Resources for businesses

A subscription agreement is a legally binding contract between a business/issuer and an investor. It outlines the terms and conditions under which the investor agrees to purchase securities.

A business relying on the Early-Stage Business Registration Exemption must include in their subscription agreement, a contractual right of action against the issuer/business with respect to any misrepresentation included in materials/offering memoranda, as defined in OSC Rule 14-501 Definitions, and that is equivalent to the statutory right provided by section 130.1 of the Securities Act (Ontario). 

Generally, if the materials that are provided to investors contain a misrepresentation, purchasers of securities during the selling period that were provided with the materials will have a right of action for damages or recission against the issuer/business. A misrepresentation under the Securities Act (Ontario) means an untrue statement of material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances. 

At the same time or before an accredited investor signs a subscription agreement, the business must obtain a completed Form 45-106F9 Form for Individual Accredited Investors.

Businesses raising capital under the accredited investor prospectus exemption must confirm accredited investor status before investors purchase securities. To confirm investor status, a business must take “reasonable steps” to verify that an investor is an accredited investor as indicated on Form 45-106F9. The business is responsible for determining whether the terms and conditions of the accredited investor exemption are met and should retain all necessary documents to demonstrate that it properly relied on the exemption. It would not be sufficient for a business to rely solely on a document that only states, “I am an accredited investor.” Similarly, it would not be acceptable if the business accepts only an initial beside a category on the Form 45-106F9 without taking additional steps to confirm that the purchaser was truthful in making the representation.  

Generally, we expect that a business would ask questions about the purchaser’s net income, financial assets or net assets, or other questions designed to elicit details about the purchaser’s financial circumstances. If there are concerns about the purchaser’s responses, further inquiries should be made, and if there are still questions about the purchaser’s eligibility, the business could ask to see documentation that independently confirms the purchaser’s financial circumstances.

If a dealer is helping with raising capital, they may take steps to verify that an investor is an accredited investor on behalf of the business.

See also, Who can invest in my business under the Early-Stage Business Registration Exemption?

See also, Is a confirmation of an investor’s status required?

At the same time or before a self-certified investor signs a subscription agreement, the business must obtain: 

1. A completed Confirmation of Qualifying Criteria form, confirming that the investor meets the qualifying criteria, and
2. A completed Acknowledgement of Risks form, confirming that the investor has read and understood each of the acknowledgments. 

The business must also obtain a representation from the self-certified investor in the subscription agreement that after giving effect to the sale of securities, the aggregate acquisition cost of all securities of all issuers acquired by the investor under the self-certified investor prospectus exemption for the calendar year does not exceed $30,000. 

To rely on the self-certified investor prospectus exemption, the business must not know and would not reasonably be expected to know that the statements made by the self-certified investor in the Confirmation of Qualifying Criteria, the Acknowledgement of Risks or in the subscription agreement representation noted above are false. 

See also, Who can invest in my business under the Early-Stage Business Registration Exemption?

See also, Is a confirmation of an investor’s status required?