OSC Adopts Family, Friends and Business Associates Prospectus Exemption

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OSC News Release | February 19, 2015

Friends and familyTORONTO – The Ontario Securities Commission (OSC) today published a family, friends and business associates prospectus exemption which is expected to provide a cost-effective way for issuers (other than investment funds) to raise capital from their networks of family, close personal friends and close business associates. Subject to Ministerial approval, the exemption comes into effect on May 5, 2015.

The exemption is largely harmonized with an exemption that is currently available in other Canadian jurisdictions. It allows for the sale of securities by a selling security holder or an issuer to principals of the issuer as well as certain family members, close personal friends and close business associates. The exemption is based on investors having a sufficiently close relationship with a principal of the issuer to assess the capabilities and trustworthiness of the principals and access information about their investment. As a condition to the exemption, a signed risk acknowledgement form must be obtained, setting out the key risks related to the investment and confirming how the investor qualifies to make the investment.

“Early stage issuers will benefit from this exemption as it will provide them with greater access to capital at a critical stage,” said Howard Wetston, OSC Chair and Chief Executive Officer. “Investors will also benefit through greater access to opportunities at the ground level, and everyone benefits from greater harmonization across Canada.”

The exemption is one of four new exemptions to facilitate capital raising by businesses at different stages of development that were published for comment in March 2014 as part of the OSC’s exempt market reform initiative. The comment period for the proposed exemptions closed on June 18, 2014 and the OSC received approximately 815 comment letters. The existing security holder prospectus exemption came into effect in Ontario on February 11, 2015.

An update on the remaining exemptions – a crowdfunding exemption and an offering memorandum exemption – is being issued in connection with this publication.

The OSC is the regulatory body responsible for overseeing Ontario’s capital markets. The OSC administers and enforces Ontario’s securities and commodity futures laws. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets.

The objective of the exempt market reform initiative is to facilitate capital raising for start-ups and small and medium-sized enterprises and to modernize Ontario’s exempt market regulatory regime, while providing adequate protections to investors.

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