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Disclaimer: The following information is intended only as general introductory information to address some common questions. It is not intended to be and must not be relied on as legal advice. Please refer to the specific provisions of Alberta securities laws. We encourage you to seek legal advice from legal counsel familiar with Alberta securities laws.
There are a variety of different prospectus exemptions for different types of transactions. This section focuses on those prospectus exemptions that are most commonly used as a means to raise capital by small businesses.
The prospectus exemptions in Alberta that are most likely to be relied upon by small businesses for capital raising are:
HIGH LEVEL HIGHLIGHTS: Private company capital-raising prospectus exemptions at a glance
This table provides a quick summary comparison of the key features and requirements of the common capital raising exemptions available under Alberta securities law for businesses that are not reporting issuers. Further details about each of the exemptions are available below.
The private issuer exemption is the exemption that most small businesses will use first when they are just incorporating or organizing their business and getting their initial seed investment. Businesses may have relied on this exemption without even knowing they were subject to securities law.
The private issuer exemption has two main requirements:
Requirement #1: Key aspects of the “private issuer” definition
(Note: An investment fund may be able to rely on a similar exemption that is provided for private investment clubs. See section 2.20 of National Instrument 45-106 Prospectus Exemptions (NI 45-106))
Requirement #2: The business can only sell securities to a specific list of investors as identified in section 2.4 of NI 45-106.
In general terms, that list includes:
An issuer that ceases to be a private issuer can still sell its securities to many of the same people by relying on the accredited investor or family, friends and business associates exemption. However, the private issuer exemption affords a bit of additional flexibility e.g. allowing the sale of securities to existing security holders and to any one else who is “not the public”. (The term “the public” is not defined by Alberta’s securities laws. However, there are some court cases that help interpret this term.) The private issuer exemption also allows transfers of securities among the list of permitted investors.
Unlike most other prospectus exemptions that can be used to raise money, if a business uses the private issuer exemption, there is no requirement to file a Form 406-F1 Report of Exempt Distribution with the ASC and pay the associated fee.
Securities acquired under this exemption are subject to restrictions on resale.
PRIVATE ISSUER EXEMPTION presentation
This exemption is often relied on to grant stock options or similar compensation-related securities to employees in order to align the employees’ interests with those of the employer. In that respect, it might not strictly-speaking be considered a “capital-raising” prospectus exemption. However, it is worth including here as it is sometimes used to sell securities to directors and executive officers, particularly where the issuer is no longer a “private issuer”.
The employee exemption is set out in Division 4 of National Instrument 45-106 Prospectus Exemptions. It allows an issuer (and a control person of the issuer) to sell or otherwise distribute securities of the issuer to the employees, directors, executive officers and certain consultants of the issuer or its affiliates. It also permits the securities to be distributed or transferred to certain “permitted assigns” of those individuals (or of the individuals' spouses) e.g. plan administrators, RRSPs, RRIFs, TFSA and holding entities.
In addition, in the case of non-reporting issuers, the exemption permits the transfer from a current or former employee, director, executive officer or consultant or their permitted assign to an existing employee, director, executive officer, consultant or their permitted assign. This exemption could be useful to issuers that are no longer “private issuers” but are not reporting issuers.
There are certain conditions when distributing securities to consultants, for example:
This exemption is only available if the securities are acquired voluntarily. Being coerced to buy or accept securities in order to get hired or to keep a job would not be considered voluntary.
There is no specific disclosure required to be provided when relying on this exemption.
When selling securities to directors and executive officers, issuers may prefer this exemption to the family, friends and business associates exemption because:
The family, friends and business associates exemption is set out in sections 2.5, 2.6 and 2.6.1 of National Instrument 45-106 Prospectus Exemptions (NI 45-106). It permits the distribution of securities of an issuer to certain principals of the issuer, i.e., the issuer’s directors, executive officers, founders and control persons (typically, a holder of 20 per cent of the voting securities).
