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Relief from Prospectus Requirement for Listed Issuers

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Relief from Prospectus Requirement for Listed Issuers Aquilina Law November 29, 2022

Relief from Prospectus Requirement for Listed Issuers

Photo by Ayadi Ghaith on Unsplash

On Nov. 21, 2022, a new securities law exemption came into effect which allows listed companies to issue new securities without a prospectus.  This “Listed Issuer Financing Exemption” will be subject to several restrictions (see below). 

To access the Listed Issuer Financing Exemption, an issuer must have equity securities listed on a Canadian exchange and have at least a 12-month reporting history. Certain issuers, such as exchange-traded funds, are not eligible for the exemption.  Also, at the time of the offering, the issuer must have a reasonable expectation that it will have enough funds to meet its business objectives and its liquidity obligations for at least 12 months, though issuers can address this requirement by setting a minimum closing amount that will give it enough cash to have such 12-month runway.

In order to rely on the exemption, a short offering document disclosing all material facts relating to the securities being distributed must be prepared, must be referenced in the news release announcing an offering using the exemption, and made available to investors under the issuer’s profile at www.sedar.com. The document, which is generally expected not to be longer than five pages, is not subject to review by Canadian securities regulators. In the event of a misrepresentation in the offering document, investors will have the right to rescind their purchase or the right to damages.

In addition to the foregoing, issuers must take note of the following restrictions:

  • The maximum amount that may be raised in reliance on the Listed Issuer Financing Exemption over a 12-month period is the greater of $5 million and 10% of the issuer’s market capitalization, to a maximum of $10 million;
  • The exemption must not result in a dilution of the issuer’s outstanding listed equity securities by more than 50 per cent over a 12-month period;
  • The securities offered may only be listed equity securities, or units consisting of listed equity securities and warrants convertible into those securities; and
  • The proceeds of the offering may not be used for a significant acquisition or a restructuring transaction under securities laws, or for any other transaction for which the issuer seeks security holder approval.

By reducing the cost and the regulatory burden for smaller Canadian public companies, it is hoped that the Listed Issuer Financing Exemption will encourage more retail investor participation in securities offerings, and for this reason, the offered securities will not be subject to a hold period.

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