Question of the Week: What are the prospectus exemptions? Part 4: Accredited investor exemption

Submitted by nsscadmin on Wed, 09/15/2021 - 09:00

We’re crossing the midpoint of our blog series on the prospectus exemptions. This week we’re looking at the accredited investor exemption.

An issuer can sell securities to anyone who meets the legal definition of an accredited investor without providing disclosure documents. These is no limit on the amount of money an issuer can raise through the accredited investor exemption. There are several persons and institutions that can be designated accredited investors. They include, but are not limited to:

Financial institutions
Registered investment advisers of dealer
Pension funds
Corporations, limited partnerships, trusts or estates with assets valued over $5 million
Individuals with more than $1 million in financial assets, excluding real estate
Individuals with a net income, before taxes, that exceeds $200,000 in each of the two most recent years and reasonably expects that net income to continue in the current year.
Individuals with at least $5 million in net assets.

Anyone who qualifies as an accredited investor as an individual must also sign a risk acknowledgement, Form 45-106F9 - Form for Individual Accredited Investors. By signing the form, the investor acknowledges the risk they are taking on with the investment and confirm how they qualify as an accredited investor.

Issuers who rely on the accredited investor exemptions should conduct the proper background checks to ensure their investors meet the accredited investor definition.

You should consult with legal counsel familiar with securities laws if you have any questions about the prospectus exemptions and how to comply with the requirements to rely on the prospectus exemption.

Failure to file annual financial statements.
Failure to file interim financial statements.
Failure to file an annual or interim management’s discussion and analysis (MD&A) or an annual or interim management report of fund performance (MRFP).
Failure to file an Annual Information Form (AIF).
Failure to file a certification of annual or interim filings required by Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (MI 52-109).
Failure to file required proxy materials or a required information circular.
Failure to file an issuer profile supplement on the System for Electronic Disclosure by Insiders (SEDI).
Failure to file a material change report.
Failure to provide a written update after filing a confidential report of a material change.
Failure to file a business acquisition report.
Failure to file annual oil and gas disclosure prescribed by National Instrument 51-101 Standards of Disclosure of Oil and Gas Activities (NI 51-101) or technical reports for a mineral project required under NI 43-101 Standards of Disclosure for Mineral Projects (NI 43-101).
Failure to file a mandatory news release.
Failure to file corporate governance disclosure as required by national Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101).
Failure to file audit committee disclosure as required by Multilateral Instrument 52-110 Audit Committees (MI 52-110) or BC Instrument 52-509 Audit Committees.
Failure to include disclosure in an issuer’s MD&A relating to disclosure controls and procedures and their direct effectiveness that is referred to in a certificate filed under MI 52-109.
Financial statements of the reporting issuer, or the auditors’ report accompanying the financial statements, do not comply with the requirements of NI 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) or National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107).
The reporting issuer has acknowledged that its financial statements, or the auditors’ report accompanying the financial statements, may no longer be relied upon.
The reporting issuer’s AIF, MD&A, MRFP, information circular, or business acquisition reports do not contain information for each of the content items required by NI 51-102 or NI 81-106.
The reporting issuer’s technical disclosure or other reports do not comply with the disclosure requirements of NI 43-101 or 51-101.
Failure to pay a fee required by the Act or the regulations.
Failure to comply with any other requirement related to continuous disclosure.