In addition, it permits the sale of an issuer’s securities to persons or companies that have one of the following relationships with one of those principals:
Specified family members include a spouse, parent, grandparent, brother, sister, child or grandchild of a principal or the principal’s spouse.
There is no definition of the terms “close personal friend” and “close business associate”; however, the Companion Policy to NI 45-106 provides certain guidance. Generally:
It is not enough to simply belong to the same religious organization, team or other group. It is not enough to just be a client or customer. It is not enough to just have a social media connection. There should be a relationship of trust and both parties should believe that such a relationship exists.
If this exemption is relied on for distributions into Saskatchewan or Ontario, a special form of risk acknowledgement is required from the investor.
No commissions or finder’s fees can be paid to the principals of the issuer under this exemption. The payment of a commission to other parties may give rise to concern as to whether the exemption was appropriately relied on as it would be unlikely that a third party would be required to identify an investor who qualified to invest.
An issuer that relies on this exemption, must file a Form 45-106F1 Report of Exempt Distribution with the ASC within 10 days.
Securities acquired under this exemption are subject to restrictions on resale. In the case of a reporting issuer these will usually continue for a period of four months. In the case of a business that is not a reporting issuer, these resale restrictions continue indefinitely.
FAMILY, FRIENDS and BUSINESS ASSOCIATES EXEMPTION presentation
According to reports of exempt distribution filed with the ASC, the most commonly used prospectus exemption is the accredited investor exemption set out at section 2.3 of National Instrument 45-106 Prospectus Exemptions (NI 45-106).
The principal requirement of this exemption is that the investor be an “accredited investor”.
The definition of “accredited investor” is set out in section 1.1 of NI 45-106. In general terms, it includes various institutions such as banks, trust companies, pension funds, municipalities, certain investment funds, as well as entities (other than investment funds) that have net assets of at least $5 million (as shown on their most recent financial statements). It also includes persons or companies (including individuals) registered, or previously registered, under applicable securities laws in Canada as a dealer or adviser.
The definition also includes individuals where the individual meet certain income or asset tests:
The definition also contemplates certain companies and trusts (e.g. wholly-owned or directed by accredited investors).
There is no required disclosure document when using this exemption. However, if an investor is an individual then, unless the individual has net financial assets exceeding $5,000,000, the issuer must obtain a specified form of risk acknowledgement from the investor. The required form of risk acknowledgement is Form 45-106F9 Form for Individual Accredited Investors.
An investor investing as an accredited investor must be investing as principal; however, a trust company or registered portfolio manager operating on behalf of a fully managed account of a client is generally deemed to be acting as principal.
The accredited investor exemption is not available for a distribution to a person or company if the person or company was created, or is used, solely to take advantage of the exemption.
An issuer that relies on this exemption must file a Form 45-106F1 Report of Exempt Distribution with the ASC within 10 days.
Securities acquired under this exemption are subject to restrictions on resale. In the case of a non-reporting issuer, they will continue indefinitely.
Watch this video - introduction to the accredited investor exemption.
The self-certified investor prospectus exemption was adopted in Alberta and Saskatchewan on March 31, 2021 and amended on July, 28, 2022. The exemption was adopted for a three year period, and will expire on April 1, 2024. It can be found respectively in Alberta and Saskatchewan Orders 45-538 Self-Certified Investor Prospectus Exemption.
This exemption is intended to allow purchasers who do not meet the financial thresholds or other criteria required to qualify as an accredited investor to participate in private placements alongside accredited investors provided that they meet other criteria intended to demonstrate the purchaser's financial and investment knowledge. The intent of this exemption is for self-certified investors to be treated in a generally similar manner to accredited investors.
There are three types of investors under this exemption: individual investors, non-individual investors, and qualifying special purpose vehicles (a “Qualifying SPV”, discussed below).
Key elements of the exemption are as follows:
The “qualifying criteria” that an investor must confirm are set out in Annex 2 to the Acknowledgement. In general terms, they include certain financial or investment education or experience such as:
The issuer is not expected to independently verify the matters that the individual or non-individual self-certified investor solemnly declares to in the Statutory Declaration; however, if the issuer knows that the Statutory Declaration is false or would reasonably be expected to know that, it cannot rely on the Statutory Declaration. Similarly, an issuer can rely on the investor’s representation about the amount invested in other issuers under the exemption, provided that the issuer does not know or would not reasonably be expected to know that the representation is false.
