Frequently asked questions

An issuer that is distributing its securities must file a prospectus unless it can rely on a prospectus exemption.

The issuer must file a prospectus or rely on a prospectus exemption in each jurisdiction in which securities are being distributed. This will typically include the jurisdiction in which the issuer is located and each jurisdiction in which one or more investors are located.

A reporting issuer is required to provide certain specified ongoing disclosure, called “continuous disclosure” about its business operations and management, such as:

• annual audited financial statements
• interim (quarterly) financial statements
• management’s discussion and analysis (MD&A) accompanying the financial statements
• annual information forms (AIFs) for issuers that are not "venture issuers"
• CEO and CFO certifications of the annual and quarterly financial disclosures
• material change reports
• significant business acquisition reports
• annual information/proxy circulars, including specified governance disclosure

For an issuer that is not an investment fund, most of those requirements are set out in National Instrument 51-102 Continuous Disclosure Obligations.

Reporting issuers are also subject to various other requirements including additional corporate governance obligations, for example, relating to independent audit committees and internal controls over financial reporting.

The benefit of being a reporting issuer is that, because the issuer is providing ongoing information about its business that can help both buyers and sellers make informed investment decisions, its securities are generally able to be freely traded on and sold through exchanges and similar markets. (However, not all reporting issuers list their securities on stock exchanges.)

Another implication of becoming a reporting issuer is that the “insiders” and other persons in a special relationship with a reporting issuer are prohibited from trading based on undisclosed material information about the issuer or "tipping" others about such information. (See section 147 of the Securities Act (Alberta)). In addition, certain insiders are required to report any transactions they make in the issuer’s securities.

No. The number of security holders is not relevant in determining whether or not an issuer is a reporting issuer under Alberta securities laws. See “What is a “reporting issuer”. How does an issuer become a “reporting issuer"?”.

Having more than 50 security holders can affect whether or not your business is able to rely on the private issuer exemption. See “What is a “private issuer”? Is it the same as a “private company"?”.

The public markets generally refer to the market for the primary sale of securities by issuers by way of a prospectus and the secondary trading of securities among investors, through dealers, on stock exchanges or similar marketplaces. The public markets differ from the exempt market in a number of ways, such as:

• Theoretically any investor can invest in the public market without having to meet specific conditions such as based on income or assets.
• The existence of a secondary market in which securities can be freely traded makes it easier for buyers and sellers to interact and trade the securities.
• Issuers in the public market will be reporting issuers subject to ongoing disclosure and governance requirements and will often also be required to comply with the additional requirements of the stock exchange on which their securities trade.
• Registered investment dealers will generally effect trades of securities through the facilities of the exchange or marketplace, on behalf of investor clients.
• Because of the ongoing disclosure about the issuer, and often a reported trading price, it can be easier to establish a value for the securities.

The requirement to be registered as a dealer is set out in section 75 of the Securities Act (Alberta). It does not apply to merely trading or selling securities but rather applies to any person or company who is in the business or holds themselves out as being in the business of trading securities.

See the Companion Policy to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations for guidance on what it means to be “in the business”.

You are not generally required to hire a registered dealer to sell your securities. However, it can be challenging to find investors without one. Some prospectus exemptions may specify different conditions if a registered dealer is involved. The business of a registered dealer involves bringing businesses and prospective investors together.

Registered dealers are overseen by securities regulators and, in some cases, self-regulatory organizations. To become registered and maintain that registration, they are required to meet various obligations designed to protect investors.

Someone who is acting as a dealer without being registered would, absent an exemption, be in breach of securities laws.

If you are looking for an Alberta-based registered dealer to help with your offering, please see this list.

No. Prospectus exemptions and registration exemptions are distinct. The existence of one does not in any way suggest the existence of the other.

Prior to 2009, there was typically a corresponding registration exemption for most prospectus exemptions. Since that time, as part of a project called “Registration Reform” the trigger for dealer registration was changed from trading to being in the business of trading. Subsequent to and related to that, in March 2010, National Instrument 45-106 Prospectus Exemptions was amended to remove all of the registration exemptions previously located in it.

The existence of a prospectus exemption does not mean there is a registration exemption.

Exemptions from the requirement to be registered as a dealer can be found in Part 8 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Other local and CSA instruments also provide registration exemptions, such as Blanket Order 31-536 Alberta Small Business Finder’s Exemption, which was recently implemented to help small businesses in Alberta and Saskatchewan raise money.

For convenience, these registration exemptions are also listed here.

An offering memorandum or other offering document is the name for the disclosure document that is used when relying on a prospectus exemption. Under some prospectus exemptions there is a requirement to provide an offering memorandum or offering document that complies with the requirements of a specific form. In other cases, an offering document may be voluntarily provided, but not required.

