close business associate for the purposes of the Ontario FFBA
exemption (there will now be 3 separate directions on this
issue in the companion policy depending on which province
the issuer and investor(s) reside);
• Investors in Ontario will have a statutory right of action under
the Ontario FFBA exemption against an issuer equivalent to
that provided under the offering memorandum exemption; and
• Issuers will be required to file notice of any exempt distributions
on NI Form 45-106F11 which is being adopted in Ontario, Alberta,
New Brunswick and Saskatchewan to replace NI Form 45-106F1.
Also, like in Saskatchewan, an investor in Ontario must sign a risk
ackno wledgement form. There now will be t wo risk ackno wledgement
forms under the FFBA exemption, a Saskatchewan form and an
Section 3.1 of the companion policy to NI 45-106 already states
if advertising is used or a commission is paid to sell securities under
this exemption the securities regulators will question whether all
of the purchasers are really family, close personal friends or close
“ 3.1 Soliciting purchasers
Part 2, Division 1, and Part 3, Division 1 (capital raising
exemptions) in NI 45-106 do not prohibit using registrants, finders,
or advertising in any form (internet, e-mail, direct mail, newspaper
or magazine) to solicit purchasers under any of the exemptions.
However, use of these means to find purchasers under the private
issuer exemptions in sections 2.4 and 3. 4 of NI 45-106, or under
the family, friends and business associates exemptions in sections
2.5 and 3. 5 of NI 45-106, may establish a presumption that the
relationship required for use of these exemptions is not present.
If, for example, an issuer advertises or pays a commission or
finder’s fee to a third party to find purchasers under the family,
friends and business associates exemptions, it suggests that
the precondition of a close relationship between the purchaser
and the issuer may not exist and therefore the issuer cannot
rely on these exemptions.” (emphasis added.)
Comments on the Proposed Ontario FFBA Exemption
It is disappointing the FFBA exemption being proposed in
Ontario is not identical to the FFBA exemption available in the rest of
Canada. Ontario’s proposal has fallen short of achieving substantial
harmonization with the FFBA exemption available in other Canadian
jurisdictions. Granted, two of the changes being proposed in Ontario
probably are ones that should apply in the rest of Canada; specifically
excluding investment funds and novel or complex securities under
the exemption. The remainder of the Ontario’s proposed changes
to the FFBA exemption are unnecessary and reveal more interest in
style over substance.
Another concern is the need for the risk acknowledgement
and exempt distribution reports to be harmonized with the
equivalent documents existing in other jurisdictions. There is not
enough of a difference to warrant separate documents. If all the
proposed changes go through, across Canada there will now be
four different exempt distribution reports and seven different risk
acknowledgements under NI 45-106.
There is also no need for a specific advertising or finder’s fee
ban in the Ontario version of the rule. The companion policy to NI
45-106 already instructs issuers that using advertising and paying
finder’s fees when using the FFBA exemption indicates the FFBA
exemption is not available.
Adding a third Ontario specific clarification in the companion
policy to NI 45-106 as to who are close personal friends and close
business associates for the purpose of the FFBA exemption is
unnecessary and confusing. It suggests the regulators cannot decide
who close personal friends are, or close business associates are
for the purpose of the exemption. If the regulators cannot agree
who is a close personal friend or a close business associate, how
do they expect industry or the average person on the street to get it
right? Frankly, I don’t see enough differences in the three clarifying
statements of who are close personal friends and close business
associates to warrant three separate provincial statements.
Ontario’s proposal to provide a statutory right of action to
investors under the FFBA exemption is also misguided. It is a major
step out from the other provinces. A statutory right of action does
not exist under the other exemptions under NI 45-106 except for the
offering memorandum exemption. It places Ontario investors who
purchase under the FFBA exemption in a better position than arms-length investors who purchase under other exemptions. Purchasers
under the FFBA exemption are not similar to investors under the
offering memorandum exemption that may have no prior
knowledge or relationship with the issuer’s directors,
officers and founders.
I strongly encourage you have your say and let the
OSC know you support the adoption of a FFBA exemption
in Ontario and let them know what you believe they
got right and what they got wrong and should change.
Email or send a letter to the following address:
The Secretary, Ontario Securities Commission
20 Queen Street West, 22nd Floor, Toronto, Ontario M5H 3S8
Fax: 416.593.2318 | Email: email@example.com
The goal should be substantial harmonization and rule
simplification. Canadians should not have a different definition or be
subject to different applications of the FFBA exemption just because
they reside in one province or territory over another.
Disclaimer: This material is intended for general information purposes
only and does not constitute legal advice.
For more information contact:
firstname.lastname@example.org | 604.659.9188 | Twitter @
AlixeCormick | Google+: https://plus.google.com/+AlixeCormick
The FFBA exemption has the potential to have a huge impact on
how companies raise capital in Ontario. It increases the options
of who private and public issuers can raise capital from.