Accredited investor exemption

When a private company sells shares to raise money, or a group of buyers pools capital to buy a business, securities law can require a prospectus unless an exemption applies. The accredited investor exemption is one of those routes. It turns on who the purchaser is, so the first step is to see which category, if any, the purchaser fits.

How it works

Subsection 2.3(1) of National Instrument 45-106 says the prospectus requirement does not apply to a distribution of a security if the purchaser purchases the security as principal and is an accredited investor. Subsection 2.3(8) says subsection (1) does not apply in Ontario, where subsection 73.3(2) of the Securities Act (Ontario) provides a similar exemption. The definition sits in section 1.1. It includes a person recognized or designated as an accredited investor by the securities regulatory authority or, except in Ontario and Québec, the regulator, and a person all of whose owners of interests, apart from voting securities required by law to be owned by directors, are accredited investors. Section 2.3 also has limits: the exemption does not apply to a person created or used solely to purchase or hold securities as an accredited investor under paragraph (m) of the definition, and for individuals under paragraphs (j), (k) or (l) the person distributing the security must obtain a signed risk acknowledgement in the required form at or before the time the individual signs the purchase agreement. Describing Alberta securities law, the Alberta Securities Commission adds that the investor must be investing as principal, and names Form 45-106F9 as the required form of risk acknowledgement for the individual investors who must give one.

It differs by province

In Ontario the exemption sits in the Securities Act (Ontario) itself. The Ontario Securities Commission’s consolidation notes that paragraphs (a) to (h) of subsection 73.3(1) of that Act correspond to paragraphs of the instrument’s definition, and the Act’s definition includes a person or company recognized or designated by the Commission as an accredited investor. In Alberta, the Alberta Securities Commission says an issuer relying on the exemption must file a report of exempt distribution with it. Check the rules of each province where a purchaser is. See how unrelated investors structure a purchase.

What to check or ask

• Which paragraph of the definition each purchaser relies on, and how that is documented
• Whether the purchase is as principal
• Whether a form or filing applies in your province