Raising money is exciting. Complying with securities legislation, however, is not quite as exciting, but it is necessary. It is a pain, at the best of times, and a constant struggle between lawyers, who would like every investor in your company to fill out a fifty page document detailing exactly how risky the investment is, and their clients, who would like the money now, please.

A big part of my job is seeking exemptions for my smaller clients from having to comply with the requirement to file a prospectus when they are taking in money. A prospectus is about 200 pages and $200,000 in legal fees (that’s not a price quote, to be clear – if you want more details I can put you in touch with one of my colleagues who does more work in this space). Such exemptions can be through accredited investor exemptions, family, friends and business associates exemptions, private issuer exemptions, minimum investment amount exemptions and a few other exemptions that I may be able to tailor to the specifics of your investors. If we can get all of your investors under an exemption from the prospectus requirement, you don’t need a prospectus and everyone is happy.


My frame of reference when helping a client with prospectus exemptions is that I have gotten them down from 200 pages to 20 pages. Unfortunately, though very understandably, my securities laws disclosures and certificates to get there often takes their simple share purchase document from 5 pages in their mind to 20 pages when all is said and done. I think I am reducing your paper by 90%. To you, it feels like I am quadrupling it.

And it doesn’t end there. OSC guidance says that you actually need to be reasonably satisfied that your investors fall under the exemption that they say they are under. That means that if your investor, a nurse out in Oakville, fills out the forms by indicating that he is a Schedule 1 Bank under Canadian law, you can’t just drive on and say that’s his problem, not yours. The OSC expects you to take an active role in ascertaining and verifying that your investors know what they are getting themselves into.

The corollary of that expectation is that if you don’t, your company is at risk, and you personally too. Your company can be forced to return the investor’s money, you can be personally liable for certain fines, and you can be barred from trading in securities for as long as ten years.

So, when your company is taking in money from an investor, talk to your lawyer about what sort of documentation you need. We will say we have a streamlined process, but it will still seem like we are making it more difficult. We will say we have this down to a simplified set of documents, but it will still seem like we are creating more paperwork. We get that. At the same time, however, we’re inconveniencing you now so the OSC doesn’t ruin the next several years of your life later, which we think is a good deal at the end of the day.

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