Alberta Adopts Prospectus Exemption for Start-up Businesses

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On July 26, 2016, Alberta adopted a new exemption from its general requirement for issuers to clear and file a prospectus prior to issuing securities. The new exemption is found in ASC Rule 45-517 (the “Start-up Business Exemption”).

The Start-up Business Exemption is available for distributions of securities by Alberta issuers seeking to raise funds from Alberta investors. It can be used by issuers that wish to raise funds in a traditional manner, for example, through their contacts in the community or through a traditional registered dealer. It can also be used by issuers to crowdfund and raise funds via an online funding portal that is registered as a dealer.

The key conditions of the Start-up Business Exemption are as follows:

  • The issuer must be an “eligible issuer” i.e., the head office of the issuer must be located in Alberta or a corresponding jurisdiction.
  • The issuer can only distribute “eligible securities” i.e., the securities must be either common shares, non-convertible preference shares, securities convertible into common shares or non-convertible preference shares, non-convertible debt securities linked to a fixed or floating interest rate, limited partnership units or investment shares that are non-convertible preference shares issued by a cooperative under the Cooperatives Act (Alberta).
  • The issuer must prepare an offering document in the required form, which includes certain information about its business, its management and the offering, including how it intends to use the funds raised, and the minimum offering amount.
  • The issuer, including other members of its “issuer group”, cannot raise in aggregate more than $250,000 per distribution. The issuer group is also limited to two start-up business distributions in a calendar year.
  • The aggregate lifetime amount that an issuer group can raise under all start-up business distributions is $1,000,000.
  • Generally, the maximum amount that an issuer can accept as a subscription from an investor in a start-up business distribution is $1,500. However, if a registered dealer provides the investor advice that the investment is suitable to the investor, the maximum subscription from that investor is $5,000.
  • The offering must close within 90 days.
  • If the distribution is made through a funding portal the portal must be a registered dealer.
  • The issuer must provide purchasers with a 48 hour period in which to cancel their agreement to purchase securities.
  • The issuer must provide each investor with a specified form clearly explaining certain risks of investing and must obtain an acknowledgment from each investor that they have read and understood the contents of that form.

If you would like to utilize the new Start-up Business Exemption in Alberta, contact any member of Clark Wilson’s Corporate Finance & Securities Group.