British Columbia, Alberta, Saskatchewan, Manitoba and New
Brunswick (the Jurisdictions) have introduced a new investment
dealer prospectus exemption (ID exemption) intended to increase
levels of investment by retail investors in the Jurisdictions in
private placements, without the requirement to prepare an offering
memorandum or to seek accredited investor certificates and risk
The ID exemption will allow issuers listed on a Canadian
exchange to distribute securities to investors in a Jurisdiction
who have obtained advice about the suitability of the investment
from an investment dealer registered in that Jurisdiction (IIROC
dealer). Since all IIROC dealers are required to provide
suitability advice to their clients before a trade or
recommendation, this exemption will expand the pool of available
investors to effectively be any client of an IIROC dealer, provided
that the IIROC dealer determines that the investment is suitable
for that investor. Traditionally, the principal way to offer
securities to retail investors who were not accredited investors in
connection with a private placement would be to prepare an offering
memorandum. Offering memoranda require significant input from
management and an issuer's professional advisors and so there
are cost and time delays with preparing it. Another advantage of
the ID exemption is that there are no investor or capital
raising limits like there are in some jurisdictions under the
offering memorandum exemption or under the crowdfunding
Investment Dealer Prospectus Exemption
The ID exemption will exempt an issuer from filing a prospectus
when issuing securities in the Jurisdictions if certain
requirements are met, including the following:
Availability: the issuer must be a reporting
issuer in at least one jurisdiction of Canada, have a class of
securities listed on a Canadian stock exchange and be current in
its required continuous disclosure filings;
Eligible securities: an offering can
only consist of a listed equity security, a unit comprised of a
listed equity security and a warrant to acquire another listed
equity security, or another security convertible into a listed
security at the securityholder's sole discretion;
News release: a news release announcing the offering
must include reasonable detail of the proposed distribution,
including the minimum and maximum size of the offering and the use
of proceeds; disclosure of any material fact about the issuer that
has not been generally disclosed; and a statement that there is no
material fact or material change that has not been generally
Suitability: the purchaser must have obtained advice
regarding the suitability of the investment and, if the purchaser
is resident in Canada, that advice must have been obtained from an
An investor under the ID exemption will have a right of action
against the issuer for rescission or damages in the event of a
misrepresentation in the issuer's continuous disclosure record,
regardless of whether the investor relied on the misrepresentation.
Securities acquired in reliance upon the ID exemption will be
subject to a four-month hold period.
Suitability advice is among the most fundamental obligations
owed by IIROC dealers to their clients and the introduction of the
ID exemption acknowledges the value of IIROC dealer suitability
As the ID exemption may be relied upon to issue securities to
non‑accredited investors in the Jurisdictions, it should
increase financing options for all reporting issuers. In
particular, it also should simplify brokered financings for issuers
and IIROC dealers since there is no requirement to prepare an
offering memorandum (if targeting retail investors) or to
coordinate the delivery of accredited investor certificates and
risk acknowledgement forms.
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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