A few key differences between a prospectus and an offering memorandum or offering document include:

• A prospectus will typically contain more extensive disclosure e.g., including both audited annual financial statements and interim (quarterly) financial statements.
• Various supporting documents are required to be filed together with the prospectus e.g., material contracts, consents from experts to use their reports or opinions, and personal information forms relating to executives and directors.
• A prospectus cannot be used to sell securities until it has been filed with the securities regulator and all comments have been addressed, including any required revisions, and a "receipt" has been issued. An offering memorandum or other offering document is not typically reviewed in advance by staff of the ASC.
• The securities regulator cannot issue a receipt for a prospectus if it raises certain public interest concerns, for example: 
  • the issuer has inadequate financial resources to accomplish its stated purposes (see CSA Staff Notice 41-307 Concerns Regarding An Issuer’s Financial Condition and the Sufficiency of Proceeds from a Prospectus Offering)  
  • an unconscionable consideration has been paid or is to be paid for services or assets (see CSA Staff Notice 41-305 Share Structure Issues – Initial Public Offerings) 
  • the issuer cannot be expected to be financially responsible
  • the business of the issuer may not be conducted with integrity and in the best interests of security holders. (See section 120 of the Securities Act (Alberta))

There is no "receipt" process when using prospectus exemptions.

• Filing a prospectus results in the issuer becoming a reporting issuer in Alberta, if it is not already. This is not the case with filing an offering memorandum or offering document.
• A prospectus provides investors with certain special statutory rights such as:
  • a two day cooling off period
  • a right to sue in the event of a misrepresentation in the prospectus

In Alberta, an offering memorandum or offering document that is required by the terms of a prospectus exemption to be delivered to investors (not just voluntarily provided) or that is otherwise designated to be an offering memorandum, may provide similar statutory rights to those provided by a prospectus but typically the rights are available against a smaller number of parties. For example, with a prospectus, the special right to sue in the event of a misrepresentation is often also available against any underwriter and, in certain circumstances, any expert who has consented to the use of their report or opinion.

Alberta securities law applies to all issuers distributing securities regardless of whether the business is incorporated or structured in another manner, such as a sole proprietorship, general or limited partnership or trust.

Securities laws do not specify that your business must have a particular organizational structure to distribute securities (although there are a few prospectus exemptions tailored to particular forms of organization and the disclosure may vary depending on the type of structure.) You should discuss with your legal and financial advisers what form of organization is most appropriate for your business.  Factors such as the costs associated with organization and maintenance of a particular structure, taxation, liability issues and familiarity to investors are often relevant considerations.

Many issuers raising capital by selling securities are incorporated. Statutes such as the Business Corporations Act (Alberta) provide the framework for regulating the relationship between corporations incorporated under it and their directors, officers and shareholders. Corporate structures are often familiar to investors. However, a significant number of issuers are also organized in other ways, such as limited partnerships and trusts, often to achieve certain desired tax consequences. In those cases, the rights of investors are often established through agreements.

The ASC provides four Financing Dashboards that you can use to find information about other public and private financings:

• Prospectus Exempt Market Dashboard, providing data from the filing of Form 45-106F1 Report of Exempt Distribution
• Prospectus Distribution Dashboard, providing data from prospectus filings
• Combined Financing Dashboard, providing a combination of the first two dashboards
• Closing Report Dashboard, a tool to look up a particular business’ financing history

When selling securities, you will generally need to comply with the laws in each jurisdiction in which a distribution occurs. This will typically include the jurisdiction in which the issuer is located and each jurisdiction in which one or more investors are located. The existence of an exemption in Alberta does not necessarily mean there is an exemption in each jurisdiction in which the distribution occurs.

When selling securities by prospectus to other investors in Canada, an issuer can rely on the passport system and, in Ontario, a coordinated review (since Ontario does not participate in the passport system). This means that although the prospectus and accompanying materials are filed electronically with the securities regulators in each of the jurisdictions in which the distribution will occur, the issuer typically only needs to deal with the securities regulator that is its principal regulator. For further details on filing a prospectus in multiple jurisdictions of Canada and how you can determine your principal regulator, refer to National Policy 11-202 Process for Prospectus Reviews in Multiple Jurisdictions.

When selling securities under prospectus exemptions in other jurisdictions of Canada, issuers will typically refer to National Instrument 45-106 Prospectus Exemptions (NI 45-106). That rule sets out most of the harmonized exemptions that have been adopted by each of the jurisdictions across Canada. Most of the exemptions in NI 45-106 are identically worded across the jurisdictions but, in some cases, there are certain differences in the conditions to the exemption as between the jurisdictions. It is important to review the terms of the exemption in relation to each jurisdiction in which securities are to be distributed.

Exercise caution with advertising or websites that may reach investors in jurisdictions where you cannot legally offer or sell securities.

There are some additional exemptions that have been adopted in Alberta and also in substantially similar form in certain other jurisdictions of Canada that are not in NI 45-106, for example:

• start-up crowdfunding
• investment dealer exemption
• existing security holder exemption
• self-certified investor prospectus exemption
• small business financing

It is also worth noting that pursuant to ASC Rule 72-501 Distributions to Purchasers Outside Alberta, an Alberta issuer can sell to a British Columbia purchaser, as a result of the British Columbia Offering Memoranda exemption.

For more details, see “Where do I find these prospectus exemptions?" under these Frequently Asked Questions.

A Form 45-106F1 Report of Exempt Distribution, reporting sales under prospectus exemptions and the applicable filing fee will typically be required to be filed in each jurisdiction of Canada in which a prospectus exempt distribution occurs, reporting on sales in that jurisdiction. (Note, in some jurisdictions a different form is required under their local start-up crowdfunding regime.)

When selling securities from Alberta to investors outside of Canada, you will need to comply with Alberta securities law and will likely need to also comply with the laws of each of the jurisdictions in which investors are located. Those laws will likely be different than the laws in Alberta so the issuer will need to be careful to ensure compliance. The existence of an exemption in Alberta does not mean there is an exemption in the jurisdiction where the investor is located.

Exercise particular caution with advertising or websites that may reach investors in jurisdictions where you cannot legally offer or sell securities.

To comply with Alberta securities law, the issuer can file a prospectus or, in most cases, rely on the same prospectus exemptions that it would use to sell to Alberta investors. However, when selling to foreign investors, the issuer can also rely on ASC Rule 72-501 Distributions to Purchasers Outside Alberta.

In most cases, that rule provides a prospectus exemption to permit the sale of securities to investors outside Canada, provided that the issuer complies with the laws of the jurisdiction in which the investor is located.

In addition, an issuer distributing securities to U.S. investors may, if it qualifies to do so, rely on the multi-jurisdictional disclosure system. This is an arrangement between Canada and the U.S. that allows an issuer to principally rely on documents prepared in compliance with its home jurisdiction for use in the other jurisdiction.

For more information, see "Foreign investors".

Most of the content of a subscription agreement is not dictated by securities law but rather will address corporate and commercial considerations and liability issues considered important by you and your legal counsel.

There are however some securities law requirements that will affect the contents of a subscription agreement, for example:

• A number of the common capital raising prospectus exemptions require that investors complete a specified risk acknowledgement form and these forms would typically be appended to a subscription agreement.
• Certain prospectus exemptions may require that investors be provided with specific contractual rights of action and these would typically be included in a subscription agreement.
• Many of the common capital raising exemptions require that an investor be purchasing as principal and not have been created solely for the purpose of investing, and subscription agreements will often have representations to this effect.
• Under the existing security holder or investment dealer exemptions, available to reporting issuers listed on certain exchanges, the subscription agreement must contain representations 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.
• Some information from the investor will be required to be gathered in order to complete the Form 45-106F1 Report of Exempt Distribution and this will often be gathered as part of a subscription agreement.

ASC staff are not generally able to provide precedent subscription agreements as these are not typically required to be filed. You may be able to find examples of subscription agreements on SEDAR+. These are sometimes filed under the headings “Material Contract” or “Other” or appended to an offering memorandum.

The ASC does not recommend or endorse any particular form of subscription agreement and a sample or template may not be appropriate for your circumstances. However, we are aware that there are other organizations that have endeavoured to develop template or model documents, and that make these templates publicly available, for example:

Canadian Venture Capital & Private Equity Association Model Legal Documents at www.cvca.ca.

National Angel Capital Organization Common Docs at www.nacocanada.ca.

We encourage issuers to engage with qualified legal counsel to assist them in developing a subscription agreement appropriate for their circumstances.

Securities law does not typically dictate the price at which securities can be issued. In most cases, the price will be a negotiation between the issuer and the prospective investors or any registered dealer or underwriter retained in connection with the distribution.

Some factors that may impact the price include the following:

• The number of securities issued and to be issued are relevant considerations in determining price (e.g. 200 million share @ $0.10 = 20 million shares x $1.00).
• Applicable corporate law may require that shares be issued at fair value.
• For issuers listed on a stock exchange, the exchange may set a minimum price at which securities can be issued and/or set a maximum discount to the market price at which securities may be issued.
• For issuers conducting an initial public offering:
  • Securities regulators may be prohibited from issuing a receipt if securities were issued for an unconscionable consideration, or it is otherwise contrary to the public interest.
  • Securities regulators have issued guidance about concerns with share structures involving a large number of shares issued for nominal consideration (See CSA Staff Notice 41-305 Share Structure Issues – Initial Public Offerings).
  • Stock exchanges, securities regulators and/or underwriters may require that certain pre-IPO shares issued at a significant discount to the IPO price be "locked up" or held in escrow for some period of time.

Some prospectus exemptions require an offering memorandum or offering document containing specified information to be provided to investors. Some exemptions do not. In either case, it is important that the information provided to investors be fair and balanced and not be misleading (see “Some key principles of securities law you really need to know!”).

Some of the things investors will often want to understand include:

These terms are not defined in Alberta securities law and not used in it. These are terms that some investors, for example, angel investors (i.e. high net worth individuals that tend to invest in early stage businesses) and venture capitalists may use. They refer to financings conducted at different stages of a business’ development.

The terms pre-seed and seed are often used to refer to financing at the earliest stages, when a business is just being set up and is at the idea stage or at the point where a founder has a proof or concept or prototype. Investment at this stage is often money from the founders but may include funds from close friends and family. It will typically involve raising relatively modest amounts, often less than $2 million.

Series A, B and C refer to subsequent rounds of financing with outside investors. These may involve both angel investors and venture capital investment. With each subsequent round, the business will be more developed and more significant financing sought.