Raising capital and market access streamlined for Canadian-listed issuers and retail investors

In an effort to remove barriers to capital raising for smaller issuers listed on a Canadian stock exchange, the Canadian Securities Administrators (CSA) is adopting a new prospectus exemption.  

Provided all necessary ministerial approvals have been obtained, on November 21, 2022, National Instrument 45-106 Prospectus Exemptions and its corresponding companion policy will be amended to provide for a new prospectus exemption commonly referred to as the "Listed Issuer Financing Exemption."

The Listed Issuer Financing Exemption will allow issuers to raise capital more efficiently. It will be available on November 21 to reporting issuers, subject to certain requirements including the following:

Reporting Issuer Requirements

• The issuer must have been a reporting issuer in Canada for at least 12 months immediately prior to announcing their intention to use the exemption;
• The issuer must also have filed all continuous disclosure documents required under Canadian securities legislation;
• The issuer must have equity securities on an accepted Canadian stock exchange;
• The issuer must not be an investment fund;
• The issuer must have active business operations; and
• The issuer must have no recent restructuring transaction with a company or person that was inactive.

Distribution Requirements

• The securities to be distributed under this exemption must be a listed equity security or a unit that is composed of both a listed equity security and a warrant convertible to a listed equity security;
• Available funds will not be used to complete significant acquisitions, a restructuring transaction or any transaction that requires security holder approval.

Issuers relying on the Listed Issuer Financing Exemption can raise up to whatever is greater in any one-year period: $5 million, or 10 per cent of their market capitalization (to a maximum of $10 million). This exemption is also limited by the rule that all distributions using it in any one-year period cannot result in an increase of more than 50 per cent of that issuer’s outstanding listed securities.

News Release and Filing Requirements

In addition, eligible issuers need to file a short offering document that contains the following:

• A brief overview of the issuer’s business;
• How the funds raised will be used;
• All material facts not in its other public disclosure documents;
• The price and description of the offering;
• A statement confirming the offering document has not been reviewed by securities regulators; and
• The statutory rights available to the purchasers of the securities.

Before soliciting offers to purchase, issuers need to file with their regulatory authorities in every jurisdiction that the offering is available. Additionally, a news release announcing the distribution with the prescribed language and a Short Offering Form (Form 45-106F19 – Listed Issuer Financing Document) should be completed and sent by the issuer. The issuer will also need to post the Short Offering Form on its website.

It's important that issuers take care when creating and distributing their Short Offering Form. Any misrepresentations of securities in the Listed Issuer Financing Document give purchasers the right to rescind their purchase of the securities, or to bring a claim for damages against the issuer. In some jurisdictions, directors as well as executives who signed it could also be liable.

Moving Forward

This new exemption should provide much-needed efficiency for growing issuers, and should address the concerns they collectively communicated to the CSA. Though there are safeguards in place, easier access to markets should benefit investors and issuers alike. It also has the added benefit of keeping Canadian issuers competitive with issuers in other countries, while reducing the administrative workload here at home.

Fillmore Riley LLP’s Securities & Capital Markets Practice

Navigating markets can be daunting without the guidance of a trustworthy advisor. If you have questions about prospectus exemptions or are seeking advice about how this exemption could enhance your business, the lawyers in our Securities & Capital Markets practice would be pleased to help you achieve your goals.