Under this exemption, investment limits apply to the amount of investment that can be accepted from an investor (1) except in the case of a “Listed Issuer Investment” and (2) for investments made by Qualifying SPVs. These limits are:
A distribution to a Listed Issuer Investment does not have any investment limits. A "Listed Issuer Investment” refers to an investment where both:
The exemption also allows for the distribution of securities to a Qualifying SPV, without subjecting the SPV to investment limits outlined below, provided that all of the following conditions apply:
The corresponding CSA notice which provides guidance on this exemption explains use of the exemption by a “private issuer”. In general terms, it provides that a self-certified investor or a Qualifying SPV would be considered “not the public” so that an investment by a self-certified investor or a Qualifying SPV would not by itself prevent the issuer from otherwise being considered a "private issuer".
Except in the case of a “private issuer”, an issuer that relies on this exemption must file a Form 45-106F1 Report of Exempt Distribution with the ASC within 10 days.
Securities acquired under this exemption are subject to restrictions on resale. In the case of a non-reporting issuer, these restrictions will continue indefinitely.
If a registered dealer or other registrant is involved with the distribution of securities under the Exemption, the registrant's typical obligations and responsibilities e.g., relating to know-your client, know-your-product, suitability, and conflicts of interest, will continue to apply.
Listed issuer financing exemption and self-certified investor exemption webinar session
Alberta businesses attract significant foreign investment. ASC Rule 72-501 Distributions to Purchasers Outside Alberta (ASC Rule 72-501) provides a number of prospectus exemptions that allow an Alberta business to sell securities to investors outside of Canada. To rely on these prospectus exemptions, the business must comply with the securities laws in the jurisdiction of the purchaser.
When a non-reporting issuer sells securities privately to foreign investors (e.g. not under a prospectus), securities acquired by those investors will generally be subject to restrictions on resale that limit their resale back into Canada. However, resales can generally be made in a market outside of Canada.
In most cases, there will be a requirement to file a Form 45-106F1 Report of Exempt Distribution with the ASC within 10 days. However, ASC Rule 72-501 provides certain reporting exemptions (e.g. relating to purchaser information).
The exemption in section 2.10 of National Instrument 45-106 Prospectus Exemptions allows a business to sell securities to persons or companies - other than individuals - provided that the acquisition cost is at least $150,000.
The securities must be those of a single issuer and each purchaser must purchase as principal (i.e. on their own account) and the purchaser cannot have been created, or used, solely to take advantage of the exemption.
An issuer that relies on this exemption, must file a Form 45-106F1 Report of Exempt Distribution with the ASC within 10 days.
The offering memorandum (OM) exemption in section 2.9 of National Instrument 45-106 Prospectus Exemptions (NI 45-106) allows a business to sell its securities to the general public without filing a prospectus and becoming a reporting issuer. Although a prospectus is not required, investors must be provided with a disclosure document called an “offering memorandum” (see “What’s the difference between a prospectus and an offering memorandum or other offering document?” under this section).
Form of offering memorandum
Assuming that the issuer is not a reporting issuer, the offering memorandum must be prepared in accordance with the requirements of Form 45-106F2 Offering Memorandum for Non-Qualifying Issuers.
The offering memorandum is required to describes the business, its management, the offering and the risks and, significantly, requires that audited annual financial statements of the business be included.
Looking for an example of a form of offering memorandum to use under the offering memorandum exemption? The ASC doesn’t recommend or endorse any particular issuer’s offering memorandum however, you can find examples that have been filed by others by searching the SEDAR website.
Click on “Search Database” then click on either:
Under Document Type, search for the type of offering document and specify the time period.
We encourage issuers to seek advice from qualified legal counsel to assist them in preparing an offering memorandum.
