On October 25, 2022, the Ontario Securities Commission (“OSC”) announced an 18-month pilot project under Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order) (“Order 45-507”) that introduces a new prospectus exemption (the “Self-Certified Investor Exemption”) allowing issuers to raise capital from investors with qualifying education or work experience (“Self-Certified Investors”).
The Self-Certified Investor Exemption permits non-investment fund issuers with a head office in Ontario to raise small amounts of capital from Self-Certified Investors without the requirement to prepare a prospectus. It is important to note that this is an Ontario only exemption, such that in addition to the issuer having a head office in Ontario, the Self-Certified Investor must be in Ontario. During each calendar year, a Self-Certified Investor, and any permitted designates, may acquire a maximum of $30,000 worth of securities issued under the Self-Certified Investor Exemption. Instead of placing any limits on the issuer, each individual Self-Certified Investor is subject to an annual maximum amount they are able to invest. As with other prospectus exemptions, the issued securities will be subject to resale restrictions under National Instrument 45-102 – Resale of Securities.
The Self-Certified Investor Exemption is subject to a number of conditions including:
- the issuer is not an investment fund;
- the issuer's head office is located in Ontario;
- the purchaser of the securities is a Self-Certified Investor or a permitted designate;
- the purchaser represents to the issuer that the aggregate acquisition cost of the securities of all issuers acquired by the Self-Certified Investor, and any permitted designates, under the Self-Certified Investor Exemption in the calendar year does not exceed $30,000;
- the Self-Certified Investor completes and provides to the
issuer
- a completed Confirmation of Qualifying Criteria form, confirming that the Self Certified Investor meets the Qualifying Criteria, and
- a completed Acknowledgement of Risks form, confirming that the Self-Certified Investor has read and understood each of the acknowledgements; and
- 10 days following the distribution of securities under the Self-Certified Investor Exemption, the issuer files a completed Form 45-106F1 Report of Exempt Distribution, together with the completed Confirmation of Qualifying Criteria and the applicable fee.
The Self-Certified Investor Exemption requires that a Self-Certified Investor acknowledge that they have met certain educational and designation requirements (“Qualifying Criteria”). The Qualifying Criteria list includes holders of Chartered Financial Analyst (CFA), Chartered Investment Manager (CIM), Chartered Business Valuator (CBV), Chartered Professional Accountant (CPA), Certified International Wealth Manager (CIWM) and Certified Financial Planner (CFP) designations from the applicable professional organizations, as well as certain lawyers, undergraduate or MBA business degree holders and persons who have passed certain exams administered by various institutions or other organizations. The final Qualifying Criteria includes an individual that has management, policy-making, engineering, product or other relevant operational experience at a business that operates in the same industry or sector as the issuer and who, as a result of this experience, is able to adequately assess and understand the risk of investment in the issuer.
The Self-Certified Investor Exemption follows similar exemptions enacted by securities regulators in Alberta and Saskatchewan, as well as the Capital Markets Modernization Taskforce's recommendation that the OSC expand the “accredited investor” definition (as defined in National Instrument 45-106 – Prospectus Exemptions (“NI45-106”)) to include individuals who have completed and passed relevant proficiency requirements indicating a high degree of understanding of investments and markets. The OSC expects that the Self-Certified Investor Exemption will provide new sources of capital for issuers, allow for increased investment opportunities for a new class of investor and, if deemed successful, may result in amendments to permanently expand the definition of “accredited investor” in the future.
Order 45-507 took effect on October 25, 2022 and will expire on the earlier of (i) April 25, 2024, unless extended by the OSC; and (ii) the effective date of an amendment to NI 45-106 that addresses substantially the same subject matter as Order 45-507.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
