On March 13, 2014, Canadian securities regulators in all
jurisdictions except Ontario and Newfoundland and Labrador adopted
a prospectus exemption for issuers listed on the Toronto Stock
Exchange (TSX), the TSX Venture Exchange (TSXV), and the Canadian
Securities Exchange (CSE) that would, subject to certain
conditions, allow issuers to raise money by distributing securities
to their existing security holders.
Prior to the adoption of this exemption, in order to conduct a
distribution of its securities an issuer was required to file and
receive a receipt for a prospectus or rely on a prospectus
exemption. Generally, this meant that non-exempt purchasers
(i.e., retail investors) who wanted to increase their
position in an issuer could only acquire additional securities
through the secondary market (i.e., a stock exchange) at
the market price. This put retail investors at a disadvantage as
they were required to pay ancillary transaction costs (such as
brokerage fees) and were deprived of favourable terms typically
available in private placements to exempt investors. As a result,
retail investors had limited opportunity to invest directly in
issuers, and issuers were denied a potential source of capital.
In response to the foregoing concerns, on November 21, 2013, the
participating jurisdictions published a proposed exemption from the
prospectus requirement in Multilateral CSA Notice 45-312 -
Proposed Prospectus Exemption for Distributions to Existing
Security Holders and sought comment from the public.
Changes to Proposed Exemption in Response to Comments
During the comment period, the Canadian Securities
Administrators received 241 comment letters on the proposed
exemption from a wide range of market participants, including
issuers, registrants, investors, law firms, and advocacy groups. In
response to those comments, certain changes to the exemption were
expanding the exemption to include equity issuers listed on the
TSX and the CSE;
specifying the record date for eligibility to acquire
securities under the exemption be at least one day prior to the day
that an issuer issues the offering news release;
adding a condition that the issuer make the offer available to
all existing holders of the security to be distributed; and
requiring issuers to describe in the offering news release how
they intend to allocate oversubscriptions.
Purpose of the Exemption
The regulators believe the exemption will facilitate capital
raising for listed issuers and foster participation of retail
investors in private placements, while maintaining appropriate
The exemption will be available to an issuer whose equity
securities are traded on the TSX, the TSXV and the CSE. Any
distribution of securities under the exemption must comply with
certain conditions, including:
the aggregate amount invested by the investor in any one issuer
in the last 12 months under the exemption cannot be more than
$15,000 (unless the investor has obtained advice regarding the
suitability of the investment from a registered dealer);
the investor must be provided with rights of action in the
event of a misrepresentation in the issuer's continuous
the offering can consist only of a class of equity securities
listed on the TSX, the TSXV or the CSE, or units consisting of the
listed security and a warrant to acquire the listed security;
the issuer must make the offering available to all existing
holders of the security to be distributed;
the issuer must have filed all timely and periodic disclosure
documents as required under applicable securities laws;
the issuer must issue a news release disclosing the proposed
offering, including details of the use of proceeds;
each investor must confirm in writing to the issuer that, as at
the record date, they held the type of listed security offered
under the exemption; and
if an issuer voluntarily provides an offering document, even
though not required, the issuer must file the offering document
with the securities regulatory authority and an investor will have
certain rights of action in the event of a misrepresentation in
Securities issued under the exemption will be subject to a
four-month hold period pursuant to applicable securities laws,
which is consistent with most other prospectus exemptions.
Proposed Prospectus Exemptions in Ontario
The Ontario Securities Commission announced on December 4, 2013,
that it would publish for comment four new capital-raising
prospectus exemptions in the first quarter of 2014, including a
proposed prospectus exemption for distributions to existing
security holders. It intends to publish the proposed prospectus
exemptions on or around March 20, 2014.
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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