Canada: National Instrument Harmonizing Canadian Private Placement Rules to Come into Force on September 14, 2005

National Instrument 45-106 – Prospectus and Registration Exemptions ("NI 45-106") will come into force on September 14, 2005. NI 45-106 is an attempt to harmonize the prospectus and registration exempt offering regimes in all Canadian jurisdictions, which, although currently substantially similar in all provinces other than Québec, are not identical. While NI 45-106 does create uniformity across Canadian jurisdictions in respect of many commonly used prospectus and registration exemptions, it falls short of complete harmonization as some exemptions are not available in certain jurisdictions and other exemptions are applied differently as amongst different jurisdictions.

The goal of NI 45-106 is to provide market participants seeking to effect a distribution on a multi-jurisdictional basis with a more efficient distribution regime based on harmonized offering rules. In certain cases, the instrument clarifies the availability of exemptions that existed in most jurisdictions, either pursuant to existing legislation, instruments or policies or that were available pursuant to blanket orders or by obtaining discretionary relief from local regulators.

NI 45-106 changes certain existing exemptions (either broadening or restricting application, depending on the previous regime in a jurisdiction) and introduces a number of exemptions that are new in certain jurisdictions. The instrument represents a significant overhaul of the prospectus and registration exemption regime in the Province of Québec. As a result of the coming into force of NI 45-106, a number of consequential amendments to the instruments and policies of certain jurisdictions, including Ontario, as well as certain national instruments, have been made or will need to be made in the future.

The following is a summary of certain of the key exemptions set forth in NI 45-106 and highlights the significance of the introduction of some of the exemptions in certain provinces. In certain cases, the exemptions will not be available in all Canadian jurisdictions, as noted below.

Prospectus and Registration Exemptions

Accredited Investor

Under NI 45-106, a trade in a security to an "accredited investor" will be exempt from the registration and prospectus requirements. The definition of accredited investor is based on the definitions currently used in Ontario Securities Commission Rule 45-501 - Exempt Distributions and Multilateral Instrument 45-103 - Capital Raising Exemptions ("MI 45- 103") (which provides for such exemption in Canadian jurisdictions other than Ontario and Québec), and preserves most of the categories of accredited investor currently available. Introduction of this exemption in the Province of Québec is significant as the current private placement exemption regime in Québec provides for a minimum investment of at least $150,000 or the issuance to certain "sophisticated purchasers", being a more restricted group of persons than "accredited investors" and limited generally to banks, registered insurance companies, registered trust companies and pension funds of a certain size. The instrument also enhances the ability of fully managed accounts in Ontario to invest in securities of investment funds in reliance on the accredited investor exemption, which is not permitted under the current Ontario rule.

Family, Friends, Business Associates and Founders

A prospectus and registration exemption for trades to family, friends, business associates and founders is currently available in jurisdictions other than Ontario and Québec. NI 45- 106 preserves this exemption and extends its availability to Québec. However, Ontario has adopted a more limited form of this exemption. In jurisdictions other than Ontario, the exemption extends to trades to directors, executive officers and control persons of the issuer and certain family members thereof, as well as close personal friends or business associates of a director, executive officer or control person of the issuer or affiliate of the issuer and a founder of the issuer and certain family members of such persons.

Introduction of this exemption is significant in Québec as, currently, distributions can only be made to such persons if the issuer is a "closed company" for the purposes of the Securities Act (Québec), with the issuer having to make a determination based on tests set forth in jurisprudence and decisions of various securities commissions as to whether the prospective investors constitute the "public" vis à vis the issuer. In Ontario, the exemption will only be available in connection with the distribution of securities to a founder or affiliate of a founder of the issuer or a spouse, parent, brother, sister, grandparent or a child of an executive officer, director or founder of the issuer or a control person of the issuer.

Private Issuer

The current "closely held issuer" exemption in Ontario and the "closed company" exempt regime in Québec will be replaced by the introduction of a private issuer exemption similar to that currently available in certain provinces. Under NI 45-106, an issuer is a "private issuer" if (i) it is not a reporting issuer or an investment fund, (ii) its securities (other than non-convertible debt securities) are subject to restrictions on transfer set forth in the constating documents of the issuer or in agreements among security holders, (iii) such securities are beneficially owned, directly or indirectly, by not more than 50 holders, excluding employees and former employees of the issuer or its affiliates and, (iv) it has distributed securities only to certain categories of persons (a director, officer, employee, founder or control person of the issuer or specified family members thereof, close personal friends or close business associates of a director, executive officer, a founder or control person of the issuer or specified family members thereof, accredited investors or security holders of the issuer or other persons that do not constitute the "public" vis à vis the issuer). Under NI 45-106, a private issuer may distribute securities without complying with prospectus and registration requirements only to such persons and will not be required to file any forms or notices with the securities commissions or similar regulatory authority of any province in connection with such distributions.


NI 45-106 will introduce an exemption from the prospectus and registration requirements in all of the Canadian jurisdictions where an affiliate of the issuer is purchasing securities as principal. This exemption was previously subsumed in the definition of "accredited investor" in Ontario.

Offering Memorandum

Currently, in all jurisdictions other than Québec and Ontario, MI 45-103 provides a prospectus and registration exemption where investors receive an offering memorandum in a prescribed form (including as to the availability of certain civil remedies) and sign an acknowledgement of the risks associated with the investment. NI 45-106 preserves this exemption in these provinces and extends its availability to Québec. However, the "offering memorandum" exemption will not be available uniformly across the provinces and territories that recognize it and will not be available in Ontario.

