In Canada, an issuer does not have to provide an investor with a
prospectus if an investor purchases, as principal, a security of a
single issuer and pays $150,000 or more in cash at the time of the
investment. This is a simple prospectus exemption that is based on
a minimum investment amount (the MA Exemption).
The MA Exemption is a nationalized and harmonized prospectus
exemption in Canada and requires a report of trade to be filed and
fee to be paid to the applicable Canadian securities regulator.
According to the Canadian Securities Administrators (the
CSA), the MA Exemption raises the second highest
amount of capital ($5.6 billion or 3.7% of total invested in 2011
by Canadians), after the accredited investor exemption. However,
when the CSA considered the number of times investors invested
under the MA Exemption, they found that it was relied on less than
1% of the time for distributions to Canadian investors.
According to the CSA, the majority of individuals invest between
$150,000 and $200,000 when investing under the MA Exemption and
when investors can choose how much to invest, they generally invest
much less than $150,000. For example, the CSA states that most
individuals invest $30,000 or less when investing under the
accredited investor exemption.
In February 2014, the CSA published for comment proposed changes
to the MA Exemption that would make it unavailable for individual
investors. This is a big change!
Concerns over the MA Exemption
The CSA is proposing this change since it believes the MA
Exemption lacks certain investor protection safeguards. For
example, the MA Exemption:
does not require issuers or investors to engage the services of
a registrant which has "know-your-product",
"know-your-client" requirements and most importantly, a
suitability obligation which provides investors with some
protection against making inappropriate investments;
does not require any form of offering document with information
about the security and/or the issuer;
does not require an investor to sign or be provided any risk
acknowledgement or disclosure form;
does not prohibit an investor from obtaining a loan to make an
investment of $150,000 or more;
does not distinguish between simple versus novel or complex
does not distinguish between private issuers and public issuers
with exchange-listed securities which have publicly available
information on SEDAR and price transparency;
does not prohibit an investor from making an investment of
$150,000 or more in the event of a sudden windfall like an
may lead investors into making highly concentrated investments
which may not reflect prudent portfolio construction or
Simply, a minimum investment of $150,000 is a poor proxy
of investor sophistication.
Should the CSA consider other alternatives?
Some believe the proposed changes to prevent individuals from
relying on the MA Exemption is a welcome change that is long
overdue. Others believe the CSA should:
retain the MA Exemption in its current form;
adjust the $150,000 threshold, perhaps based on some formula;
use alternative qualification criteria.
What do you think? Please share your comments
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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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