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Subsection 1.1 of
National Instrument 45-106 Prospectus and Registration Exemptions
defines an “eligible investor” as follows:
“eligible investor”
means
“eligible investor” means
(a) a person whose
(i) net assets, alone or with a
spouse, in the case of an individual, exceed $400,000,
(ii) net income before taxes
exceeded $75,000 in each of the 2 most recent calendar years and who
reasonably expects to exceed that income level in the current calendar
year, or
(iii) net income before taxes, alone
or with a spouse, in the case of an individual, exceeded $125,000 in each
of the 2 most recent calendar years and who reasonably expects to exceed
that income level in the current calendar year,
(b) a person of which a majority of
the voting securities are beneficially owned by eligible investors or a
majority of the directors are eligible investors,
(c) a general partnership of which
all of the partners are eligible investors,
(d) a limited partnership of which
the majority of the general partners are eligible investors,
(e) a trust or estate in which all
of the beneficiaries or a majority of the trustees or executors are
eligible investors,
(f) an accredited investor,
(g) a person described in section
2.5 [Family, friends and business associates], or
(h) a person that has obtained
advice regarding the suitability of the investment and, if the person is
resident in a jurisdiction of Canada, that advice has been obtained from
an eligibility adviser;
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Subsection 3.8 of the
Companion Policy to National
Instrument 45-106 Prospectus and Registration Exemptions
provides clarification as to how individuals determine whether
they meet the income or net asset requirements of an “eligible
investor”
3.8 Offering memorandum
(1) Eligibility criteria -
Alberta, Manitoba, Northwest Territories, Nunavut, Prince Edward Island,
Québec and Saskatchewan, Alberta, Manitoba, Northwest Territories,
Nunavut, Prince Edward Island, Québec, Saskatchewan, and Yukon impose
eligibility criteria on persons investing under the offering memorandum
exemptions. In these jurisdictions, the purchaser must be an eligible
investor if the purchaser’s acquisition cost is more than $10,000.
In determining the acquisition cost
to a purchaser who is not an eligible investor, include any future
payments that the purchaser will be required to make. Proceeds which may
be obtained on exercise of warrants or other rights, or on conversion of
convertible securities, are not considered to be part of the acquisition
cost unless the purchaser is legally obligated to exercise or convert the
securities. The $10,000 maximum acquisition cost is calculated per
distribution of, or trade in, security.
Nevertheless, concurrent and
consecutive, closely-timed offerings to the same purchaser will usually
constitute one distribution of, or trade in, a security. Consequently,
when calculating the acquisition cost, all of these offerings by or on
behalf of the issuer to the same purchaser who is not an eligible investor
would be included. It would be inappropriate for an issuer to try to
circumvent the $10,000 threshold by dividing a subscription in excess of
$10,000 by one purchaser into a number of smaller subscriptions of $10,000
or less that are made directly or indirectly by the same purchaser.
A purchaser can qualify as an
eligible investor under various categories of the definition, including if
the purchaser has and has had in prior years either $75,000 pre-tax net
income or profit or has $400,000 worth of net assets. In calculating a
purchaser’s net assets, subtract the
purchaser’s total liabilities from the purchaser’s total assets. The value
attributed to assets should reasonably reflect their estimated fair value.
Income tax should be considered a liability if the obligation to pay it is
outstanding at the time of the distribution of, or trade in, a security.
Another way a purchaser can qualify as an eligible investor is to obtain
advice from an eligibility adviser. An eligibility adviser is a person
registered as an investment dealer (or in an equivalent category of
unrestricted dealer in the purchaser’s jurisdiction) that is authorized to
give advice with respect to the type of security being distributed or
traded. In Saskatchewan and Manitoba, certain lawyers and public
accountants may also act as eligibility advisers.
A registered investment dealer
providing advice to a purchaser in these circumstances is expected to
comply with the “know your client” and suitability requirements under
applicable securities legislation and SRO rules and policies. Some dealers
have obtained exemptions from the “know your client” and suitability
requirements because they do not provide advice. An assessment of
suitability by these dealers is not sufficient to qualify a purchaser as
an eligible investor.
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