The Ontario Securities Commission (OSC), in keeping with its commitment to foster the conditions necessary for growth and innovation in emerging businesses, recently announced a series of interim initiatives aimed towards supporting early-stage capital-raises.
Overview—Early-Stage Capital Exemptions
The OSC announcement involves the recently issued Ontario Instrument 45-507 (Self-Certified Investor Prospectus Exemption), Ontario Instrument 32-508 (the Angel Investor Group Registration Exemption), Ontario Instrument 32-509 (the Early-Stage Business Registration Exemption), and Ontario Instrument 45-509 (the Report of Distributions Under the Self-Certified Investor Prospectus Exemption, collectively, the “Early-Stage Capital Exemptions”). Announcement of the Early-Stage Capital Exemptions follows on the heels of the OSC, in 2022, having approved the extension of Ontario Instrument 45-507 (Self Certified Investor Prospectus Exemption), intended to both provide access to new sources of capital for issuers as well as more investment opportunities for Ontario investors. While the Early-Stage Capital Exemptions are time-limited until October 25, 2025, there remains the possibility that —much like the Self Certified Investor Exemption before it— such exemptions are extended with or without applicable modifications based on market feedback.
Angel Investor Group Registration Exemption
Ontario Instrument 32-508 (Not-For-Profit Angel Investor Group Registration Exemption) exempts a not-for-profit angel investor group from the requirement to be registered as a dealer under subsection 25(1) of the Act when “trading” in securities issued by an Ontario early-stage business, subject to several conditions. This instrument is aimed at easing the ability of angel investors to fund early-stage businesses in Ontario and should, in turn, help support these businesses by expanding access to capital at a critical stage in development.
To make use of this exemption, the angel investor group must:
- Conduct its activities primarily for not-for-profit purposes.
- Operate from, and have its head office in, Ontario.
- Have no more than 500 members, each of which is an accredited investor or eligible self-certified investor.
- Have policies and procedures in place to provide reasonable assurance that it complies with the conditions of this Order.
Early-Stage Business Registration Exemption
Under s. 25(1) of the (Ontario) Securities Act, early-stage businesses seeking to raise capital may risk being considered “in the business of trading” and, therefore, be subject to registration requirements. As such, Ontario Instrument 32-509 (Early-Stage Business Registration Exemption) exempts early-stage businesses with head offices and operations in Ontario from the requirement to be registered as a dealer subject to certain conditions. This will allow these businesses to engage in marketing activities intended to raise capital without the same level of regulatory burden. The requirements and implications of this exemption are slightly different depending on whether the distributions are being made with, or without, a dealer.
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The OSC continues to seek ways to safely enhance access to capital for early-stage and emerging businesses. That said, it is important to note that these initiatives remain interim for the time being (ceasing to be effective on October 25, 2025 unless extended by the OSC) and each exemption comes with specific qualification criteria. Should you have any further questions about how these exemptions are likely to impact your business, a member of our business law group would be happy to discuss.
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