Securities Alert – March 2015

The FFBA Exemption recognizes that existing networks of family, friends and business associates may be the most cost-efficient way for early stage companies to raise capital without disclosure requirements or intermediary involvement.  It will likely broaden access to capital beyond what is currently available under the existing Private Issuer exemption and it replaces Ontario’s much narrower Founder, Control Person and Family Exemption.  It will also increase investment opportunities for investors who are closely related to the corporation but who would not have qualified under previously existing exemptions. The FFBA Exemption introduces two new requirements.  First, an issuer will be required to submit a report of exempt distribution to the OSC.  In addition, a risk acknowledgement form must be signed by the investor and the issuer.

The FFBA Exemption has the following key conditions:

• It is available to both reporting and non-reporting issuers but is not available to investment funds.
• The exemption applies to a distribution of any security by an issuer or selling security holder.
• There is no limited on the size of the offering or on the use of proceeds raised under the exemption.
• The OSC has included guidance that the use of registrants, finders or advertising and the payment of any commission, finder’s fee, referral fee or similar payment is inconsistent with a distribution under the exemption.
• The OSC has included guidance as to the meaning of a close personal friend and a close business associate with regards to the exemption.  The onus will be on the issuer to determine whether a close personal relationship exists and this determination may be subject OSC scrutiny.
• There is no limit on the amount an investor may invest under the exemption.
• There is no requirement for the issuer or selling security holder to provide the investor with any disclosure at the time of distribution.
• There is no right of withdrawal available to investors.

An issuer using the FFBA Exemption or an investor investing under the FFBA Exemption must sign a risk acknowledgement form disclosing the identity of the director, executive officer, founder or control person of the issuer, that person’s position at or relationship with the issuer, the category of the relationship asserted by the investor with that person and how long the investor has known that person where the investor is asserting that he or she is a close personal friend or close business associate.  The form must be signed by the investor, the contact person of the issuer with whom the investor claims a relationship and an executive officer of the issuer (other than the purchaser).  These forms must be retained by the issuer for a period of eight (8) years after the distribution.

The first trade of securities issued under the FFBA Exemption will be subject to a four (4) month hold period if they are issued by a reporting issuer.  For non-reporting issuers the securities will be subject to an indefinite hold period and can only be resold under another prospectus exemption or under a prospectus.

The FFBA Exemption is expected to come into effect on May 5, 2014 and will provide small businesses, start-ups and entrepreneurs in Ontario with enhanced access to capital.

For more than 40 years, Perley-Robertson, Hill and McDougall has provided financing solutions to a wide variety of clients, including privately held companies, public companies, reporting issuers and companies listed on NASDAQ, the Toronto Stock Exchange, the TSX Venture Exchange and various OTC and private markets.  In addition to providing advice on securities registration and compliance, we have completed venture capital funding transactions, debt and/or equity private placements, initial public offerings, prospectus offerings, capital pool company listings and qualifying transactions, reverse takeovers and limited partnership fundings.  Whatever your financing requirements, we are confident we can find a cost efficient solution tailored to your needs.

Contact us today and speak with a member of our securities law team.