Private Companies and Retail Investors Receive a Boost

It has become easier to raise money for private businesses in Canada. Securities regulators in five provinces—Alberta, BC, Saskatchewan, Manitoba, and New Brunswick—announced last week that they were adopting a prospectus exemption for issuers listed on a Canadian stock exchange. The opportunity: to raise money by distributing securities without the need for an expensive prescribed offering document.

A key condition under the exemption is that an investment dealer must provide advice to an investor regarding the suitability of the investment, by meeting its know-your-client and know-your-product obligations.

In the past, the filing of the required offering document was extremely onerous and costly to prepare and so rarely used. This affected retail investors negatively: They did not have the same opportunity to participate in more favorable terms, such as discounts to current market pricing, offered through private placements. Their only option was to purchase in the secondary market.

According to the news release issued on January 14, “the exemption is intended to facilitate capital raising for listed issuers and foster participation of retail investors in private placements, while maintaining appropriate investor protection.”

Other key conditions outlined by the regulators and itemized in the release include:

• The issuer must be a reporting issuer in at least one jurisdiction of Canada and have securities listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange, or Aequitas Neo Exchange Inc.
• The exemption would only be available to reporting issuers whose continuous disclosure is up-to-date and complies with applicable securities legislation.
• The issuer must issue a news release containing information about the proposed distribution and use of proceeds, and a statement that there is no material fact or material change about the issuer that has not been generally disclosed.
• In British Columbia , Saskatchewan , Manitoba and New Brunswick , the investor must be provided with a contractual right of action in the event of a misrepresentation in the issuer’s continuous disclosure record. In Alberta, purchasers are afforded a statutory right of action under Part 17.01 of the Securities Act (Alberta).

The Multilateral CSA Notice describing the exemption is available on participating CSA members’ websites.

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