VLC: Capital Raising Registration and Prospectus Exemptions in Canada

Capital Raising Registration and Prospectus
Exemptions in Canada
(posted March 11, 2011)

Securities sold or offered for sale within or from Canada must be registered via a prospectus filed with the securities commission in the province the issuing company (“issuer”) resides or be subject to an exemption from filing such a prospectus. Prospectus registration or an exemption from filing a prospectus must also occur in any other province in which the issuer wants to offer the securities. Anyone selling securities must also be registered in these jurisdictions. Almost all of the prospectus registration exemptions have a corresponding registration exemption. National Instrument 45-106 Prospectus and Registration Exemptions (“NI 45-106”) and its companion policy have been adopted by all of the province and territories in Canada. The majority but not all of the exemptions have been adopted uniformly across Canada. Issuers should also be aware that the requirements associated with a particular exemption are also not necessarily identical province to province. If an issuer does not register the offering, failure to meet the requirements of an exemption results in an unregistered offering and the accompanying regulatory penalties and liabilities.

Figuring out what exemptions are available in which provinces can be a bit intimidating to anyone who is not a securities lawyer or regulator. NI 45-106 and its companion policy are set out in over 98 pages! Less than half are relevant to the average issuer looking to raise capital. The following table is a summary of the exemptions from prospectus registration and seller registration most commonly used by issuers offering securities for the purpose of raising capital in Canada. Obviously, this is not a comprehensive treatise on the applicable securities law, does not address factors specific to an issuer, and should not be viewed as a substitute for competent legal counsel. An issuer should review the applicable instruments and rules for the specific requirements that the issuer must meet to qualify for the exemption or for registration.

Capital Raising Registration & Prospectus Exemptions

PEI

NFL

NWT

1. Private Issuer (s.2.4)

Yes

2. Family, friends and business associates (s.2.5)

Yes

Yes. Risk Ackn.
(s. 2.6)

Yes

3. Founder, control person and family (s.2.7)

N/A

Yes.

N/A

4. Affiliates

Yes

5. Accredited Investor (s.2.3)

Yes

6. Offering memorandum (s.2.9)

Yes. Risk Ackn.

Yes. Acq. <$10,000
Risk Ackn.
Eligible Investor restricted

Yes. Risk Ackn.

Yes. Acq. <$10,000
Risk Ackn.
Eligible Investor restricted

Yes. Risk Ackn.

Yes. Acq. <$10,000
Risk Ackn.
Eligible Investor restricted

7. Minimum investment
≥ $150,000 (s.2.10)

Yes

8. Employee, executive officer, director and consultant (s.2.24)

Yes

9. Securities for settlement of bonafide debt (s.2.14)

Yes. Not avail. to OTC Issuers

Yes

Links:

Check out the following links if you want to do further research on your own on Canadian exempt offering rules.

NI 45-106	Prospectus and Registration Exemptions [NI]
CP to NI 45-106CP	Prospectus and Registration Exemptions [CP]
CSA Staff Notice 45-304	Notice of Local Exemptions Related to National Instrument 45-106 Prospectus and Registration Exemptions [CSA Staff Notice]
CSA Staff Notice45-305	Frequently asked questions regarding National Instrument 45-106 Prospectus and Registration Exemptions [CSA Staff Notice]
BCI 45-522	Exemption from Requirement to file Reports of Exempt Distribution [BCI]
BCP 45-601	Statutory and Discretionary Exemptions [BCP]
BCI 72-502	Trades in Securities of U.S. Registered Issuers [BCI]
BCI 72-503	Distribution of Securities outside British Columbia [BCI]
BCIN 72-702	Distribution of Securities to Persons Outside British Columbia [BCIN]

Notice:

This article is provided as a guideline for planning purposes only. We encourage you to contact your own legal counsel to discuss the availability of any exemption prior to conducting a private placement in any province in Canada. Laws change and there are subtle nuances to the rules that may apply in your particular circumstance.