Navigating the New Ontario Securities Commission Test Lab Registration Exemptions

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Corporate Law
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The Ontario Securities Commission’s new test policies, including registration exemptions for early-stage businesses and angel investor groups, aim to reduce regulatory burdens and accelerate capital raising for innovative companies.

Gregory Prekupec,  Rahul Gupta

  1. The Importance of the Ontario Securities Commission TestLab

The Ontario Securities Commission (the “OSC”) is continuously looking for innovative ways to reduce the regulatory burden for businesses to raise capital and accelerate innovation. One way this is accomplished is through the OSC TestLab; a platform for the OSC to experiment with new initiatives that aid early-stage capital raising.

Recently, the OSC announced 4 new test policies to help achieve this end:

A. the early-stage business registration exemption (Ontario Instrument 32-509 Early-Stage Business Registration Exemption (Interim Class Order)),
B. the angel investor group registration exemption (Ontario Instrument 32-508 Not-For-Profit Angel Investor Group Registration Exemption (Interim Class Order)),
C. the self-certified investor prospectus exemption (Ontario Instrument 45-509 Report of Distributions under the Self-Certified Investor Prospectus Exemption (Interim Class Order)), and
D. simplified distribution reporting (Form 32-509F2/45-509F1 Alternative Report of Exempt Distribution)

Early-Stage Business Registration Exemption

Prior to this policy, businesses looking to raise capital may have become “in the business of trading” securities which would require them to register as a dealer. The OSC expanded the list of available exemptions to allow for capital raising for up to $3M and certain marketing activities. This exemption applies when: (i) where the business is working through a registered dealer or (ii) where the business is working with an intermediary who is exempt from registration.

Angel Investor Group Registration Exemption

Not-for-profit angel investor groups provide capital, education, and other vital support to early-stage businesses. Similar to the above, angel investors may also become “in the business of trading” securities which would require registration. The OSC now temporarily allows angel investors to use the new dealer registration exemption.

Self-Certified Investor Prospectus Exemption

Previously, exempt issuers which distribute securities were required to file Form 45-106F1 within 10 days of any distribution. This new test policy exempts issuers from this filing requirement to reduce the regulatory load.

Simplified Distribution Reporting

The OSC has released a simplified e-form for quarterly distribution reporting which does not carry an associated fee for companies that are using any of these new test policies.

  1. Potential Opportunities to Propel Your Business

New businesses play a crucial role in advancing Ontario’s innovative and competitive edge. The test policies that the OSC released are intended to allow early-stage businesses to raise capital with less regulatory burden. The temporary nature of these policies will allow the OSC to analyze their efficacy to take a balanced approach for implementing long-term solutions.

We recognize the critical role securing the right capital providers plays in business growth. For more information about the capital raising process or any of the new policies, contact practice partner Gregory Prekupec at [email protected].