Multilateral Instrument 51-105 (MI 51-105) was adopted in 2012
by most of the provinces in Canada. It can cause an issuer that
makes private placements into Canada to become subject to ongoing
Canadian public company reporting obligations. In other words, the
consequences of making a Canadian private placement can potentially
be the same as if the issuer had completed an initial public
offering in Canada by filing a prospectus with the Canadian
securities regulators. Ontario was the only province that did not
adopt MI 51-105, and Québec has created some very generous
exemptions; however, the need for caution about private placements
into other provinces remains.
What Problem Was MI 51-105 Supposed to Solve?
The Canadian securities regulators wanted to protect Canadians
from investing in securities that trade publicly in U.S.
over-the-counter (OTC) trading markets without being subject to the
regulatory oversight of a Canadian or U.S. stock exchange. To close
this gap in oversight, MI 51-105 will in certain circumstances deem
the issuer to be a Canadian public company so that investors will
have the benefit of ongoing Canadian public company disclosure
When Does MI 51-105 Apply?
MI 51-105 applies only to an issuer that is an OTC issuer,
meaning that it has a class of OTC-quoted securities, but does not
have any class of securities listed on a Canadian or U.S. stock
exchange. OTC-quoted securities include any class of securities
that has been assigned a ticker symbol for OTC trading in the
United States, including on the OTC Bulletin Board (OTC BB), the
pink sheets or grey market trading.
The Three Triggers
Three triggers can result in an OTC issuer becoming a reporting
issuer in Canada under MI 51-105. The first trigger applies if the
OTC issuer's business is directed or administered in or from a
province that has adopted MI 51-105. The second trigger applies if
an OTC issuer carries on any promotional activities in or from a
province that has adopted MI 51-105. Promotional activities include
any activities or communications by or on behalf of an issuer that
promote the purchase or sale of its securities. The third trigger
is potentially the most troubling because it can apply with
retroactive effect. Under this trigger, an issuer can become a
reporting issuer in some circumstances if it distributes securities
in a province that has adopted MI 51-105 and then subsequently the
same class of securities is assigned a ticker symbol for OTC
trading in the United States. However, the third trigger will not
apply if the issuer already had a ticker symbol for any class of
its securities, on any stock exchange or market anywhere in the
world, before the Canadian private placement took place.
Ontario and Québec
MI 51-105 was not adopted in Ontario, so none of the three
triggers can apply to actions taking place only in Ontario.
Québec has adopted a very generous exemption order, which
effectively eliminates any concern about MI 51-105 applying so long
as any securities distributed in Québec are distributed only
to purchasers who qualify as permitted clients under Canadian
securities laws, and the distribution is made by dealers who
qualify as international dealers or are registered in Canada as
Exemptions in Other Provinces
Other provinces have adopted less generous exemption orders than
the one adopted in Québec. In Alberta, British Columbia,
Manitoba and several other provinces, an exemption will be
available if the issuer has a "primary listing" (that is,
its first-ever listing) of securities on one of the stock exchanges
named in the exemption order. Those provinces have also adopted an
exemption for non-convertible debt securities.
When MI 51-105 was first adopted, dealers were very concerned
about potentially subjecting their issuer clients to the risk of
becoming subject to Canadian public company reporting obligations.
To address that risk, many dealers adopted very conservative
internal restrictions on Canadian private placement sales, often by
limiting Canadian sales only to Ontario and Québec more
often than actually necessary. However, despite the continuing need
to proceed with caution, in many cases an offering can be extended
to other provinces because it will not create any risk of tripping
one of the three triggers – or, even if it does, it can be
sheltered by one of the available exemptions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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