Accredited Investor (AI) Exemption: Accredited
investors who are natural persons will now be required to complete
a Risk Acknowledgment Form, unless their net financial assets
exceed $5 million.
Minimum $150,000 Investment Exemption: Natural persons
will no longer qualify for this exemption.
Short-Term Debt Exemption: This exemption has been
amended with the objective of removing the regulatory disincentive
for commercial paper issuers to obtain more than one credit rating.
Under the new rules, only one of an issuer's credit ratings
must be at or above DBRS – R-1 (low); S&P Canada –
A-1 (low) (Canada national scale); Moody's Canada – P-1;
or Fitch – F1. Obtaining an additional but lower credit
rating will not disqualify the issuer from using the exemption
(provided the additional rating meets a new prescribed
Family, Friends and Business Associates (FFBA)
Exemption: This exemption already existed in other
Canadian jurisdictions but is new in Ontario, replacing the
founder, control person and family exemption. It is meant to
provide early-stage issuers with greater access to capital from
their existing network of family, friends and close business
associates. Two investor protection measures are built into the
exemption. First, the investor's relationship with a principal
of the issuer must be sufficiently close that the investor can
assess the principal's capabilities and trustworthiness and
obtain information about the investment. Second, investors must
sign a Risk Acknowledgement Form.
Risk Acknowledgment Forms and Sellers' Due Diligence
The new Risk Acknowledgement Forms required under the AI and
FFBA exemptions are meant to protect investors by
drawing attention to the risks of investing in securities,
specifying the criteria an investor must meet to qualify under
each exemption and requiring him or her to initial beside the
The Companion Policy includes additional guidance indicating
that sellers relying on a prospectus exemption based on a financial
or relationship test may not rely solely on an investor's
representations in a subscription agreement or certificate, without
further due diligence. Issuers, registrants and others engaged in
the selling effort must take reasonable steps to verify that an
investor meets the qualification criteria under an
exemption—and should be prepared to justify the choice of
steps taken and not taken. What constitutes reasonable due
diligence ultimately depends on the facts and circumstances and may
asking questions about the investor's financial status,
when relying on the AI exemption;
confirming, with both the investor and the relevant principal
of the issuer, the closeness of their relationship, when relying on
the FFBA exemption;
explaining to the investor the qualification criteria of the
exemption being relied on;
establishing policies and procedures to help ensure that
everyone engaged in the selling effort understands the legal
requirements of an exemption; and
retaining documentation relating to the due diligence effort,
such as written statements of the investor, meeting notes and email
Related Canadian and U.S. Developments
The OSC intends to implement two new capital raising exemptions
later this year or early in 2016: an offering memorandum exemption
similar to that available in other provinces and territories and a
As in Canada, regulatory changes in the United States reflect a
mix of capital formation and investor protection initiatives. Most
recently, the SEC adopted changes to Regulation A+ to facilitate
smaller companies' access to capital. This rule will permit
offerings of up to U.S.$50 million in a 12-month period, and the
securities will generally be freely tradable. Canadian issuers not
already reporting with the SEC will be eligible for Regulation A+,
so a cross-border offering could be structured as a Canadian
prospectus offering combined with a U.S. Regulation A+ offering.
Investor protection measures under Regulation A+ include investment
limits for non-accredited investors and a requirement to file a
basic offering statement with the SEC.
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
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).