On February 19, 2015 the Ontario Securities Commission announced the introduction of the family, friend and business associates exemption (“FFBA exemption”) effective May 5, 2015. The purpose of the new rules is to bring Ontario in line with the rest of the Canadian jurisdictions to benefit “early-stage” issuers. However, the “made in Ontario” FFBA exemption imposes a number of additional requirements and conditions on the use of the exemption not found in the other jurisdictions.
The FFBA exemption allows issuers to distribute securities to the issuer’s directors, officers, control persons and founders as well as certain family members, close personal friends and close business associates of such persons subject to a number of conditions:
- The use of registrants, finders, advertising or the payment of fees is considered inconsistent with use of the FFBA exemption.
- Relationships based on Internet forums and social media are expressly excluded.
- Investment funds are not able to use the FFBA exemption.
- Any “offering memorandum” provided to investors in conjunction with the use of the exemption will give investors certain rights of action for damages or rescission in the event of a misrepresentation.
- All investors are required to sign a special risk acknowledgment form (45-106F12) and which sets out in plain language the risk associated with making the investment. The form must be retained by the issuer for 8 years.
CP 45-106 sets out guidance on who will be considered to fall under the close personal friend and close business associate categories as well as procedures for verifying and documenting whether investors fall under the FFBA exemption.