What are RED reports? Why are they required?
What is a RED and why do I need to file one?
Issuers that rely on certain prospectus exemptions to distribute securities to investors are required to file a report of exempt distribution (“RED”) with the securities regulators in each of the Provinces and Territories that the securities were distributed. This is a securities law requirement found in National INstrument 45-106 - Prospectus Exemptions (“NI 45-106”), National Instrument 45-110 - Start-Up Crowdfunding Registration and Prospectus Exemptions (“NI 45-110”) and other relevant instruments, regulations and statutes. The RED is filed on SEDAR+ (www.sedar+.ca) and serves as a comprehensive record, outlining certain details (as required by NI 45-106, NI 45-110 and other relevant securities laws) such as information about the issuer, types of securities offered, exemptions relied upon by investors, and other specifics about the participating investors (see What comprises a RED below). The RED and data collected by the securities commission's aims to facilitate regulatory oversight by promoting transparency, ensuring compliance with relevant securities laws, and providing regulators with essential data to monitor capital market activities, with the ultimate goal of contributing to investor protection and market integrity. By detailing exempt distributions by issuers, the RED aids securities regulators in understanding capital flows, conducting statistical analysis, verifying adherence to exemption conditions, with the goal of contributing to a well-regulated and trustworthy marketplace fostering confidence among investors and market participants.
What comprises a RED?
Each RED is comprised of three parts:
(i) Form 45-106F1. This provides details on the offering of securities and includes information such as: the issuer and information relating to the issuer, type of security offered, price per security, distribution date of securities, prospectus exemptions relied on, aggregate offering amount, any fees or compensation paid to agents, names of directors and officers of the issuer and the individual certifying the report. Outside of the names, email and phone number of directors, officers and control persons of the issuer, and the name, email and phone number of any agent compensated in connection with the offering, this schedule does not contain personal information.
(ii) Schedule 1 to Form 45-106F1. This provides details on individual investors and includes information such as: the investors name, the investors address, the investors phone number, the subscription amount and amounts paid for securities and the exemption relied on by investors. This schedule contains personal information, is kept confidential by the relevant securities commissions and is not publicly disseminated (see Who can access a filed RED Report below).
(ii) Schedule 2 to Form 45-106F1. This provides details on the directors, officers, control persons and promoters of the issuer and includes information such as: the name of the director, officer or control person, the residential address of the director, officer or control person, and the position held. This schedule contains personal information, is kept confidential by the relevant securities commissions and is not publicly disseminated (see Who can access a filed RED Report below).
Who can access a filed RED report?
Once a RED is submitted on SEDAR+, Form 45-106F1 (and the details contained therein) is publicly accessible on the issuer’s SEDAR+ profile.
Schedule 1 to Form 45-106F1 and Schedule 2 to Form 45-106F1 are confidential and collected by the securities commissions for the reasons set forth above. While these Schedules are filed along with the Form 45-106F1, they are not disseminated publicly by the securities commissions.
What do I do with final copies of a RED report?
Following the submission of a RED on SEDAR+to the it is crucial to retain a copy for various purposes. The filed RED serves as a documentation of compliance with securities regulations and should be kept for internal recordkeeping, facilitating future reference, analysis, and discussions related to the exempt distribution. It is also essential to store a copy to meet potential legal requirements regarding document retention, ensuring adherence to jurisdiction-specific regulations. Retaining REDs are valuable for due diligence in subsequent financial transactions or corporate activities and can aid in maintaining consistency in reporting for future exempt distributions. Safeguarding this record is advised for communication with stakeholders, such as investors or legal counsel, and for overall organizational documentation. Each RED, particularly Schedule 1 and Schedule 2 should be stored and kept by an issuer in compliance with relevant privacy laws.
What is the cost to file a RED report?
The cost to file the RED varies, depending in which provinces that the distributions of securities took place, but is generally included in the closing fees you pay to addy. It is important to note that if a RED is filled later than as prescribed in NI 45-106, NI 45-110 or other relevant securities law, then there are additional late filing fees.