On February 19, 2015, the Canadian Securities Administrators
(CSA) announced the adoption of amendments to the following
exemptions currently contained in National Instrument 45-106
Prospectus and Registration Exemptions (NI 45-106): the
accredited investor prospectus exemption (AI Exemption), the
minimum amount investment prospectus exemption (Minimum Investment
Exemption) and the short-term debt prospectus exemption (Short-Term
Debt Exemption). The amendments include consequential amendments to
Companion Policy 45-106CP Prospectus and Registration
On the same day, the Ontario Securities Commission (OSC)
announced the introduction of a prospectus exemption for
distribution of securities to directors, executive officers,
control persons or founders of an issuer as well as to certain
family members, close personal friends and close business
associates of such persons (Family and Friends Exemption).
Summary of the Amendments
The amendments to the AI Exemption include the following:
the introduction of a new risk acknowledgement form for
individual accredited investors that describes, in plain language,
the categories of individual accredited investor that are available
under NI 45-106, and identifies the key risks associated with
purchasing securities in the exempt market
the inclusion of expanded guidance on the steps that an issuer
and a seller should take to verify the status of purchasers
acquiring securities under any of the "capital raising"
exemptions contained in NI 45-106, including the AI Exemption
The Minimum Investment Exemption will no longer be available to
The amendments to the Short-Term Debt Exemption include the
the modification of the credit ratings required to distribute
short-term debt (which consist primarily of commercial papers)
under the Short-Term Debt Exemption
the creation of a specific prospectus exemption for short-term
securitized products such as asset-backed commercial papers and the
consequential removal of short-term securitized products from the
Short-Term Debt Exemption
Summary of the Family and Friends Exemption
The Family and Friends Exemption is substantially the same as
the one that already exists in the other Canadian jurisdictions and
provides issuers, including early-stage issuers, with greater
access to capital through family, close personal friends and close
business associates of directors, executive officers, control
persons and founders of issuers. The reliance on the Family and
Friends Exemption is conditional upon the receipt of a risk
acknowledgement form signed by the issuer and the purchaser. The
Family and Friends Exemption will be available to all issuers,
other than investment funds.
Further guidance on the key elements necessary to establish the
"close personal friend" and the "close business
associate" relationships has also been added.
The AI Exemption and the Minimum Investment
The amendments to the AI Exemption are aimed at addressing
investor-protection concerns as some individual investors may not
understand the risks of investing under the AI Exemption or may not
in fact qualify as accredited investors. The amendment to the
Minimum Investment Exemption addresses a concern that such
exemption may not be a proxy for sophistication or the ability to
sustain a financial loss for individual investors and will limit
the over-concentration in one investment for individual
The Short-Term Debt Exemption
The amendments to the Short-Term Debt Exemption are aimed at
addressing investor protection and systemic risk concerns.
The Family and Friends Exemption
The OSC believes that the Family and Friends Exemption will
benefit early-stages issuers, including start-ups and small and
medium-sized enterprises, as their network of family, close
personal friends and close business associates, who may not
otherwise qualify as accredited investors, is often the first
funding source for them.
Coming into Force
The CSA expects that the amendments will come into force on
May 5, 2015. In Ontario, the amendments to the AI
Exemption and the Minimum Investment Exemption will come into force
on the later of May 5, 2015 and the date on which subsection 12(2)
of Schedule 26 of the Budget Measures Act, 2009 is
proclaimed in force.
The OSC expects that the Family and Friends Exemption will be
officially included in NI 45-106 on the same date as the AI
Exemption and the Minimum Investment Exemption come into force.
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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