An issuer relying on the OM exemption must also obtain a specified risk acknowledgement form from each investor. The required form of risk acknowledgement is Form 45-106F4. There are two schedules to Form 45-106F4 that must be completed by investors that are individuals. One schedule asks the investor to indicate whether they are an “eligible investor”, an “accredited investor” (see "Accredited Investor exemption" under this section), an investor that would qualify under the family, friends or business associates exemption (see "Family, Friends and Business Associates exemption" under this section) or an investor that is none of those. The other schedule requires the investor to acknowledge that in certain circumstances there are limits on how much they can invest and confirm that limit has not been exceeded.
Limits on who can use the exemption
In Alberta, the offering memorandum exemption is not available for use by a mutual fund, other than a mutual fund that is a reporting issuer. In some jurisdictions (e.g. Ontario), the exemption is not available to any investment funds. The exemption is not available for the sale of a short-term securitized product, a specified derivative or a structured finance product.
Similar to a prospectus, an investor investing under the offering memorandum exemption can sue the issuer and its directors, CEO and CFO if the offering memorandum or any marketing materials used in association with the offering memorandum contains a misrepresentation. Investors also have a two day "cooling off period" in which they can cancel their investment.
The OM exemption is designed to facilitate capital-raising by allowing businesses to solicit investments from a wider range of investors than under other prospectus exemptions. However, because the offering disclosure may be less extensive than a prospectus and the issuer will not become a reporting issuer, there are limits that apply on how much can be invested by individuals. The limits vary depending on the financial circumstances of the investor, their relationship to the issuer, and whether or not they have received advice from a registered dealer regarding the suitability of the investment.
There are no investment limits under the OM exemption for investors:
Unless one of those exceptions apply, the investment limits under Alberta securities law for individuals are as follows:
The term “eligible investor” is defined in National Instrument 45-106 Prospectus Exemptions and may vary slightly between jurisdictions. Under Alberta securities law, the term “eligible investor” generally refers to an individual whose:
Not all jurisdictions of Canada impose these same investment limits under the offering memorandum prospectus exemption. In order to reduce regulatory burden for Alberta issuers, section 7 of ASC Rule 72-501 Distributions to Purchasers Outside Alberta allows an Alberta issuer to sell securities to a Canadian investor who is not a resident of Alberta by complying with the terms of the offering memorandum exemption as it exists in the jurisdiction in which the investor is resident.
Ongoing filing requirements
Although the OM exemption allows sales of securities to the general public, using the OM exemption will not result in the issuer becoming a reporting issuer. However, after using the exemption, the business will be required to annually file audited financial statements and a notice of its use of proceeds prepared in accordance with Form 45-106F16 Notice of Use of Proceeds.
If the exemption is used in New Brunswick, Nova Scotia or Ontario, the business will also be required to provide notice of certain "significant events" by filing a Form 45-106F17 NB, NS & ON Notice of Specified Key Events.
Reporting use of exemption
Securities acquired under this exemption are subject to restrictions on resale (see "Restrictions on reselling securities acquired under prospectus exemptions"). In the case of a reporting issuer, these will usually continue for a period of four months. In the case of a business that is not a reporting issuer, these resale restrictions continue indefinitely.
Another option for businesses that want to raise money from the general public but one that might be less expensive than using a prospectus or the offering memorandum exemption, is the start-up crowdfunding regime. The offering document required under the start-up crowdfunding regime is less extensive than an offering memorandum under the offering memorandum exemption and, significantly, is not required to contain any financial statements. Further, use of the start-up crowdfunding regime does not trigger a requirement under securities law to continue to file annual audited financial statements. (Note, however, that a requirement may exist under applicable corporate law.)
All of the securities regulators in Canada adopted effective September 21, 2021 National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions (NI 45-110) to facilitate crowdfunding by start-up or early stage businesses.
This is not the only exemption (see “Online financing/Crowdfunding”) that can be relied on for crowdfunding but it is one that was especially designed with early stage businesses that have crowdfunding in mind.
