CSA Creates New Exemption to Allow Eligible Listed Public Companies to Issue Freely Tradable Securities Without Filing a Prospectus

September 12, 2022
TSX Building


On September 8, 2022, Canadian Securities Administrators (“CSA“) announced amendments to National Instrument 45-106 Prospectus Exemptions, permitting a new prospectus exemption called the Listed Issuer Financing Exemption (“LIFE“). LIFE comes into effect on November 21, 2022.

LIFE reduces the financial costs and documentation associated with preparing short form prospectuses, which is especially helpful for smaller issuers. LIFE allows for the issuance of freely tradeable listed equity securities to any class of investor without a hold period.

CSA believes that the potential risks posed by LIFE are offset by issuers’ existing continuous disclosure record and the offering document requirement contained in Form 45-106F19 (the “Offering Document“). As an additional safeguard, LIFE imposes primary offering statutory liability against the issuer (but not dealers), and, in some jurisdictions, the officers that sign the offering document and the issuer’s directors. The Offering Document includes a certification requirement which provides that the Offering Document, and any document filed in the previous 12 months which is required to be incorporated by reference, discloses all material facts about the issuer without misrepresentation.

Qualification Criteria

In order to distribute securities under LIFE, issuers must meet the following criteria:

  1. its securities are listed on a recognized Canadian Stock Exchange (which includes the TSX, TSXV, CSE and NEO);
  2. it has been a reporting issuer for at least 12 months in at least one Canadian jurisdiction (please see below for a further discussion of this criteria);
  3. it has filed all timely and periodic disclosure documents as required under continuous disclosure requirements in Canadian securities legislation;
  4. it has active business operations (LIFE is not available to investment funds);
  5. it has filed an Offering Document (detailed below) and issued a press release providing the details of the offering before soliciting an offer to purchase; and
  6. closed the offering no later than 45 days after the date the issuer issued and filed the news release announcing the offering.

LIFE is not available to an issuer if during the 12 months immediately before the date the issuer files the news release announcing the offering (the “Period“), the issuer, or any person or company with whom the issuer completed a restructuring transaction, ceased operations or had as its principal asset cash, cash equivalents, or its exchange listing, including, a capital pool company, a special purpose acquisition company, a growth acquisition corporation or any similar person or company. Effectively, LIFE is not available to issuers who have completed a reverse takeover transaction (or qualifying transaction with a CPC on the TSXV) in the preceding 12 month period.

Offering Parameters of the Listed Issuer Financing Exemption

  • Capital raising is capped at the greater of $5,000,000 or 10% of the issuer’s market capitalization to a maximum total dollar amount of $10,000,000. These monetary caps are calculated based on the total dollar amount of the distribution, combined with the dollar amount of all other distributions made by the issuer during the Period.
  • A 50% dilution limit on distributions using LIFE.
  • Issuers are not able to use LIFE for the purpose of allocating available funds to complete a significant acquisition, a restructuring transaction, or any other transaction for which it seeks security holder approval. Non-compliance is considered an illegal transaction and a misrepresentation, and is subject to the same statutory liability as for primary offerings. This includes either a right of rescission or a right to damages against the issuer and/or other persons.
  • Only listed equity securities, warrants convertible into equity securities, and units containing equity securities and warrants exercisable into listed equity securities can be issued. LIFE is not available for the distribution of subscription receipts, special warrants, or convertible debentures.

Contents of the Offering Document

Although the Offering Document is not subject to review or approval by the CSA, it is part of the issuer’s continuous disclosure record for the purpose of secondary market civil liability.

As such, the Offering Document must disclose the following:

  1. details of the offering such as: significant attributes of the securities, offering price, minimum and maximum number of securities that the issuer may offer, whether the offerings will close in one or more closings, the exchange on which the securities will be listed, and the closing price on the most recent trading day before the date of the offering document;
  2. any new developments in the issuer’s business;
  3. material facts about the securities not disclosed since the earlier of the date that is 12 months before the date of the offering document and the date of the issuer’s most recent audited financial statements were filed;
  4. details on the issuer’s financial condition;
  5. confirmation that the issuer will have sufficient funds to meet their business objectives for at least 12 months following the offering;
  6. details on how the proceeds will be used from the current offering and how proceeds of any previous offerings in the last 12 months have been used;
  7. the involvement of dealers or finders and the amount of the related fees; and
  8. the extent of purchasers’ rights of action in the event of a misrepresentation.

If any material changes occur after the filing of the news release but before the completion of the distribution, immediate cessation of the distribution is required until compliance with NI 51-102 is achieved and an amended to Form 45-106F19 and news release addressing the material change are filed.

Investment dealers may be involved in offerings under LIFE, but it is not a requirement. If dealers or finders are engaged to participate in the offering, the Offering Document must state the name(s) of the dealers or finders and the amount of the related fees. The Offering Document must be signed by the CEO and CFO of the issuer.

Additional Filing Requirements

Following the distribution, issuers must file a report of exempt distribution within 10 days of the distribution, including the purchaser information in Schedule 1 of Form 45-106F1, in every jurisdiction in which a distribution has been made. If you would like to discuss LIFE or for any further information, please contact any member of our Capital Markets Group.

This publication is intended for general information purposes only and should not be relied upon as legal advice.