existing Security Holder Exemption

The existing security holder exemption allows for publicly listed companies on four Canadian exchanges to raise capital from existing investors on reliance of that company’s public disclosure record. Investors are limited to $15,000 per 12 months, however on advice from a portfolio manager, exempt market dealer or investment dealer can the limit can be removed. The existing security holder exemption came into force in Ontario on February 11th, 2015.

If you have any questions or would like more information regarding the Exempt Market or Private Placement Exemptions, call or email Koby Smutylo at 613 869 5440 or koby@lawyercorporation.ca.

The Prospectus and Registration Exemptions can be found online here and links to amendments and announcements from the commission can be found here.

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