On July 28, 2021, the Canadian Securities Administrators (CSA) announced a proposed new prospectus exemption for issuers listed on a Canadian stock exchange. The proposal is in response to comments received from CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, and reflects research on capital raising requirements in other countries as well as other stakeholder feedback about the prospectus system. The proposed Listed Issuer Financing Exemption is expected to reduce costs for issuers that would otherwise raise small amounts of capital through the public markets, usually through a short-form prospectus offering. The new exemption is expected to be used by such issuers as an alternative to the accredited investor and family, friends, and business associates prospectus exemption. The exemption would not be available to issuers that have been a reporting issuer for less than 12 months, nor to issuers that have not filed all continuous disclosure documents required under Canadian securities legislation. In addition, the exemption could not be used by an issuer whose principal assets are cash or its exchange listing, nor by an issuer that intends to use the proceeds for a significant transaction such as an acquisition that would require shareholder approval, on the basis that the issuer’s existing business should already be adequately described in its current disclosure documents.

To avail themselves of the proposed exemption, eligible issuers would need to file a short offering document (not expected to be longer than 5 pages) updating the existing public disclosure, including with respect to any new developments in the issuer’s business, and confirming that the issuer will have sufficient funds for at least 12 months after completion of the offering. Issuers could raise up to the greater of $5 million or 10% of the issuer’s market capitalization, to a maximum of $10 million, annually. In addition, the offering can not result in more than 100% dilution for existing shareholders. Purchasers under the exemption would have rights under the secondary market civil liability regime, and would also have a contractual right of rescission against the issuer for a period of 180 days in the event of a misrepresentation. As with many prospectus exemptions, the issuer would be required to report sales by filing a Form 45-106F1 Report of Exempt Distribution, but would not be required to complete the schedule that contains the names of the purchasers. If you have any questions about the availability of the proposed exemption or would like to comment on the consultation, please contact us.

August 31, 2021