The Canadian Securities Administrators have released the final regulations for the new Offering Memorandum (“OM”) Exemption, quasi-harmonized in six jurisdictions in Canada. Ontario will join the rest of Canada and open up private capital investment to “non-accredited” investors in January of 2016, while Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia will enforce the new rules effective May 2016.
The new regulations are designed to provide further investor protection when purchasing securities in private issuers. The key changes fall into three categories:
- Ongoing disclosure – non-reporting issuers will be required to, among other measures, provide investors with audited annual financial statements and an annual notice describing how the proceeds raised under the OM were used.
- Disclosure at time of offering – any marketing materials will be required to be incorporated by reference in the offering memorandum so that they are subject to the same liability as the disclosure provided in the offering memorandum in the event of a misrepresentation. This would include videos, pitch decks and executive summaries companies use when marketing their offering.
- Investor limits – individual investors relying on the offering memorandum exemption will be subject to annual investment limits – $10,000 for an ordinary investor and $30,000 for an eligible investor. If the securities are sold through a dealer, all investments are subject to suitability, but the annual limit for an eligible investor increases to $100,000 per year, subject to suitability.
Companies will be encouraged to be able to reach the large Ontario investor marketplace, but the regulations are certainly complex and will take a while to digest. The 166 page document contains many more details – some of which pertain to certain jurisdictions. I’m glad the regulations don’t come into effect for a couple of months … it will take us that long to figure them all out!