Canada: OSC Panel Provides Guidance On Fundamental Securities Law Concepts

Last Updated: June 28 2016
Article by Ralph Shay and Kim Lawton

On May 4, 2016, an Ontario Securities Commission panel (the Panel) issued its Reasons and Decision In the Matter of Future Solar Developments Inc., containing interpretive guidance on three central concepts in securities law:

  1. The meaning of "in the business of trading in securities" for purposes of the registration requirement;
  2. The extra-territorial regulatory application of Ontario securities law for distributions to investors outside Ontario; and
  3. The meaning of "a person that is not the public" for determining the availability of the private issuer prospectus exemption.

Key takeaways from the decision

  • Fundraising is part of life for many start-up companies, but that does not mean those start-ups are automatically "in the business of trading in securities". Rather, fundraising may, depending on the particular factual circumstances, be viewed as an ancillary business activity for a company in its start-up phase.
  • A distribution of securities to persons outside of Ontario may not require an Ontario prospectus even where there is a "sufficient connection" between the distribution and Ontario, in the absence of conduct that raises concerns about the objects of the Securities Act (Ontario) (OSA), the integrity of the capital markets in Ontario and the need to protect investors.
  • Provided that it can be established that the purchasers in a distribution are part of a defined and limited category of investors with particular characteristics (such as, in this case, a desire to immigrate to Ontario), distributions of securities to those investors may qualify within the private issuer prospectus exemption as not being to the "public".


This article sets out the facts that were of particular relevance to the issues that were under consideration by the Panel. For a detailed chronology of the events leading up to the hearing, reference should be made to the Reasons and Decision.

Future Solar Developments Inc. (Future Solar) was incorporated for the purpose of developing and managing solar energy products in Ontario. Future Solar submitted an application to Ontario's Ministry of Citizenship and Immigration for Future Solar's participation in Ontario's Provincial Nominee Program (OPNP). Through this program, each potential immigrant investor would be required to: (i) invest in preference shares of Future Solar, (ii) immigrate to Ontario, and (iii) perform a job in Future Solar at a senior managerial or officer level. Government approval would be required for the company's business plan and for each potential immigrant investor.

Future Solar's president engaged two immigration consulting firms to assist in the solicitation in China of potential investor participants in the program. In addition to identifying suitable candidates, the immigration consultants would be responsible for assisting potential investor immigrants with understanding the requirements of the nominee applications, completing the necessary forms, facilitating communication between the applicants and Future Solar and responding to questions about the business proposal and investment parameters. Future Solar's president and another employee also made trips to China to meet with potential investors under the OPNP, deliver the share certificates to the individuals who were accepted as investors, and carry on other business-related activities.

The staff of the Ontario Securities Commission (Staff) took the position that Future Solar, its president and other related companies had (i) traded in securities without being registered as dealers contrary to ss. 25(1) of the OSA; (ii) distributed securities without a prospectus contrary to ss. 53(1) of the OSA; and (iii) acted in a manner contrary to the public interest. The trades which were targeted were with respect to 11 of the Chinese investors.

Analysis and conclusions from the Panel

The Panel dismissed the allegations against all the respondents. In its analysis, the Panel provided a degree of clarification on three areas of Ontario securities law that have been the subjects of some uncertainty and inconsistency in their interpretation.

1. The meaning of being "in the business of trading in securities"

The Panel concluded that none of the respondents were in the business of trading in securities and therefore did not need to be registered as securities dealers.

Many of the activities referred to by Staff were ancillary business activities for a company in its start-up phase. The Panel did not share Staff's view that the immigration consultants retained by Future Solar were the equivalent of a Future Solar sales force tasked with selling shares of Future Solar. A single payment to the consulting firms did not constitute the equivalent of the payment of a securities brokerage commission.

The Panel also addressed certain statements on Future Solar's website directed to potential investors, including an invitation to contact the company, and an informational brochure for potential investor immigrants. The brochure contained information on the expected return from the investment and plans relating to going public and listing on the TSX Venture Exchange.

The Panel concluded that the website's references to investors, which were contained in one paragraph of a 160-page document (and with no evidence that the website was translated into a Chinese language or made available in China), did not constitute a securities solicitation to the public. The Panel also noted that Future Solar was a start-up business venture and it was natural, even necessary, to provide potential investors with information on the expected return and the ultimate exit path. The Panel regarded the company's trips to China and retention of the immigration consultants as normal activities of a business looking to acquire capital under the OPNP.

2. The extra-territorial application of Ontario securities law

The Panel acknowledged that there was a "sufficient connection" to Ontario to engage the Commission's jurisdiction, but absent conduct that harmed the integrity of Ontario capital markets or required investor protection, there was no need for Future Solar to have a prospectus receipted in Ontario. Previous jurisprudence cited by Staff had addressed situations where there were allegations of fraudulent misrepresentation, fraud or high pressure salesmanship, none of which were present here.

3. The meaning of "not the public"

In spite of its conclusion that the requirement to have a prospectus receipted in Ontario did not apply on the facts of the case, the Panel considered the question of whether prospectus exemptions were available. Some of the Chinese investors were clearly accredited investors, but the Panel concluded that all of the share issuances qualified under the private issuer exemption.

In its discussion of the private issuer exemption, the Panel provided some useful guidance on the "basket clause" concept of issuing shares to "a person that is not the public". The Panel stated that the inclusion of this category of persons "stands for the proposition that, as long as the distribution is not to total strangers but to a group of people who come within a defined category, a distribution to fewer than 50 persons is permitted." In this instance, the investors were "of significant wealth and with the desire to immigrate to Ontario". Accordingly, the Panel determined that they were not to be considered "the public" at large.


While the interpretive guidance provided by the Panel is helpful, it is important to recognize that the result of this case turned on its specific facts, and that even slightly different circumstances may have led to a different outcome. It should also not be assumed that securities regulators elsewhere in Canada, in applying equivalent laws, would necessarily share the interpretations of the Panel, particularly in regard to the issue of extra-territorial application of local securities law for distributions to investors outside of the jurisdiction. (See, for example, BC Interpretation Note 72-202 Distribution of Securities to Persons Outside British Columbia and the corresponding draft CMRA Policy 71-601 under the proposed Cooperative Capital Markets Regulatory System.)

This article was co-authored by Paige Donnelly, a student in Dentons' Toronto office.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

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. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Nov 2018, Other, Toronto, Canada

Dentons is pleased to sponsor the Global Property Market Forum taking place November 27, 2018 in Toronto.

27 Nov 2018, Conference, Toronto, Canada
Dentons is pleased to sponsor the Global Property Market Forum taking place November 27, 2018 in Toronto. This one day forum provides participants with an intimate and informative opportunity .
30 Nov 2018, Conference, Toronto, Canada

Dentons is proud to be the presenting sponsor for Autonomous Vehicle P3s: Visions of the Future at this year’s CCPPP conference in Toronto on Nov 5-6, 2018.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions