This article provides an overview of three important securities exemptions in Canada: the NI 45-110 crowdfunding exemption, the NI 45-106 offering memorandum exemption, and the NI 45-106 accredited investor exemption.
The below is not legal advice. Choose the appropriate exemption type for your issuance in consultation with legal counsel.
NI 45-110 Crowdfunding Exemption
The NI 45-110 crowdfunding exemption allows businesses, particularly startups and small enterprises, to raise capital from the public without having to file a prospectus. Key requirements include:
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Issuer Limits: The issuer can raise up to $1.5 million in a 12-month period.
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Investor Limits:
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Non-accredited investors can invest up to $2,500 per distribution (or $10,000 if advised by a registered dealer).
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Accredited investors and permitted clients have no limits.
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Use of Funding Portals: Funds must be raised through a registered crowdfunding portal.
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Offering Document: Issuers must provide an offering document with prescribed disclosure.
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Resale Restrictions: Securities are subject to a hold period, typically four months.
NI 45-106 Offering Memorandum Exemption
The offering memorandum (OM) exemption under NI 45-106 allows companies to raise capital from a broad range of investors, provided they issue an offering memorandum that meets regulatory standards. Key requirements include:
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Issuer Eligibility: Available to non-reporting and reporting issuers, except investment funds.
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Investor Limits:
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Non-eligible investors (those with low income and assets) can invest up to $10,000 per year.
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Eligible investors (meeting income or asset thresholds) can invest up to $30,000 per year (or $100,000 if advised by a registered dealer).
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Disclosure Requirements: A prescribed offering memorandum must be provided to investors, including financial statements.
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Resale Restrictions: Securities are subject to resale restrictions under section 2.5 of NI 45-102.
NI 45-106 Accredited Investor Exemption
The accredited investor (AI) exemption allows issuers to sell securities to qualified investors without providing a prospectus. Key requirements include:
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Investor Eligibility: Investors must meet one of the following financial thresholds:
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Individuals:
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Net income of $200,000 (or $300,000 with a spouse) in the past two years with a reasonable expectation of maintaining that income.
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Net financial assets exceeding $1 million (excluding primary residence).
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Net assets of at least $5 million.
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Institutions: Banks, credit unions, pension funds, and certain corporations qualify.
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No Investment Limits: Accredited investors can invest without restrictions.
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Limited Disclosure Requirements: No mandatory offering memorandum or prospectus, though investors may conduct their own due diligence.
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Resale Restrictions: Subject to standard private placement hold periods.
Conclusion
These exemptions under NI 45-110 and NI 45-106 provide businesses with flexible methods to raise capital while ensuring investor protection. Issuers should consult legal and compliance professionals to ensure they meet regulatory obligations.