Family, friends and business associates exemption

A buyer who raises money from relatives or friends to fund a purchase may be issuing securities to them. Securities law requires a prospectus for that unless an exemption applies, and this is one of the exemptions in NI 45-106. See structuring a purchase with unrelated investors and the accredited investor exemption.

What section 2.5 covers

Section 2.5 applies to a person who buys as principal and is on its list, or is an entity or trust that paragraphs (h) and (i) tie to those people. The Alberta Securities Commission notes that the instrument does not define “close personal friend” or “close business associate”, and that being a client or a social media contact is not enough. Section 2.5(2) bars a commission or finder’s fee to a director, officer, founder or control person of the issuer or an affiliate. Section 2.5(3) excludes a distribution of a short-term securitized product and, in Ontario, a distribution under subsection 73.4(2) of the Securities Act (Ontario).

Where the province changes it

• Ontario: section 2.6.1 says section 2.5 does not apply unless its conditions are met, including a risk acknowledgement signed by the purchaser, an executive officer of the issuer and other people the section names.
• Saskatchewan: section 2.6 requires a signed risk acknowledgement for some purchasers, such as close personal friends and close business associates, in the cases it lists.
• Alberta: the commission says the issuer files a report of exempt distribution with it.
• This entry covers Ontario, Saskatchewan and Alberta only; check the rules where you are.