ASC And FCAA Amend Self-Certified Investor Prospectus Exemption

The new self-certified prospectus exemption adopted in Alberta and Saskatchewan has been amended in an effort to address inefficiencies and shortfalls and to better facilitate the capital raising efforts of businesses in these jurisdictions.

As previously discussed, on March 31, 2021 the Alberta Securities Commission (ASC) and the Financial and Consumer Affairs Authority of Saskatchewan (FCAA) adopted a self-certified prospectus exemption (the Exemption) on a three year trial basis. The Exemption permits certain investors in Alberta and Saskatchewan with financial and investment knowledge to self-certify and invest alongside accredited investors, even if they do not meet the financial thresholds or other criteria required to qualify as an accredited investor. The ASC and FCAA intended that the Exemption would help businesses in Alberta and Saskatchewan raise capital.

Following the adoption of the Exemption, the ASC and FCAA have made continual efforts to gather feedback on the Exemption. As a result of those efforts and to address identified inefficiencies and shortfalls, on June 28, 2022, the ASC and the FCAA amended the Exemption to address two areas for which amendments could facilitate the broader use of the Exemption.

Firstly, the amendments contemplate reliance on the Exemption not only by the issuer, but also by existing securityholders who wish to resell securities to self-certified investors. As noted by the ASC and the FCAA, the Exemption was always intended to emulate the accredited investor exemption and these amendments parallel the resale provisions in the accredited investor exemption.

Secondly, although special purpose vehicles (SPV) are often fundamental for investing in small businesses at their early stages, the Exemption originally subjected SPVs to the same investment limits as individuals (i.e., invest no more than $10,000 per issuer and no more than $30,000 in all issuers in a calendar year). The revised Exemption provides that certain qualifying SPVs are not subject to the investment limits provided that the following three conditions are satisfied:

• The SPV distributes its securities to self-certified investors in compliance with the Exemption;
• Self-certified investors must not have contributed in aggregate more than 25% of the total funds invested in the SPV; and
• Accredited investors and self-certified investors must own all of the interests (direct, indirect, or beneficial) of the SPV, except for the voting securities that are legally required to be owned by directors.

The amended Exemption is effective as of June 28, 2022 and is valid until March 31, 2024. For further information, please see Multilateral CSA Notice of Amendments to Alberta and Saskatchewan Orders 45-538Self-Certified Investor Prospectus Exemption.

This article was authored with the assistance of Zainab Adejumobi, summer student.

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.