The Canadian Securities Administrators (CSA) published for
comment proposed amendments to the two most utilized private
placement exemptions: (i) the accredited investor exemption (the
"AI Exemption"), and (ii) the minimum
amount investment exemption (the "MA
Exemption"). The proposals were made based on
findings of a broad review of the exemptions.1 The
comment period expires May 28, 2014.
Proposed Amendments to the AI Exemption
The AI Exemption permits the distribution of securities without
a prospectus to corporate and institutional investors and
individual investors who meet certain criteria (including, for
individual investors, certain income or asset thresholds).
In response to concerns that individual investors may not
understand the risks of making an investment under the AI Exemption
or may not qualify as accredited investors, the CSA has proposed
that issuers relying on the AI Exemption be required to obtain a
completed risk acknowledgement form from individual accredited
investors who do not qualify as "permitted clients." The
CSA also provided additional guidance on the due diligence that
issuers should exercise in verifying investor status to better
ensure compliance with the AI Exemption.
In addition to these changes, the CSA has proposed amending the
definition of accredited investor to include family trusts
established by an accredited investor for his or her family where a
majority of the trustees are also accredited investors (to address
the anomaly that under the current rules an accredited investor
cannot purchase securities on behalf of a trust established for the
benefit of his or her family). In Ontario, the definition of
accredited investor will also be amended to allow fully managed
accounts to purchase investment fund securities, as permitted in
other provinces in Canada.
Proposed Amendments to the MA Exemption
The MA Exemption permits the sale of securities if the cash
purchase price for the securities is greater than $150,000. Under
the CSA's proposed amendments, this exemption will be limited
to non-individual investors. This change is intended to address
concerns that the current threshold of $150,000 in the MA Exemption
may not accurately reflect the sophistication of individual
investors or their ability to withstand financial loss. For
example, individual investors may be encouraged to borrow money to
meet the minimum investment threshold. The change is also intended
to reduce the risk that individual investors will be motivated to
over-concentrate their assets in one investment.
Notably, despite having extensively studied the monetary
thresholds in the exemptions, the CSA has not proposed any changes
to the thresholds.
1 The consultation process was described in CSA Staff
Consultation Note 45-401 Review of Minimum Amount and
Accredited Investor Exemptions. The CSA subsequently published
CSA Staff Notice 45-310 Update on CSA Staff Consultation Note
45-401 Review of Minimum Amount and Accredited Investor
Exemptions on June 7, 2012.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific 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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