OSC Extends Temporary Exemptions for Distributions to Self-Certified Investors to October 2025

Written By: Michael Holder, Kanchan Mehta, Rijja Baig

The Ontario Securities Commission (“OSC”) introduced three temporary Early-Stage Capital Exemptions to aid emerging businesses in Ontario, effective until October 25, 2025, including an extension to Ontario Instrument 45-507. This initiative is designed to expand capital access for issuers and open up new investment opportunities for Ontario investors.

Self-Certified Investor Prospectus Exemption

This extension, initially set to expire on April 25, 2024, allows non-investment fund issuers in Ontario to distribute securities to self-certified investors without a prospectus under certain conditions. This exemption is part of a broader strategy to support emerging businesses by simplifying their capital-raising processes. Given its current success, there is potential for this exemption to be extended beyond its October 25, 2025 deadline.

The exemption was introduced following a recommendation from the Ontario Capital Markets Modernization Taskforce to expand the "Accredited Investor" category to include individuals with significant investment knowledge from education or experience. This allows informed individuals who may not meet the financial criteria of an Accredited Investor to invest in non-investment fund issuers based in Ontario without a prospectus.

Self-Certified Investor Criteria

A self-certified investor is an individual who meets specific educational or experience-based qualifications, as outlined in Ontario Instrument 45-507. Unlike accredited investors, who qualify based on income or asset thresholds, self-certified investors must demonstrate a high level of financial knowledge through professional designations (such as CFA, CPA, CBV, or CIM), education (such as an MBA or finance-focused degree), or relevant investment experience. Additionally, individuals who have passed exams such as the Canadian Securities Course or the Exempt Market Products Exam may qualify. These criteria ensure that self-certified investors have the expertise to evaluate investment opportunities without the protections of a prospectus.

Eligibility Requirements:

To utilize the Self-Certified Investor Exemption, investors must ensure the following:

• The issuer's head office is located in Ontario.

• The issuer is not an investment fund.

• The purchaser is a Self-Certified Investor or a designated representative of one.

• The purchaser confirms in the subscription agreement that their total investment in all issuers under this exemption does not exceed $30,000 for the calendar year.

• At the time of signing the subscription agreement, the Self-Certified Investor provides:

• A completed Confirmation of Qualifying Criteria to verify they meet the necessary qualifications.

• A completed Acknowledgement of Risks to confirm they understand the investment risks.

• The issuer has no reason to believe that the investor’s confirmations or risk acknowledgments are false.

• The issuer files a Form 45-106F1 Report of Exempt Distribution within 10 days after the distribution closes.

Similar to the Accredited Investor Exemption, securities under this exemption are subject to transfer restrictions, including a four-month holding period. Issuers must file a report of exempt distribution within 10 days after distribution. This data helps the OSC evaluate the exemption's use and consider its future status, possibly extending the definition of "Accredited Investor."