Welcome Ontario to the Rest of Canada: OSC Signals Plan to Adopt New Private Placement Offering Exemptions in 2014

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The Ontario Securities Commission (OSC) announced on December 4, 2013, it will be publishing for comment in the first quarter of 2014 a proposal to adopt four new private placement offering exemptions in Ontario. These new offering exemptions include:

(1) offering memorandum exemption;
(2) family, friends and business associates exemption;
(3) crowdfunding exemption, together with a registration framework for online funding portals; and
(4) existing security holder exemption.

The first two exemptions are already in place through-out the rest of Canada under sections 2.9 and 2.5, respectively, of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).

A crowdfunding specific exemption[1] is new to Canada. Ontario will be the second province in Canada to have proposed a crowdfunding specific private placement offering exemption and framework for online funding portals. Saskatchewan proposed General Order 42-925 Saskatchewan Equity Crowdfunding Exemption October 7, 2013 (SK Crowdfunding Exemption). Comments on the SK Crowdfunding Exemption have closed, and the crowdfunding community expects the SK Crowdfunding Exemption will be in force before the end of 2013. The Ontario crowdfunding exemption and related rules for online funding portals is expected to look significantly different than the SK Crowdfunding Exemption. The SK Crowdfunding Exemption provides a very streamlined and simple approach to equity crowdfunding similar to perk, donation and pre-sale crowdfunding. Individuals active in the crowdfunding community in Canada expect the Ontario crowdfunding exemption and online funding portal rules will be far more complicated and look more like the crowdfunding rules proposed under Title III of the Jobs Act in the United States and related U.S. Securities and Exchange Commission’s Crowdfunding rule proposals and related FINRA Regulatory Notice 13-34 funding portal rule proposals.

The existing security holder exemption is also new to Canada, but again Ontario is not the first jurisdiction to propose this exemption. An existing security holder exemption (“TSX-V Rights Light”) for TSX Venture Exchange (TSX-V) issuers was recently proposed on November 21, 2013, by the securities regulators in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Yukon, Northwest Territories, Nunavut and Prince Edward Island (every province but Ontario and Newfoundland). This exemption, if adopted, would allow TSX-V issuers, subject to certain conditions, to raise money by distributing securities to their existing security holders by relying on their continuous disclosure record, a simple news release and subscription agreement. The comment period on the TSX-V Rights Light proposal closes on January 20, 2014. The OSC in its December 4, 2014 announcement indicated it supported TSX-V Rights Light and requested comments whether this exemption should be available in Ontario and to issuers listed on other exchanges. I strongly encourage you to let the OSC know if you support (or are against) the proposed TSX-V Right Light exemption or want this exemption to be available to all reporting issuers by emailing or sending a letter to the following address:

The Secretary
Ontario Securities Commission
20 Queen Street West
22nd Floor
Toronto, Ontario M5H 3S8
Fax: 416-593-2318
Email: comments@osc.gov.on.ca

Keep your eyes and ears open over the next three months as new private placement offering exemptions are expected to continue to be announced by regulators across Canada and the United States. Raising capital is a necessity if you are a private or public small-cap issuer, and these new private placement offering exemptions will affect your ability to efficiently raise capital.


Notes:

  1. Issuers outside of Ontario may crowdfund their equities in other Canadian jurisdictions using the existing offering memorandum exemption in s. 2.9 of NI 45-106 on an online funding portal registered as, or in association with, an exempt market dealer or fully registered broker/dealer.
Alixe Cormick is the founder of Venture Law Corporation in Vancouver, British Columbia and a member of Commercialization Advisory Board of the Life Science Institute at the University of British Columbia, the Advisory Board of the National Crowdfunding Association and two private tech companies. She is also a member of the Pacific Northwest Keiretsu Forum, an association of accredited private equity angel investors, venture capitalists and corporate/institutional investors, and Vantech Angel Technology Network, a Vancouver angel group. You can reach Alixe by phone at 604-659-9188, by email at acormick@venturelawcorp.com, on twitter at @AlixeCormick or on Google+ at +AlixeCormick.
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OSC to Adopt New Private Placement Offering Exemptions in 2014
Description
The OSC is proposing four new private placement offering exemptions in Ontario: offering memorandum, FFBA, crowdfunding and existing security holder exemption.
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Venture Law Corporation
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