Written by John M. Davidson
A new prospectus exemption was recently introduced by securities regulators in the provinces of Alberta and Saskatchewan, referred to as the Self-Certified Investor Prospectus Exemption (the “New Exemption”).
The New Exemption comes into effect on March 31, 2021, in Alberta and Saskatchewan and is intended to allow for greater access to capital for Alberta and Saskatchewan businesses, and of broadening investment opportunities for Alberta and Saskatchewan investors.
The New Exemption follows on the heels of other “business-friendly” legislative changes recently enacted in Alberta, including (1) the removal of director residency requirements for Alberta-headquartered corporations under the Business Corporations Act (Alberta); and (2) the reduction of certificate filing requirements for limited partnerships under the Partnership Act (Alberta) to reduce the heavy administrative burden and filing requirements for limited partnerships in Alberta.
Self-Certified Investor Exemption
The New Exemption allows businesses that sell securities to investors (“Issuers”) to offer securities to “self-certified investors”.
Self-certified investors are investors (either a person or a company) who do not meet financial thresholds or other criteria to qualify as “accredited investors” (i.e. $1M in financial assets, net assets of at least $5M, net income before taxes exceeded $200k in each of the two most recent calendar years, etc.), but who do meet other criteria (the “Qualifying Criteria”) demonstrating their financial and investment knowledge by virtue of their education and experience or certifications/professional designations.
Qualifying Criteria for Self-Certified Investors
The Qualifying Criteria for a self-certified investor in Alberta includes an investor who:
- holds the designation of a CFA (Chartered Financial Accountant), CIM (Chartered Investment Manager), CBV (Chartered Business Valuator), CPA (Chartered Professional Accountant), or CIWM (Certified International Wealth Manager); or
- was admitted to practice law in a Canadian jurisdiction, with at least 1/3 of their legal practice involving corporate finance or mergers and acquisitions; or
- holds an MBA degree, focused on finance, from a university in Canada or from an accredited university in a foreign jurisdiction; or
- holds an undergraduate degree in Finance or holds an undergraduate degree in Business or Commerce with a major or specialization in finance or investment, from a university in Canada or from an accredited university in a foreign jurisdiction; or
- has passed one of either: (1) the Canadian Securities Course Exam, or (2) both the Series 7 Exam in the USA and the New Entrants Exam administered in Canada, as well as meeting at least one of the following income criteria:
- a net income (before taxes) exceeding $75,000 in each of the two most recent calendar years and reasonably expects to exceed that income level in the current calendar year, or
- a net income (before taxes) with a spouse, exceeding $125,000 in each of the two most recent calendar years and reasonably expects to exceed that income level in the current calendar year.
Concurrent with making an investment, self-certified investors must:
- meet the Qualifying Criteria outlined above;
- complete a form acknowledging that they meet the Qualifying Criteria; and
- make a Statutory Declaration confirming they meet the Qualifying Criteria in front of a commissioner for oaths.
Although an Issuer is not expected to independently verify the matters a Self-Certified Investor solemnly declares to in the Statutory Declaration, if the Issuer knows the Statutory Declaration is false or would reasonably be expected to know that, it cannot rely on the Statutory Declaration. Issuers may also rely on the Self-Certified Investor’s representation about the total amount the investor has invested in other businesses under the New Exemption, provided the Issuer does not know or would not reasonably be expected to know that the representation is false.
Pilot program for the Exemption
The Exemption is being adopted on a three-year pilot basis.
The amount that can be invested under the New Exemption by self-certified investors is a maximum of $30,000 per year, and $10,000 per issuer.
These investment limits will not apply to investments in listed issuers (an issuer listed on a Canadian stock exchange including the TSX Venture Exchange, the Toronto Stock Exchange, the Canadian Securities Exchange, or Neo Exchange Inc., who are complying with ongoing reporting obligations), as long as the self-certified investor has received suitability advice about the investment.
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Our team of securities and corporate finance lawyers have extensive experience advising both public and private companies on their legal disclosure obligations. We work with businesses in a range of industries to ensure transactions are completed on time and on budget. With practical business backgrounds in private and public companies, along with extensive familiarity with regulatory authorities, our lawyers can help negotiate and structure transactions. We get deals done right for your business while minimizing your risks and maximizing your business needs and potential. If you have any questions about these new prospectus exemptions in Alberta and Saskatchewan, or any other securities and corporate finance questions, please contact any member of our Securities and Corporate Finance Group for more information.
*This update is intended for general information only on the subject matter and is not to be taken as legal advice.