BCN 2001/36 - Proposed Changes to Capital Raising Exemptions [BCN - Rescinded]

The British Columbia Securities Commission is developing a new set of capital raising exemptions with the Alberta Securities Commission.  Our goal is to increase access to capital by issuers in B.C. and Alberta while maintaining an appropriate level of investor protection.

We anticipate seeking comment on the following four exemptions from the registration and prospectus requirements:

1. Private Issuer Exemption

We will maintain the existing “private issuer” exemption.  This exemption allows a private issuer to raise capital from individuals who are not “the public”.  A private issuer is an issuer that is not reporting under the Securities Act, and whose securities are subject to restrictions on transfer and are beneficially owned by not more than 50 persons, excluding employees.  We will provide guidance to who is not a member of the public.

2. Family, Friends and Business Associates Exemption

We will harmonize the B.C. and Alberta exemptions.  An issuer will be allowed to raise capital from:

a. spouses, parents, siblings and children of principals of the issuer, and
b. close personal friends and business associates of principals of the issuer.

We will consider whether there should be a limit on the number of investors or the amount raised in any period.  We will also consider including definitions of “close personal friends” and “business associates” to provide direction and deter abuse.

3. Offering Memorandum Exemption

We will create a new offering memorandum exemption, under which an issuer will be allowed to raise capital on the following conditions:

a. The issuer must deliver an offering memorandum in a new and simplified prescribed form.  Non-reporting and reporting issuers will have different forms.  The form for a reporting issuer will allow incorporation by reference of existing public disclosure.
b. The investor must sign an acknowledgement containing a clear, blunt risk warning. Non-reporting and reporting issuers will have different forms. 

Any person can invest any amount under this exemption.  We are considering including a 2-day withdrawal right, similar to that under a prospectus.

4. Accredited Investor Exemption

We will likely adopt the accredited investor definition proposed by the Ontario Securities Commission.  Their definition includes financial institutions, pension and investment funds, substantial corporations and wealthy individuals. Under the Ontario proposal, an individual is an accredited investor if the individual and his or her spouse:

a. have financial assets exceeding $1 million, or
b. have net income exceeding $300,000 ($200,000 without a spouse) in each of the last two years, and a reasonable expectation of exceeding that amount in the current year.

The new exemptions will replace the following current provisions:

• the 50 purchasers exemption in sections 89(a) and 128(a) of the B.C. Securities Rules;
• the $25,000 - sophisticated purchaser exemption in sections 89(b) and 128(b) of the B.C. Securities Rules;
• the $25,000 - registrant required exemption in section 128(c) of the B.C. Securities Rules; and,
• possibly, the $97,000 exemption in sections 45(2)(5) and 74(2)(4) of the B.C. Securities Act.

The Alberta Securities Commission is considering these exemptions as well as others.  We anticipate publishing for comment in the fall the draft rules and related documents.

These new capital raising exemptions are still being developed.  Therefore, we will not consider applications for discretionary relief based on these proposals.

For further information contact:

Adrianne Marskell
Senior Legal Counsel, Policy and Legislation
British Columbia Securities Commission
(604) 899-6645
(800) 373-6393 (in B.C.)
amarskell@bcsc.bc.ca

Leslie Rose
Senior Legal Counsel, Exemptions and Orders
British Columbia Securities Commission
(604) 899-6654
(800) 373-6393 (in B.C.)
lrose@bcsc.bc.ca

May 17, 2001

Adrienne Salvail-Lopez
Commissioner

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.