The Listed Issuer Financing Exemption

The Canadian Securities Administrators (the “CSA”) have approved a new prospectus exemption for reporting issuers listed on a Canadian stock exchange wishing to raise equity capital (the “Listed Issuer Financing Exemption”). The Listed Issuer Financing Exemption relies on the issuer’s continuous disclosure record, as supplemented with a short offering document, and will allow these issuers to distribute freely tradeable listed equity securities to the public. Subject to the necessary ministerial approvals, the exemption will take effect on November 21, 2022 by an amendment to National Instrument 45-106 - Prospectus Exemptions.

The exemption is part of the CSA’s ongoing efforts to reduce the regulatory burden for non-investment fund reporting issuers, including providing efficient means for issuers to raise capital while maintaining investor protection. The CSA has made consequential changes to the System for Electronic Document Analysis and Retrieval (“SEDAR”) and National Instrument 45-102 - Resale of Securities accordingly to add the exemption element.

Eligibility criteria

To rely on the Listed Issuer Financing Exemption, an issuer must:

• have securities listed on a Canadian stock exchange recognized by a securities regulatory authority in Canada;
• have been a reporting issuer for at least 12 months in Canada;
• have filed all periodic and timely disclosure documents it is required to have filed;
• have active business operations or its principal asset not be cash (or an equivalent) or its exchange listing (e.g. capital pool company or shell); and
• prepare a short offering document that will be considered a “core” document under the secondary market civil liability regime.

Limitations

The exemption places the following limitations:

• the total dollar amount of the distribution will not exceed the greater of five million dollars or ten percent of the issuer’s market capitalization, up to a maximum of ten million dollars in any 12 month period in reliance; and
• the security being distributed is either a listed equity security or a unit consisting of a listed equity security and a warrant convertible into a listed equity security.

The proceeds of funds raised under the Listed Issuer Financing Exemption may not be used for a significant acquisition, a restructuring transaction that would require additional financial statements under the prospectus rules or for any other transaction that requires approval of any security holder. 

Underwriter and exempt market dealer

There is no requirement for a registrant or underwriter to be retained in connection with the offering. Investment dealers and exempt market dealers that are involved will be subject to their registration requirements. It is important to note that investors wishing to buy the new issue with the intention of immediately reselling the securities in the secondary market should consider the applicability of any "backdoor underwriting" rules.

Offering document and reporting requirements

Before soliciting purchasers under the Listed Issuer Financing Exemption, issuers must file with a regulatory or securities regulatory authority a news release announcing the distribution and Form 45-106F19 Listed Issuer Financing Document (“Form 45-106F19”). Form 45-106F19 is used as the offering document under the Listed Issuer Financing Exemption and must include the following information:

• the securities offered and the conditions/limitations of the offering;‎
• confirmation the offering document has not been reviewed by any securities ‎regulator; ‎
• certification that both the financing document and 12-month continuous ‎disclosure record contain no misrepresentations;‎
• a summary description of the business, recent developments, material ‎facts and business objectives and milestones;‎
• disclosure and a detailed breakdown of the use of the available funds after the offering;‎
• a description of the use of the proceeds from any ‎financing in the prior 12 months and variances from such disclosure;‎
• the involvement of dealers or finders and their fees, if applicable, and ‎
• a description of statutory rights available to purchasers.‎

Issuers must also file Form 45-106F1 Report of Exempt Distribution in every jurisdiction where a distribution has been made within ten days of distributing securities under the exemption. The distribution must end no later than the 45^th day after issuing the news release.

Statutory liability

Since the CSA would not be reviewing the offering documents, the CSA imposed statutory liability to the issuer, and in some jurisdictions, to the executives signing the offering document, as well as to the issuers’ directors, for any misrepresentation in the offering documents.

For further information, please see CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions to Introduce the Listed Issuer Financing Exemption.

Summary and benefits for issuers and advisors

In summary, under the Listed Issuer Financing Exemption, both issuers and their financial advisors will no longer need to prepare and file a short form prospectus and instead the issuer is able to rely on a condensed short offering document, saving both time and costs. The Listed Issuer Financing Exemption will also allow smaller issuers greater access to retail investors and provide retail investors with a broader choice of investments. Equity securities issued in reliance on the exemption will be freely tradeable but subject to a seasoning period that will be satisfied by the issuer being a reporting issuer in good standing. If the issuer is intending to raise capital to finance a significant acquisition or restructuring transaction by distributing securities to retail investors, such a capital raise must be completed by the use of the prospectus regime in order to ensure full, 1 and plain disclosure.

For further information on the Listed Issuer Financing Exemption please contact the authors or any of the members of our Securities and Capital Markets group.

This article provides only general information about legal issues and developments, and is not intended to provide specific legal advice. Please see our disclaimer for more details.