In British Columbia, Nova Scotia, New Brunswick and Newfoundland and Labrador, an issuer will be able to distribute securities under the exemption without regard to identity of investor or amount invested. In Alberta, Saskatchewan, Manitoba, Québec, Prince Edward Island, the Northwest Territories and Nunavut, an issuer will be able to sell up to $10,000 worth of securities to any single investor under the exemption. In order to issue more than $10,000 worth of securities to a single investor under the exemption, the investor must be an "eligible investor", being a person whose net assets or net income exceeds certain specified levels (which levels are lower than those for "accredited investor" status).

If the issuer is an investment fund, the exemption will only be available if the investment fund is a non-redeemable investment fund or, if it is a mutual fund, is a reporting issuer and, for the purposes of availability of the exemption in certain provinces, has its securities listed on an exchange or quoted on the over the counter market.

Investors will be required to sign a risk acknowledgement statement in connection with investments made under this exemption and the issuer will be required to provide investors with certain rights of withdrawal and of action for rescission or damages if the offering memorandum contains a misrepresentation.

It should be noted that this exemption does not prohibit or restrict issuers from voluntarily delivering an offering document to investors that does not follow the prescribed form in connection with the use of other prospectus and registration exemptions. In addition, Ontario is preserving a prospectus and registration exemption for certain tax shelter investments that requires the use of an offering memorandum the contents of which, unlike in the case of the offering memorandum exemption to be available in other provinces, are not prescribed except for mandatory reference to the availability of certain civil remedies for misrepresentation.

Minimum Investment Amount

NI 45-106 restores the substantial purchase exemption in Ontario and harmonizes similar exemptions currently available in some Canadian jurisdictions. Under NI 45-106, prospectus and registration exemptions are available uniformly throughout Canadian jurisdictions for securities of an issuer with an acquisition cost of not less that $150,000 paid in cash, which amount is equal to the current "private placement" level in Québec and represents an increase from the $97,000 level currently in force in certain other Provinces.

Asset Acquisitions

NI 45-106 will provide for a specific exemption in connection with the trade by an issuer in a security of its own issue to a person as consideration for assets, if those assets have a fair value of not less than $150,000. This clarifies the availability of the existing minimum amount exemptions in certain provinces in connection with the acquisition of assets and the exemption does not make any distinction as to the nature of the assets.

Business Combinations and Reorganizations

NI 45-106 provides a prospectus and registration exemption for a trade in a security in connection with an amalgamation, merger or reorganization or arrangement under a statutory procedure or an amalgamation, merger, reorganization or arrangement that is described in an information circular in connection with the seeking of approval of a transaction by security holders where such approval is obtained or in connection with the dissolution or winding-up of an issuer. The majority of Canadian jurisdictions already had a similar exemption, however, NI 45-106 clarifies the circumstances in which the exemption is available, particularly in Québec where the availability of the "consolidation or reorganization exemption" was not always clear, and expands the availability of the exemption to include the dissolution or winding-up of an issuer.

Employees, Executive Officers, Directors and Consultants

NI 45-106 will provide exemptions for trades to employees, executive officers, directors and consultants which are similar to the exemptions currently available in the other jurisdictions of Canada (other than Québec) under Multilateral Instrument 45-105 – Trades to Employees, Senior Officers, Directors and Consultants. Introduction of this regime in Québec is significant as such trades will no longer require an application for approval in Québec or compliance with the requirements of Québec's current policy when dealing with trades under incentive compensation plans.

Other exemptions

NI 45-106 also introduces a number of new prospectus and registration exemptions including: exemptions for a trade by an issuer in a security of its own issue to a creditor to settle a bona fide debt, trades by an issuer for the acquisition of petroleum, natural gas or mining properties, trades in negotiable promissory notes or commercial paper maturing within one year of issue provided they are not convertible into a different type of security and have an approved credit rating, as well as exemptions for trades to an RRSP or RRIF of an individual and for debt securities that are issued or guaranteed by certain entities including governments and certain financial institutions.

As a result of the coming into force of NI 45-106, a number of amendments will be made to local securities legislation and policies in the various Canadian jurisdictions, including the revocation of certain existing instruments and policies in order to harmonize local regulation with the new national instrument. In addition, certain substantive changes will be taking place in jurisdictions in order to harmonize other aspects of securities legislation in connection with the introduction of NI 45-106. For example, in Québec, Multilateral Instrument 45-102-Resale of Securities, is expected to be adopted, making it a national instrument applicable throughout Canada. This would represent a positive change in the resale regime in Québec as it would no longer be necessary for an issuer to be a reporting issuer in Québec in order to sell securities previously issued under an exemption in Québec subject to a four month hold period, it would only be necessary that the issuer be a reporting issuer in at least one Canadian province.

NI 45-106 is the result of the effort of the Canadian Securities Administrators to provide a more efficient, user friendly, exempt offering regime to issuers enabling them to access the Canadian capital markets without having to comply with different sets of regulation. This Perspective only summarizes some of the key elements of NI 45-106 and the implication of its introduction for issuers and investors and reference should be made to the instrument itself for a complete understanding of its contents.

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 Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions