With regard to provincial jurisdiction, as of September 14, 2005, this amendment to the Securities Act of Quebec, through Regulation 45-106, aims to impose stricter regulations on the issuance and transfer of shares by private corporations not considered public companies under jurisdiction—but only if these federally incorporated companies are subject to Quebec law.
In fact, in Quebec, companies must first file a prospectus with the Autorité des marchés financiers to raise capital, but they may also obtain permission to waive the requirement to prepare a prospectus, which is then referred to as an “exemption.” Prospectus exemptions can therefore help companies by allowing them to raise funds more quickly and at a lower cost than if they were required to prepare a prospectus.
Thus, Regulation 45-106 amends the previous regime applicable to “private companies”—that is, most “non-public” corporations, which are in fact corporations that have not made a public offering—to ensure that securities issued by these corporations are not exempt from nearly all provisions of the Securities Act requiring the preparation of a prospectus to raise capital, as was previously the case.
Following the adoption of Regulation 45-106 in Quebec, companies classified as “closed issuers” were initially eligible for exemptions from the prospectus requirement and from registration as a broker when issuing or transferring their securities. Currently, only the prospectus exemption applies to “closed issuers” under Regulation 45-106 as it applies to the Quebec jurisdiction, as the exemption from registration as a broker has been discontinued. However, in order to qualify for the prospectus exemption provided for in Regulation 45-106, these “closed issuers” must also include restrictions on the transfer of their securities in their articles of incorporation.
Prospectus exemptions under Regulation 45-106 may include, among others, exemptions applicable to securities offerings made by means of an offering memorandum and to “closed issuers.”
With respect to federal jurisdiction, Canadian Standard 45-106 on Prospectus Exemptions, adopted by the Canadian Securities Administrators, provides a regulatory framework that allows “closed issuers” to be exempt from preparing a prospectus in connection with certain transactions involving the shares of such issuers. This Canadian Standard has been in effect in all jurisdictions in Canada since September 14, 2005, and therefore applies to all federal corporations. This Canadian Standard harmonizes most of the prospectus and registration exemptions provided for under provincial laws and regulations on a national basis, although some local exemptions remain in effect in various jurisdictions. With respect to these exemptions, Canadian Standard 45-106 generally has the same scope as Regulation 45-106 on Prospectus Exemptions under the Quebec Securities Act.