The Alberta Securities Commission (ASC) will replace ASC Blanket Order 31-505 with a new dealer registration requirement for finders who assist start-ups and other small businesses in Alberta to raise capital.
Effective November 10, 2021 the ASC adopted ASC Blanket Order 31-536 Alberta Small Business Finder’s Exemption (the Finders Exemption) with the aim of designing a more targeted exemption from the dealer registration requirement for finders who help start-ups and other small businesses in Alberta raise capital. The Finders Exemption will replace ASC Blanket Order 31-505 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions (the Northwestern Exemption) which currently provides limited relief from the requirement to register as an exempt market dealer in connection with distributions of exempt market securities and will be revoked effective May 11, 2022.
The Finders Exemption exempts eligible finders (each a Finder) from the dealer registration requirement where the Finders assist eligible Alberta small businesses (an Alberta Small Business) with raising capital in Alberta in certain specified transactions. While stating the importance of small businesses to Alberta’s economy, the ASC noted the difficulties small businesses face raising capital in smaller amounts not traditionally supported by registered dealers. Under the Finders Exemption, Alberta Small Businesses may now use eligible finders who can leverage “substantial pre-existing relationships” to assist them in identifying potential investors and raising capital.
Who is a Finder?
A Finder can be an individual or a company in respect of which the only registered and beneficial shareholders are an individual Finder or the individual Finder’s spouse, alone or together. The Finder cannot be a person:
- registered under securities legislation in Canada or a foreign jurisdiction;
- that has previously provided services as a registrant to the purchaser; or
- that has been the subject of certain specified legal or regulatory proceedings or sanctions relating to, among other things, fraud, theft, deceit or misrepresentation.
Pursuant to the Finders Exemption, a Finder can only participate in distributions by Alberta Small Businesses that are exempt from the prospectus requirement under Sections 2.3 (accredited investor), 2.4(2)(i) (private issuer – accredited investor), 2.4(2)(l) (private issuer – person or company that is not the public), 2.9 (offering memorandum) or 2.10 (minimum amount investment) of National Instrument 45-106 Prospectus Exemptions (NI 45-106), ASC Blanket Order 45-538 Self-Certified Investor Prospectus Exemption or ASC Blanket Order 45-539 Small Business Financing (Specified Distributions). An Alberta Small Business is an issuer that has its head office in Alberta and that has not raised more than an aggregate of $5 million on a prospectus exempt basis.
In participating in a Specified Distribution, the Finder may not:
- represent to the purchaser that the security being traded is a suitable investment for the purchaser;
- hold or have access to any of the purchaser’s assets;
- sell to a purchaser unless they have a “substantial pre-existing relationship” with them; or
- directly or indirectly solicit prospective purchasers other than persons or companies with whom they have a “substantial pre-existing relationship”.
The factors the ASC will consider in assessing whether a Finder has a “substantial pre-existing relationship” with the purchaser are analogous to those factors outlined with respect to the family, friends and business associates prospectus exemption found in section 2.5 of NI 45-106 in respect of “close” relationships, which are relatively narrow and confined.
The details of the compensation received by the Finder from the Alberta Small Business in relation to a purchaser’s investment must be disclosed in the risk acknowledgement form provided to the purchaser.
The Finder must obtain, prior to the purchaser entering an agreement to purchase a security under a Specified Distribution, a signed risk acknowledgment form. On or before the 10th day following the Specified Distribution, the Finder must electronically file a prescribed Finder’s information report that contains current contact information for the Finder. A Finder is not required to file a new Finder’s information report with each new financing unless there are any changes to a previously filed Finder’s information report.
In order to allow a smooth transition, the Finders Exemption came into effect November 10, 2021, leaving six months before the expiration of the Northwestern Exemption. The Finders Exemption is set to expire on November 11, 2024.