Canada: Ontario's Proposed Prospectus Exemptions: Existing Security Holder Exemption

Of the new prospectus exemptions proposed to be adopted by the Ontario Securities Commission (OSC), the "existing security holder" exemption represents, in many ways, a significantly streamlined avenue for reporting issuers to raise funds from their existing securityholders. While similar in many ways to the corresponding exemption that recently came into force in other Canadian jurisdictions (the "Counterpart Exemption"), the "Ontario Exemption" as proposed includes certain additional requirements, which we examine in detail below.

As we previously discussed, on March 20, 2014, the OSC published for comment the Ontario Exemption along with three other proposed prospectus exemptions. These new exemptions flow from the key themes noted in OSC Notice 45-712 Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising, including the need to facilitate capital raising for small and medium-sized enterprises, the importance of harmonizing exemptions across Canada and the importance of regulatory monitoring and oversight in the exempt market.

The proposed Ontario Exemption would allow issuers listed on the Toronto Stock Exchange, TSX Venture Exchange or Canadian Securities Exchange to raise capital from existing security holders.  The OSC lists two primary policy rationales for the exemption, namely (i) allowing existing security holders to invest in reliance on reporting issuer disclosure and (ii) enhancing retail security holder access to primary offerings.

The Ontario Exemption is largely based on the Counterpart Exemption adopted by securities regulatory authorities in all Canadian jurisdictions, other than Ontario and Newfoundland and Labrador, on March 13, 2014; however, there are some notable differences. Under both exemptions (as discussed in our March 14 post), issuers will have to satisfy the following requirements:

  • All of the issuer's periodic and timely disclosure filing obligations must be satisfied;
  • An offering news release must be issued and filed, containing reasonable details of the offering and the proposed use of proceeds including details with respect to the proposed allocation of the securities;
  • The offering may only consist of a listed security or a unit consisting of a listed security and a warrant;
  • The offering must be made available to all persons who reside in jurisdictions where the exemption or a similar exemption is available and who, as of the record date (which must be at least one day prior to the day the issuer issues its offering news release), held a listed security of the issuer of the same type as the listed security being offered; and
  • The subscription agreement must provide investors with a contractual right of action in the event of a misrepresentation in the issuer's continuous disclosure record.

Under the Ontario Exemption, the following additional conditions would apply:

  • The issuer must have been a reporting issuer for not less than 12 months, or have become a reporting issuer by filing and obtaining a receipt for a prospectus;
  • Subject to the investment limits described below, the issuer must allocate existing security holders a pro rata portion of the offering – any securities that are not taken up by existing security holders in accordance with the foregoing may then be allocated to other existing security holders at the discretion of the issuer;
  • The issuer must file a report of exempt distribution in proposed Form 45-106F11.

The OSC has proposed the first requirement above on the grounds of investor protection, to ensure that the issuer has a base disclosure record. As the OSC is concerned that the exemption could be used in a manner that results in security holders suffering significant dilution, the second requirement has been proposed to provide existing security holders with the right to avoid dilution and to ensure that the issuer does not unfairly "cherry pick" specific existing security holders for additional investment opportunities. We note, however, that issuers would not be bound by the pro rata requirement with respect to any securities not taken up under the original allocation.

With respect to the requirement to provide investors with a contractual right of action, issuers must represent to purchasers in the subscription agreement that the issuer's "core documents" and "documents" (as defined under Section 138.1 of the Securities Act (Ontario)) do not contain a misrepresentation and that there is no material fact or material change related to the issuer which has not generally been disclosed.  Further, the OSC is considering extending the application of the statutory secondary market civil liability provisions in the Act and those that apply to misrepresentations in prescribed offering memoranda, to an offering under the Ontario Exemption and any related offering documents.

Unlike the Counterpart Exemption, the Ontario Exemption is not available to investment fund issuers. The OSC has noted that the exclusion of investment funds is consistent with the objective of facilitating capital raising for start-ups and small and medium-sized enterprises.

Although there is no requirement for securities sold under the Ontario Exemption to be sold through a registrant, provided that the issuer does not carry on the business of trading in securities (and is therefore itself required to register), IIROC dealers and EMDs involved in any distribution under the Ontario Exemption will have to comply with "know your client" and "suitability" obligations. In addition, an existing security holder will be limited to investing no more than $15,000 per year in the issuer under the Ontario Exemption, unless the security holder has obtained suitability advice from a registered investment dealer. The $15,000 cap is higher than the cap for each of the proposed offering memorandum and crowdfunding exemptions on the grounds that the issuer will be a reporting issuer and existing security holders will already have made a decision to invest in the issuer's securities. This cap is harmonized with the cap under the Counterpart Exemption. The aggregate offering size would also be limited to 100% of the issuer's outstanding securities of the same class.

Issuers relying on the Ontario Exemption will not technically have to provide an offering document; however, as described above, issuers will have to extend a contractual right of action for misrepresentations.  Any offering materials (other than a subscription agreement) must also be filed on the same day that they are provided to existing security holders and the issuer will be required to file a material change report.  As well, the need for all material facts to be disclosed, may well require additional disclosure to prospective investors.

Similar to the "accredited investor" exemption, the issuer will be required to file a report of exempt distribution within 10 days of the offering. A report of exempt distribution in proposed Form 45-106F11 will need to be filed by issuers relying on the Ontario Exemption. The proposed new form is intended to provide increased information on exempt market activity and to assist in monitoring compliance. As is the case under the "accredited investor" and other capital raising exemptions, the first trade of a security acquired under the Ontario Exemption will be subject to a four month hold.

The Ontario Exemption would be given effect by amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions, along with amendments to National Instrument 45-106 Prospectus and Registration Exemptions. Comments are due by June 18, 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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.