Canada: British Columbia Securities Commission Introduces New Prospectus Exemption To Assist Capital Raising By Small Businesses

The British Columbia Securities Commission (BCSC) recently published for comment a proposed prospectus exemption intended to facilitate access to capital by small businesses. Under the proposed new exemption issuers need only to include unaudited financial statements prepared using private enterprise GAAP, while also complying with the following conditions:

• the issuer and related issuers raise no more than $500,000;

• no investor invests more than $2,000 in any 12-month period;

• the issuer is not a reporting issuer, investment fund, mortgage investment entity or real estate issuer; and

• the issuer does not distribute complex securities.

A number of existing exemptions from the prospectus requirement already facilitate financing for small business, including the offering memorandum exemption. A drawback of the offering memorandum exemption, however, is that it includes a requirement that the offering memorandum contain audited annual financial statements prepared in accordance with Canadian GAAP for publicly accountable enterprises. The cost of complying with the financial statement requirements of the offering memorandum exemption has limited the use of the exemption.

In December of 2012, all jurisdictions in Canada, except for British Columbia and Ontario, requested comments on a newly-adopted exemption to facilitate access to capital for small businesses (see Multilateral CSA Notice 45-311 Exemptions from Certain Financial Statement –Related Requirements in the Offering Memorandum Exemption to Facilitate Access to Capital by Small Businesses). The proposed exemption in NI 45-106 is uniform to this exemption, except that the proposed exemption requires the issuer to identify that it is being used when filing Form 45-106F6 British Columbia Form of Exempt Distribution.

The BCSC is welcoming all comments on the proposed new exemption, which must be submitted on or before April 12, 2013. For more information, see the BCSC Notice and Request for Comment.

© Copyright 2013 McMillan LLP