Canada: Securities Alert! Major Changes To Canadian Capital Raising Exemptions

Last Updated: June 10 2015
Article by Mathew Goldstein and Matthew V. Liberatore

The Canadian Securities Administrators ("CSA") have reacted to the fundamental changes in the Canadian capital markets, which are similar to the changes that have been occurring within many developed capital markets internationally. The key change is a shift in capital formation from initial public offerings and additional issues to the remarkably large increase in funds raised through the prospectus exempt market.

This shift in activity has led the CSA and securities regulators globally to place their focus and resources on the regulation of prospectus exempt market participants, especially broker dealers, as well as on enforcement in order to be assured that the prospectus exempt market is open only to those who do not require the protections offered in the public market. Clearly, the CSA had concerns that the participants in the prospectus exempt market included far too many people for whom such a market was not designed.

Accordingly, the CSA reviewed certain Canadian securities laws and instruments relating to capital raising. The review came about as a result of investor protection concerns triggered by the recent financial crisis. Specifically, concerns were raised around whether investors properly understood the applicable exemptions from the prospectus requirement and, in particular, the specific category of the applicable prospectus exemption. Such knowledge is necessary to understand both the nature and risk inherent in an investment.

In connection with this review, effective as of May 5, 2015, the CSA adopted amendments to National Instrument 45-106 Prospectus and Registration Exemptions ("NI45-106"). The amendments relate to, among other things, the "accredited investor" ("AI") exemption, the minimum amount ("MA") exemption, and the adoption of a new "family, friends and business associates" ("FFBA") exemption for Ontario (collectively, the "Amendments").

The Amendments include the following:

1. Two new categories of AI have been made available: (a) the "permitted client" and (b) the "family trust". The "permitted client" category applies to an individual who beneficially owns financial assets with realizable value before taxes in excess of $5 million. The "family trust" category applies to a person for whom a trust has been set up (not the settlor) who is an AI, where the majority of the trustees of the trust are AIs, or where all beneficiaries are family of an AI, an AI's spouse or former spouse.

2. Individual accredited investors other than "permitted clients" must now complete a Risk Acknowledgement Form ("RAF"), which must be signed at the time they purchase securities in reliance on the AI exemption. The forms must disclose the specific category of AI under which the purchaser qualifies for the exemption. The RAF describes in plain language the categories of AI, identifies key risks associated with purchasing exempt market securities, and identifies the "salesperson" in relation to the subscription (including representatives of the issuer who meets with or provides information to the subscriber with respect to his or her investment). Signed RAFs must be kept by the issuer or dealer of the securities purchased in reliance on the AI exemption for eight years after the trade.

3. The MA exemption may no longer be used to distribute exempt market securities to individuals. The MA exemption allows purchases of securities with an acquisition cost of not less than $150,000 cash to be made without a prospectus. The MA exemption is still available to holding companies, trusts and partnerships.

4. Ontario has adopted the FFBA exemption, similar to existing exemptions in other jurisdictions, whereby investors (other than investment funds) may purchase securities as principal if they are:

a. a director, executive officer or control person of the issuer, or of an affiliate of the issuer;

b. family of a director, executive officer or control person of the issuer, or of an affiliate of the issuer, or of their spouse;

c. a close personal friend of a director, executive officer or control person of the issuer, or of an affiliate of the issuer;

d. a close business associate of a director, executive officer or control person of the issuer, or of an affiliate of the issuer;

e. a founder of the issuer or family, close personal friend or close business associate of a founder of the issuer, or family of the spouse of a founder;

f. a person of which a majority of the voting securities are beneficially owned by, or a majority of the directors are, persons described above; and

g. a trust or estate of which all of the beneficiaries or a majority of the trustees or executors are persons described above.

To qualify, an investor must obtain a RAF signed by the issuer, the investor and the person with whom the investor has the relationship, and the form must disclose the specific relationship that qualifies the purchaser for the exemption. Generally, the FFBA exemption replaces the previous "founder, control person and family" exemption in Ontario.

5. The companion policy to NI 45-106 now includes language pursuant to which an issuer and a seller are required to take "reasonable steps" to verify the status of purchasers under the capital raising exemptions in NI 45- 106 (including the AI exemption and the FFBA exemption). For instance, when distributing securities under the AI exemption, a dealer or adviser may not simply rely on a purchaser's representation in its subscription documents or a "check the box" system of representations. Rather, the dealer or adviser must take "reasonable steps" to verify the information represented by an investor. The meaning of "reasonable steps" will depend in large part on the context of the transaction and includes considerations such as how potential purchasers are located, which category of the AI exemption an investor claims to meet, what type of background information is known and whether the person who meets with the investor is registered.

While the meaning of "reasonable steps" has not been prescribed, such steps might include providing detailed information to an investor regarding the different categories of the AI exemption such as, for example, explaining how the income and asset tests are applied, requesting details regarding a purchaser's financial circumstances and, if concerns about exemption eligibility remain, requesting independent documentation to corroborate the purchaser's representations. As a result, issuers and sellers should prepare their own checklist of questions for investors to complete in order to obtain as much information from the investor as possible, such as:

a. How did the investor come to know the issuer/ seller?

b. How long have they known each other?

c. Who is the contact person?

d. Is there a reasonable basis to believe that the investor has met the correct AI exemption category indicated?

e. Does the investor understand the definitions of the terms used in the particular AI category such that the investor knows which category it falls under?1

In large part, the Amendments represent an attempt to reduce investor confusion and highlight risks inherent in the prospectus exempt market by requiring market participants to attend to the information being represented by investors. How the prospectus exempt market will react, however, remains to be seen.


1 Additionally, issuers must also pay particular attention to the privacy concerns raised by obtaining such level of disclosure from investors or third parties and should consider adopting information and privacy policies in order to properly document findings and safeguard the investor information obtained.

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.

Mathew Goldstein
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
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