Retail investors in British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick (Participating Jurisdictions) now have a new option by which they can participate in private placements. The securities regulators in the Participating Jurisdictions have adopted a prospectus exemption (Exemption) that allows issuers listed on a Canadian exchange to raise money by distributing securities to retail investors, subject to certain conditions, including that the investor has received suitability advice about the investment from a registered dealer.
Prior to the adoption of the Exemption, retail investors have had limited opportunity to invest in private placements as participation is generally limited to accredited investors, insiders and friends and family. The Exemption is designed to facilitate capital raising for listed issuers by increasing the investor base through allowing participation of retail investors in private placements, while maintaining appropriate investor protection. Securities issued using the Exemption will be subject to four month hold period.
In order for the Exemption to be used, the following conditions must be satisfied:
- the issuer must be a reporting issuer in at least one Canadian jurisdiction;
- the issuer must have a class of securities listed (the Listed Securities) on the TSX Venture Exchange, the Toronto Stock Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc;
- the issuer’s public disclosure documents must be current;
- the offering must consist of the Listed Securities, a unit consisting of a Listed Security and a warrant, or a security convertible into a Listed Security;
- the issuer must issue a news release that includes a description of the offering and the use of proceeds, discloses any material facts about the issuer that have not been generally disclosed, and includes 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 or New Brunswick the investor must be provided with a contractual right of action for rescission or damages in the event of a misrepresentation in the issuer’s public disclosure record, regardless of whether the investor relied on that misrepresentation (investors in Alberta already have a statutory right of action under Alberta securities laws);
- in the subscription agreement, the issuer must represent that its public disclosure record does contain any misrepresentations and that there are no material facts or changes related to the issuer that have not been generally disclosed; and
- the investor must obtain suitability advice from a registered dealer.
The adoption of the Exemption falls in line with a recent trend demonstrated by Canadian regulators to increase the investor pool available to issuers and decrease the costs associated with accessing these investors. However, it should be noted that the Exemption is available only in the Participating Jurisdictions and is not available in Ontario. Although this limits participation by investors resident in Ontario, issuers now have another option to access retail investors resident in the Participating Jurisdictions without incurring the costs associated with a prospectus offering.