New Prospectus Exemption for Listed Issuers Aimed at Making Capital Raising Easier

Raising funds from the public by reporting issuers listed on a Canadian stock exchange is slated to get much easier. On November 21^st, 2022, an amendment to National Instrument 45-106 Prospectus Exemptions (“NI 45-106”) will go into effect to create a new exemption from prospectus requirements, known as the Listed Issuer Financing Exemption. This exemption will provide a more efficient method for a listed reporting issuer to raise capital from the public through the issuance of freely tradeable listed securities. The exemption relies on the issuer’s timely and periodic disclosure documents available to the public on SEDAR (www.sedar.com), as supplemented by a short offering document. Listed issuers will be able to conduct small offerings and avoid the high cost and length of time required to prepare, file and deliver a prospectus to potential investors.

The Listed Issuer Financing Exemption forms part of the ongoing efforts of the Canadian Securities Administrators to reduce the regulatory burden for reporting issuers, including providing efficient and cost-effective means for issuers to raise capital while maintaining investor protection.

Who is Eligible for this Exemption?

A reporting issuer who wishes to use the exemption for an offering of freely tradeable securities to the public must:

• have been a reporting issuer in at least one Canadian jurisdiction for at least 12 months before announcing the financing;
• have equity securities (e.g. common shares) listed on a stock exchange in Canada;
• be up-to-date with all periodic and timely disclosure obligations in accordance with Canadian securities laws;
• not have ceased business operations
• not have as its principal asset, cash, cash equivalents or its exchange listing (which excludes capital pool companies, special purpose acquisition companies and growth acquisition corporations);
• not be an investment fund; and
• reasonably expect to have sufficient resources and funds for 12 months following closing of the financing.

What are the Conditions and Limitations?

Use of the Listed Issuer Financing Exemption is subject to the following key conditions and limitations:

• the dollar amount of the financing, combined with the dollar amount of all other financings under the exemption in a 12 month period, cannot exceed the greater of: (i) $5 million and (ii) 10% of the issuer’s market capitalization, up to a maximum of $10 million;
• the security to be issued in the financing 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 financing, combined with all other financings under the exemption during the previous 12 months, may not result in an increase of the issuer’s outstanding listed equity securities by more than 50%.

What Must the Issuer Report

Before an issuer may solicit purchasers using the Listed Issuer Exemption, it must:

• issue a news release announcing the financing;
• on SEDAR, file a Form 45-106F19 – Listed Issuer Financing Document (the “Offering Document”);
• post a copy of the Offering Document on its website.

The securities commissions will not review the Offering Document before an issuer is allowed to use the Listed Issuer Financing Exemption.

What Liabilities is an Issuer Subject To?

The issuer, its directors and the issuer’s executives who sign the offering document will be subject to statutory liability if the offering document contains a misrepresentation.

Benefits of the Exemption

The Listed Issuer Financing Exemption is expected to create greater accessibility to the capital markets for issuers, while also reducing transaction costs for raising financing. This is particularly beneficial for small-to-medium-sized issuers as it also allows smaller issuers greater access to the public. While issuers must ensure there are no misrepresentations, the exemption creates new opportunities for capital-intensive business growth and development.

If you have questions about the new exemption or your company’s potential eligibility for this or other prospectus exemptions, please contact Claudia Losie, Angela So or other members of our Securities Practice Group.