On May 5, 2015, certain changes to the prospectus exemptions under  National Instrument 45-106 Prospectus  Exemptions (“NI 45-106”) come into force. These changes include amendments  to the accredited investor exemption and the minimum amount investment  exemption, and in Ontario, a new “family, friends and business associates”  exemption (the “FFBA exemption”). Further details are set out below:

  • The accredited investor  exemption has been amended to include new categories of accredited investors  and a new requirement that certain individual accredited investors complete a  risk acknowledgement form prior to making an investment have been added to the  accredited investor exemption. The new categories of accredited investor  include: (i) individuals who have at least $5 million in pre-tax net financial  assets; (ii) family trusts established by an accredited investor for his or her  family where the majority of the trustees are accredited investors and the  beneficiaries fall within a prescribed class of family members; and (iii) in  Ontario, fully managed accounts to purchase investment fund securities.
  • The minimum amount investment  exemption has been amended to apply only to non-individuals to address concerns  that the $150,000 threshold does not represent a proxy for sophistication or  ability to withstand financial loss. The definition of “individual” under this  exemption does however specifically exclude, amongst others, partnerships and  trustees; a natural person acting in the capacity of trustee; and holding  companies, provided any such holding company was not created solely to rely on  this exemption.
  • The new Ontario FFBA exemption replaces  the former “founder, control person and family” exemption and is largely  harmonized with the family, friends and business associates exemptions in other  provinces. In Ontario, however, the FFBA exemption is not available to  investment funds, and investors purchasing securities under this exemption will  now be required to complete a risk acknowledgement form disclosing details of  the relationship with whom the investor has asserted a relationship. This risk  acknowledgement form must be retained by a seller making the distribution of  securities for 8 years after the distribution.

Changes to the Companion Policy to NI 45-106 will also come into  force on May 5, 2015. The revised Companion Policy provides new guidance about compliance  and verification procedures for sellers when relying on prospectus exemptions to  sell securities to investors. The Companion Policy places an onus on the seller  relying on the applicable prospectus exemption to ensure the terms of the  exemption are met. Certain steps are laid out in the Companion Policy for  sellers to follow to reasonably confirm the availability of a prospectus  exemption including: (1) understanding the terms and conditions of the  exemption; (2) establishing appropriate policies and procedures; (3) verifying  the purchaser meets the exemption; and (4) keeping relevant and detailed  document to evidence steps taken to establish exemption availability. The  Companion Policy also provides guidance about the meaning of a “close personal  friend” and a “close business associate”, setting out relevant factors to  determine eligibility, including the length and nature of relationship between  the close personal friend or close business associate and the seller contact.