Common Exemptions from Compliance with Securities Legislation in the Province of Ontario

EXEMPTIONS FROM COMPLIANCE WITH SECURITIES LEGISLATION

In Ontario, any business that engages in the distribution of its securities, whether for raising capital or another purpose, must act in accordance with the Ontario Securities Act, RSO 1990, c. S.5 (OSA). Under the OSA, all business entities that trade in their own securities must file a prospectus, unless they fall under a prospectus exemption. The prospectus requirement will apply to any business transaction that involves the distribution of a security. The OSA broadly defines “security” to include debt instruments, partnership interests, and shares.[1] Under the OSA, a “trade” includes any sale or disposition of a security for consideration including the advertising, solicitation, and negotiation of securities for their sale or disposition. The disposition of a security includes any trade of unissued securities or securities previously held by a control person. National Instrument 45-106, Prospectus Exemptions (NI 45-106) lists all of the available prospectus exemptions that an individual or entity may rely on when trading in their corporation’s securities. Below you will find more information on the most used prospectus exemptions.

ACCREDITED INVESTOR EXEMPTION

The accredited investor exemption is the most commonly used prospectus exemption and permits individuals and entities who exceed certain minimum thresholds in their pre-tax assets or income to trade in securities without having to file a prospectus with the Ontario Securities Commission. A corporation is able to utilize the accredited investor exemption to trade any number of securities, so long as the individual or entity purchasing the shares falls under one of the categories of an accredited investor. Below is a list of the most common accredited investors as set out in the OSA and NI 45-106:

• Regulated Canadian pension funds;
• Individuals who have a net pre-tax realizable value that exceeds $1,000,000.00 either alone or in tandem with their spouse;
• Individuals who have a net pre-tax income of $200,000.00 or $300,000.00 in tandem with their spouse for the previous two calendar years and are expected to have a higher pre-tax income for the current calendar year;
• Individuals whose net assets exceed $5,000,000.00 either individually or in tandem with their spouse; and
• Individuals that are the beneficial owner of at least $5,000,000.00 worth of pre-tax value financial assets.

On October 25, 2022, the Ontario Securities Commission implemented Ontario Instrument 45-507 (OI 45-507), which expanded the accredited investor exemption to include self-certified investors who meet certain criteria.[2] The self-certified accredited investor exemption now permits those individuals who have a high degree of knowledge to understand the investments and markets they may be trading securities. An individual can utilize the self-certified accredited investor exemption if they are not trading in more than $30,000.00 of securities in the calendar year, and if the self-certified accredited investor provides a completed confirmation of qualifying criteria and acknowledgement of the risks at the time of executing the trade. OI 45-507 sets out a list of all qualifying criteria, which includes but is not limited to individuals who hold a Chartered Financial Analyst Charter from the CFA Institute, a Chartered Professional Accountant from CPA Canada, a Chartered Investment Manager designation from the Canadian Securities Institute, and individuals who hold a Master’s in Business Administration with a focus on finance from a Canadian university or accredited international university. For a complete list of qualifying self-certified accredited investors refer to OI 45-507.           

PRIVATE ISSUER EXEMPTION

            Another commonly used prospectus exemption is the private issuer exemption, which permits individuals who have a close relationship with the issuer to purchase securities as principal, without filing a prospectus with the Ontario Securities Commission. Individuals who qualify for the private issuer exemption are those individuals who have previous investment experience, or close familial ties with a principal of the issuer such that they are in a position to assess the investment and the issuer. Examples of individuals who may qualify for the private issue exemption include but are not limited to:

• A director, officer, employee, founder, or control person of the issuer;
• Close personal friends and family members of directors or executive officers of the issuer;
• Accredited investors as outlined in NI 45-106; and
• Existing shareholders of the issuer.

For a complete list of individuals who may fall under the private issuer exemption, you can refer to NI 45-106. It is important to note that the private issuer exemption can only be utilized if the securities of the issuer are not owned by more than 50 individuals, not including current or past employees of the issuer or the issuer’s affiliates, if the securities are subject to transfer restrictions, and if the issuer has only distributed securities to individuals listed in NI 45-106.[3]

MINIMUM AMOUNT EXEMPTION

            The final prospectus exemption discussed in this article is the minimum amount exemption, which exempts individuals who are purchasing at least $150,000.00 of securities in cash from filing a prospectus with the Ontario Securities Commission. The minimum amount exemption is premised on the notion that individuals who are purchasing securities that exceed $150,000.00 in cash are sophisticated and have the incentive to assess the investment. For a complete list of prospectus exemptions, please refer to NI 45-106 and its companion policy NI 45-106CP.

Disclaimer:

The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please

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[1] Ontario Securities Act, RSO 1990, c. S.5, s. 1(1).

[2] Ontario Securities Commission: Ontario Instrument 45-507 – Self-Certified Investor Prospectus Exemption (Interim Class Order).

[3] National Instrument 45-106, s. 2.4(1).

About the Author:

Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.