Hold period (resale restriction)

An investor who buys shares of a private company in a financing may later want to sell them. NI 45-102 governs the first trade of securities issued under the exemptions listed in its Appendices D and E; section 2.1 says sections 2.2 to 2.7 do not apply in Manitoba. The Alberta Securities Commission says that for securities bought under the family, friends and business associates exemption, the restrictions continue indefinitely when the business is not a reporting issuer. See selling your share to a partner.

How the rule is built

Section 2.3 sends the first trade of Appendix D securities to section 2.5. Section 2.5(2) lists the conditions, including that the issuer is and has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding the trade, at least four months have elapsed from the distribution date, the trade is not a control distribution, and no unusual effort is made to prepare the market. It also has legend, commission and insider conditions. Otherwise the trade is a distribution, subject to section 2.5(3), and section 2.7 lifts the reporting-issuer condition in some cases where the issuer became a reporting issuer by filing a prospectus. Section 2.6 sets a separate seasoning period for Appendix E exemptions.

What to check or ask

• Which exemption the securities were issued under, and whether it appears in Appendix D or E.
• Whether the issuer is a reporting issuer.
• Whether the certificate or written notice carries the legend.
• This national instrument’s appendices list provincial provisions, so check the rules where you are.