The key conditions of the start-up crowdfunding prospectus exemption are as follows:
A funding portal operating under the start-up crowdfunding regime must either be registered as a dealer or rely on an exemption from the registration requirement. A funding portal operating under a registration exemption is subject to certain conditions, including a prohibition on offering investment advice.
We understand that the following funding portals are operating in Alberta offering securities under the start-up crowdfunding regime:
Name of portal
FrontFundr Financial Services Inc.
Registered as an exempt market dealer, with terms and conditions.
Vested Technology Corp.
Relying on the exemption from registration in National Instrument 45-110 and only permitted to offer securities under the start-up crowdfunding regime.
Crowdco Inc., operating as GoTroo
The ASC doesn’t recommend or endorse any particular funding portal.
There are other funding portals offering securities under other prospectus exemptions. You can check the CSA’s Check Registration site to see whether a funding portal is registered as a dealer. (That site does not identify funding portals operating under an exemption from registration.)
An issuer that relies on the start-up crowdfunding regime, must file a Form 45-106F1 Report of Exempt Distribution (see “What are the required Forms and Filings?") with the ASC (and each other jurisdiction in which the distribution occurred) within 30 days.
Securities acquired under this exemption are subject to restrictions on resale. These resale restrictions will continue indefinitely unless the issuer becomes a reporting issuer.
Looking for an example of a form of offering document to use under the start-up crowdfunding regime?
The ASC doesn’t recommend or endorse any particular issuer’s offering document, however, you can find examples that have been filed by others by searching the SEDAR website.
Click on “Search Database” then click on either:
Under Document Type, search for “offering document” and specify the time period.
The securities regulators in all of the jurisdictions of Canada adopted National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions effective September 21, 2021. That instrument expanded the start-up crowdfunding regime across Canada and liberalized the investment and offering limits that previously existed.
ASC Blanket Order 45-521 Start-up Crowdfunding Registration and Prospectus Exemptions was the local predecessor to NI 45-110. By its terms it was designed to expire 90 days following the effective date of NI 45-110, i.e., on December 20, 2021.
Another prospectus exemption that is targeted at start-up and early stage businesses, but that is available only in Alberta and Saskatchewan, is the exemption provided by ASC Blanket Order 45-539 Small Business Financing (and Saskatchewan General Order 45-539 Small Business Financing).
This exemption is not available to investment funds or reporting issuers.
The key conditions of the start-up business exemption are as follows:
For a Tier 1 Raise, the maximum that an investor (who would not qualify to invest under another specified exemption) could invest in the Issuer Group in a 12 month period is
For a Tier 2 Raise, the maximum that a investor (who would not qualify to invest under another specified exemption) could invest in the Issuer Group in a 12 month period is:
This exemption has many similarities to the start-up crowdfunding regime e.g., a streamlined offering document without a requirement for financial statements (below certain limits). However, there are a few key distinctions:
An issuer that relies on this exemption, must file a Form 45-106F1 Report of Exempt Distribution with the ASC within 30 days.
Securities acquired under this exemption are subject to restrictions on resale. These restrictions will continue indefinitely unless the issuer becomes a reporting issuer.
Cooperatives can use any of the common capital raising exemptions described above; however, cooperatives incorporated under the Cooperatives Act (Alberta) can also use exemptions intended solely for cooperatives.
Section 2.1 of ASC Rule 45-511 Local Prospectus Exemptions and Related Requirements contains special prospectus exemptions that permit these cooperatives to sell member shares and investment shares in certain circumstances.
There is no prescribed disclosure document required. Further, there is no requirement to file a Form 406-F1 Report of Exempt Distribution with the ASC and pay the associated fee when these exemptions are used.
Section 2.1 of NI 45-106 Prospectus Exemptions provides an exemption that allows an issuer - provided it is a reporting issuer - to distribute rights to acquire additional securities to its securityholders. Generally, those rights are distributed on a pro rata basis to existing security holders.
One of the key conditions to this exemption is that the business has to be current in its continuous disclosure obligations. Investors are provided with similar statutory rights to those they would have if they acquired the securities in the secondary market.
