An issuer that distributes securities to the public must either
file a prospectus with securities regulatory authorities and
deliver such prospectus to prospective purchasers, or rely upon a
prospectus exemption available under securities legislation.
Issuers who rely on certain prospectus exemptions to distribute
securities are required to file a report of exempt distribution
with securities regulatory authorities within a prescribed time
frame following each such distribution.
On April 7, 2016, in an effort to adapt to the growing exempt
market, provide securities regulators with the necessary
information to facilitate more effective regulatory oversight of
the exempt market and improve analysis for policy development
purposes, the Canadian Securities Administrators (CSA) published
amendments to National Instrument 45-106 – Prospectus
Exemptions to create a harmonized report of exempt
distribution and make amendments to related policies. As a result,
issuers will no longer be required to prepare one form of report
for sales of its securities to a resident of British Columbia, and
another form of report for purchasers resident in other Canadian
A New Harmonized Approach and Implications
The amendments apply throughout Canada to both investment fund
issuers and non-investment fund issuers that distribute securities
under certain prospectus exemptions and, subject to certain
carve-outs, introduce robust new information requirements,
including additional disclosure about the issuer and its insiders,
securities distributed, prospectus exemptions relied on and persons
compensated for the distribution. In particular, the amendments
include required disclosure in respect of the following:
the issuer's size and primary
the identities of the directors,
executive officers and promoters of certain issuers;
the identities of control persons of
certain issuers in a non-public schedule;
details about the securities
distributed and, for certain jurisdictions, details about the
documents provided in connection with the distribution;
specific details about the prospectus
exemptions relied on, both on an aggregate and per investor basis
(including, when the accredited investor exemption is utilized, the
subcategory of accredited investor that is applicable); and
details about compensation (including
the terms of deferred compensation, if any) paid to registrants,
connected persons, insiders and employees of the issuer or the
investment fund manager involved in the distribution.
As a practical matter, issuers and dealers will need to update
their systems and procedures and allocate additional time and
expense to obtain the requisite reporting information from
potential investors. In appropriate circumstances, one potential
way of sourcing the required information is to work with legal
counsel to revise the issuer's form of subscription agreement
to be completed by purchasers in connection with most exempt
distributions. In addition, notwithstanding the CSA's efforts
to mitigate or eliminate privacy and confidentiality concerns
regarding commercially sensitive information of issuers and
personal information of investors, such concerns may discourage
issuers and certain investors from participating in exempt market
The amendments do not eliminate the current patchwork of filing
procedures across Canada. There is currently, and will continue to
be following implementation of the amendments, a different filing
procedure required for distributions in Ontario, British Columbia
and the remaining provinces and territories of Canada, thereby
diminishing the benefits of harmonization resulting from these
amendments. The CSA is currently in the midst of a longer-term
project to create a single integrated filing system for reports of
exempt distribution, and until such time as this project is
concluded full harmonization of exempt market distribution
reporting requirements will not be achieved.
Subject to Ministerial approval, all issuers (other than
investment fund issuers that file reports annually) will be
required to use the new report for distributions that occur on or
after June 30, 2016.
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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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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