Generally, companies may not distribute securities to investors unless such investors are provided with a prospectus which contains comprehensive disclosure of all material facts related to the company and the securities to be distributed. Companies that are reporting issuers supplement this disclosure by providing periodic and timely disclosure which, together with the prospectus, provides investors with the information required to make knowledgeable decisions on whether to buy or sell securities of such companies. In certain circumstances, however, companies may rely on an exemption from the prospectus requirements to distribute securities. The prospectus exemptions are generally available in circumstances where an investor demonstrates a certain level of financial sophistication or confirms his or her relationship with the principals of the issuer. Commonly used prospectus exemptions include the "accredited investor" exemption and the "family, friends and business associate" exemption. The prospectus exemptions available in Canadian jurisdictions are set out in National Instrument 45-106 (Prospectus Exemptions) (NI 45-106).
In March 2015, the Ontario Securities Commission, in conjunction with the securities regulatory authorities in Alberta, New Brunswick, Nova Scotia, Quebec and Saskatchewan (together, the participating jurisdictions), published various proposals to amend NI 45-106. Following a comment period that involved the collection of input from approximately 1,000 commentators, the participating jurisdictions published certain final amendments on October 29, 2015 to the offering memorandum exemption (the OM exemption). The amendments introduce an OM exemption in Ontario and amend the existing OM exemption in the remaining participating jurisdictions. The OM exemption generally permits issuers to raise capital from a more diverse group of investors than other more commonly used exemptions such as the "accredited investor" exemption. Investors are provided with a disclosure document (the offering memorandum) when the securities are purchased from the issuer.
The new amendments introduce the following key changes to the OM exemption:
- Investment limits: The amendments to
the OM exemption include investment limits for both eligible and
non-eligible investors that are individuals:
- the acquisition cost of all securities acquired by a non-eligible investor under the OM exemption in the preceding 12 months cannot exceed $10,000,
- the acquisition cost of all securities acquired by an eligible investor under the OM exemption in the preceding 12 months cannot exceed $30,000, and
- the acquisition cost of all securities acquired by a purchaser under the OM exemption in the preceding 12 months cannot exceed $100,000 provided that such purchaser is an eligible investor that receives advice from a portfolio manager, investment dealer or exempt market dealer that the investment above $30,000 is suitable;
- Changes to the risk acknowledgement form: Investors relying on the OM exemption in the participating jurisdictions must continue to complete form 45-106F4 (Risk Acknowledgement), however, the amendments introduce two additional schedules to the form. In the first schedule, investors will be asked to confirm their status as an eligible investor, non-eligible investor, accredited investor or an investor who would qualify to purchase securities under the family, friends and business associates exemption. In the second schedule, investors will be asked to confirm that their investment falls within the investment limits (if applicable). Non-individual investors are not required to compete these new schedules;
- Disclosure by non-reporting issuers:
Non-reporting issuers that rely on the OM exemption will be
required to provide investors with audited annual financial
statements and a notice that sets out the use of proceeds received
from funds raised from such investors. Additionally, upon the
occurrence of any of the following events, non-reporting issuers in
New Brunswick, Nova Scotia and Ontario must also provide notice to
investors (in the prescribed form) within the 10 days of such
- discontinuation of the issuer's business;
- a change in the issuer's business; or
- a change of control of the issuer; and
- Incorporation by reference of marketing materials: Any marketing materials used by an issuer that relies on the OM exemption must be incorporated by reference into the offering memorandum. In the event that such marketing materials contain a misrepresentation, the issuer will be subject to the same liability as the disclosure in the offering memorandum.
It is anticipated that the final amendments will come into force in Ontario on January 13, 2016 and in Alberta, New Brunswick, Nova Scotia, Quebec and Saskatchewan on April 30, 2016. These amendments will not modify the OM exemption available in other Canadian jurisdictions other than the participating jurisdictions.
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