Generally, unless there is an applicable exemption, securities
of a company cannot be distributed in Canada unless a prospectus
has been filed. One common exemption relied upon by private
companies is known as the "private issuer" exemption;
however, this exemption is only available to issuers that meet
certain criteria, including having less than 50 shareholders (not
including employees and former employees) and having constating
documents (e.g., articles of incorporation) which restrict
the transfer of the company's shares.
If the criteria of the "private issuer" exemption
cannot be met, another commonly used prospectus exemption is the
"accredited investor" exemption. On May 5, 2015
previously announced amendments to the accredited investor
exemption took effect. Private, as well as public issuers, should
take note of these amendments.
According to the Canadian Securities Administrators (a group
consisting of securities regulators from each of the 10 provinces
and 3 territories in Canada), the recent amendments to the
accredited investor exemption are intended to address the concern
that some individual investors may not understand the risks of
investing under the accredited investor exemption or may not in
fact qualify as accredited investors. Therefore, one of the most
significant amendments is the requirement that individuals relying
on the accredited investor exemption (other than an individual who
has financial net assets in excess of $5 million) sign and complete
a 'Risk Acknowledgement Form for Individual Accredited
Investors'. In addition to providing a list of eligible
accredited investor categories, the form provides the individual
with prominent disclaimers regarding the risks involved in the
investment, including a prominent disclaimer stating
"WARNING! This investment is risky. Don't invest
unless you can afford to lose all the money you pay for this
Other amendments include: (i) an amendment to the definition of
accredited investor in Ontario to allow fully managed accounts to
purchase investment fund securities in Ontario; and (ii) a change
in the definition of accredited investor to include a family trust
established by an accredited investor for his or her family,
provided the majority of trustees of the family trust are
accredited investors. As well, greater guidance is now provided on
the practices of an issuer for verifying accredited investor status
and the conditions of certain other exemptions.
Companies issuing securities to investors relying on the
accredited investor exemption should review the amendments and seek
further guidance from legal counsel to ensure adherence to the new
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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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