When raising private capital in Canada companies rely on three main exemptions from the registration and prospectus requirements of the various Canadian securities acts and regulations: (1) the friends, family and business associate exemption, (2) the accredited investor exemption; and (3) the offering memorandum exemption. Not all jurisdictions in Canada interpret these three exemptions in the same way.
Over the last five years the British Columbia Securities Commission (“Commission”) has stepped up its investigation of private issuers using exemptions in National Instrument 45-106 Prospectus and Registration Exemptions from the prospectus and registration requirements of the Securities Act in BC. The normal course of an investigation is to issue an order of production to the company who issued the securities and a polite letter and questionnaire to the investors identified in the Schedule “A” of the Form 45-106F1 or Form 45-106-F6 filed by the issuer. As a result of these investigations a number of sanctions and notice of hearings have been issued:
- Re SPYru Inc., 2015 BCSECCOM 277 07/07/2015
- Notice of Hearing: Re SunCentro Corporation, 2015 BCSECCOM 166, 08/08/2015
- Re Wireless Wizard, 2015 BCSECCOM 100, 06/04/2015
- Settlement Agreement: Re Williams, 2015 BCSECCOM 171, 05/07/2015
- Temporary Order and Notice of Hearing: HRG Healthcare Resource Group Inc (Re), 2015 BCSECCOM 13, 01/12/2015
- Waters (Re), 2014 BCSECCOM 369 (CanLII), 09/04/2014
- Streamline Properties Inc (Re), 2014 BCSECCOM 263 09/03/2014
- Saafnet Canada Inc (Re), 2014 BCSECCOM 96 , 03/14/2014
- Settlement Agreement: Re Ralph, 2013 BCSECCOM 414, 09/26/2013
- Re Aviawest Resorts Inc., 2013 BCSECCOM 319, 08/09/2013
- Settlement Agreement: Berkeley Coffee & Tea, Inc (Re), 2012 BCSECCOM 424, 11/09/2012
- Photo Violation Technologies Corp (Re), 2012 BCSECCOM 284, 07/16/2012
- VerifySmart Corp (Verified Capital Corp) (Re), 2012 BCSECCOM 176, 05/14/2012
- William Dorn Beattie, Solara Technologies Inc. 03/26/2010
- Fine Water Inc. and Alan Geoffrey With 04/07/2010
- Solara Technologies Inc. and William Dorn Beattie 06/23/2010
- Notice of Hearing: VerifySmart Corp., Verified Transactions Corp., Daniel Scammell and Casper de Beer 11/24/2010
- Notice of Hearing: John Arthur Roche McLoughlin, MCL Ventures Inc., Blue Lighthouse Ltd. and Robert Douglas Collins 11/24/2010
- Notice of Hearing: Photo Violation Technologies Corp., Frederick Lawrence Marlatt, also known as Frederick Lawrence Mitschele, Michael Wallace Minor, and Michael Garfield Timothy Minor, also known as Tim Minor
- James Richard Elliott 05/29/2008
What did these issuers do wrong? More importantly, how can you avoid an escalation from an order of production to a full on hearing and sanctions being issued?
In this three part series, I will set out the definition and rules of the close personal friend exemption, the accredited investor exemption and the offering memorandum exemption. I will also suggest steps you must and can take to meet your obligation to confirm a particular exemption may be relied upon by you when issuing securities.
- Part One: Relying on the “close personal friend” and “close business associate” exemptions to raise private placement capital;
- Part Two: Relying on the “accredited investor” exemption to raise private placement capital; and
- Part Three: Relying on the “offering memorandum” exemption to raise private placement.
Each section in this series can be read on its own. Together they provide a solid background to the topic of raising capital in Canada.