In lieu of a prospectus, the issuer is required to:
The rights offering exemption has a few key distinctions from other capital raising exemptions:
Because the securities are offered to all existing security holders, in proportion to their existing holdings, if the issuer’s securities are listed on a stock exchange, the exchange may have more liberal rules with respect to pricing of the securities than would apply to other financings.
ASC Rule 45-516 Prospectus Exemptions for Retail Investors and Existing Security Holders (ASC Rule 45-516) provides two prospectus exemptions that allow a reporting issuer listed on one of the identified stock exchanges in Canada to conduct a broad offering.
The listed, reporting issuer has to be current in its continuous disclosure obligations and trading in its securities must not be suspended for failure to comply.
The issuer must issue a news release providing information about the financing and confirming that there is no misrepresentation in its continuous disclosure. The business can only sell the same type of securities as are listed on the exchange or a combination of those securities and warrants.
An issuer can rely on these exemptions to sell:
Any offering material (other than a subscription agreement) provided to an investor must be filed with the ASC when the material is first provided to an investor.
These exemptions allow a public distribution of securities without requiring the issuer to provide a specified disclosure document. The exemptions contemplate that investors will rely on the continuous disclosure available about the issuer. Investors are provided rights of action similar to those they would have if they acquired securities in the secondary market and the issuer is required to represent to investors that certain of the issuer’s core continuous disclosure documents do not contain a misrepresentation and that the issuer has not failed to disclose any material information.
Similar prospectus exemptions exist in the other jurisdictions of Canada to facilitate the sale of securities to existing security holders. See:
CSA Notice 45-321 Frequently Asked Questions about the Investment Dealer Prospectus Exemption addresses many of the common questions raised by issuers looking to use the investment dealer exemption.
Securities acquired under these exemptions are subject to restrictions on resale that will typically expire after four months.
The listed issuer financing exemption is an addition to National Instrument 45-106 Prospectus Exemptions (NI 45-106), at section 5A.2. The exemption is meant to provide a method of capital raising for reporting issuers that have securities listed on a Canadian stock exchange, without requiring a prospectus. The cost to prepare even a short form prospectus can be a roadblock for capital raising, particularly for smaller issuers, and the exemption was designed with this in mind.
The exemption relies on the issuer’s continuous disclosure record, supplemented with a short offering document that is not intended to be more than five pages. This offering document is meant to be concise and easy to understand.
This exemption allows issuers to distribute freely tradeable listed equity securities to the public, subject to the following:
The issuer must have active business operations, and that must have been the case for the 12 months preceding the filing of the news release announcing the distribution. The exemption cannot be used by an issuer whose operations have now or within the last 12 months ceased or whose principal asset is cash, cash equivalents or its exchange listing (e.g. a shell company). The exemption also cannot be used if this was the case for any person or company with whom the issuer completed a restructuring transaction during the past 12 months.
The issuer must reasonably expect that it will have available funds to meet its business objectives and liquidity requirements for a period of 12 months following the distribution. The proceeds of funds raised under this exemption may not be used to finance a significant acquisition, restructuring transaction or any other transaction that requires approval of any security holder. In that case, would expect the issuer to use the prospectus regime in that base in order to ensure potential purchasers have full, true and plain disclosure about the intended use of the proceeds. The purpose of these requirements is to ensure that an issuer using the exemption has an operating business that is already described in the issuer’s current disclosure.
This exemption is not available to investment funds.
The exemption is an exemption from the prospectus requirement only; it does not provide an exemption from the dealer registration requirement.
Securities acquired under this exemption do fall under the restrictions on resale regime, in that first trades are subject to a four month seasoning period. However, “seasoning period” refers to the time since the issuer became a reporting issuer. In the case of this exemption, as issuer must have been a reporting issuer for 12 months, so the four month seasoning period would always be met. Therefore, resale restrictions as they are typically thought of will not apply.
This exemption was recently introduced and came into effect on November 21, 2022.