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Early-stage companies require capital to start, grow and scale their operations however consistently struggle with raising capital. In response and recognition to these challenges, the Ontario Securities Commission (the “OSC”) recently announced three new prospectus requirement exemptions for raising capital, referred to as the Early-Stage Capital Exemptions (the “ESCE”). In this article, we outline the ESCE and address how these exemptions can assist early-stage companies with their capital raising challenges.

The ESCE are time limited and are a part of the OSC TestLab program which is designed for testing capital market innovations and regulatory approaches to foster growth, innovation and business models in a controlled environment. In addition to the ESCE, the OSC also approved an extension of the Self-Certified Investor Prospectus Exemption. To alleviate the burdens that early-stage businesses face in Ontario, the exemptions seek to increase access to raising capital in fair and efficient means while upholding robust investor protection mechanisms. The ESCE are described below:

  • Early-Stage Businesses Registration Exemptions – Ontario Instrument 32-509 – This exemption allows eligible early-stage businesses in Ontario to be able to conduct certain marketing activities while raising capital. To qualify as an eligible business, an issuer, amongst other requirements, must: (a) have its head office and operations in Ontario; (b) be in the developmental stages of its business; (c) have fewer than 100 employees; (d) have a primary purpose that is not investing in real estate, mortgages, other businesses, or other assets; and (e) not hold, invest in, or trade crypto assets. The OSC recognizes that some early-stage businesses may wish to raise money themselves or use a dealer. As a result, in addition to the previous requirements, early-stage businesses must also notify the OSC of their intent to use the dealer registration exemption to distribute their securities. If a business issues securities without a dealer, then the business must deliver to the OSC a completed Form 32-509F1 and the aggregate amount of funds that can be raised is $3,000,000 from selling eligible securities. For more information on this exemption including definitions, reporting requirements, and relevant forms: Ontario Instrument 32-509 Early-Stage Business Registration Exemption (Interim Class Order) (
  • Not-for-Profit Angel Investor Group Registration Exemptions – Ontario Instrument 32-508 – Angel investor groups play a critical role in capital raising by bringing together sophisticated investors and early-stage businesses. This exemption will allow the groups to introduce Ontario early-stage businesses seeking capital to their members; make information regarding the businesses available to their members; facilitate their members’ due diligence in the businesses; hold regular meetings for the businesses to present their business to their members; keep their members up-to-date on the business; and provide educational resources. To be exempt from the dealer registration requirement (among other criteria) an angel investor group must: (a) be primarily organized for not-for-profit purposes; (b) operate from, and have its head office in, Ontario; (c) not have more than 500 members, each of whom is an accredited or self-certified investor; and (d) not be registered under any securities legislation. This exemption also entails a transaction-based compensation restriction as angel investor groups must limit their compensation to a maximum of 5% of the value of the invested securities. For more information on this exemption including definitions, reporting requirements, and relevant forms: Ontario Instrument 32-508 Not-for-profit Angel Investor Group Registration Exemption (Interim Class Order) (
  • Extension of the Self-Certified Prospectus Exemption – OSC Rule 45-508 Extension to Ontario Instrument 45-507 Self-Certified Investor Prospectus and Ontario Instrument 45-509 Report of Distributions – This initiative is an extension of Ontario Instrument 45-507 which allows individuals who may not meet the definition of an accredited investor to invest in early-stage companies on a prospectus-exempt basis. Once investors have been deemed qualified, the aggregate investments across all securities for a single investor is a maximum of $30,000. Further, in an attempt to reduce the regulatory burden of quick reporting and fee payments, the OSC no longer applies them to distributions an issuer makes of their own securities. To qualify, an issuer must complete and deliver Form 45-509F1 within 30 days of the end of the reporting period an issuer relied on Ontario Instrument 45-507. For more information on these exemption including definitions, reporting requirements, and relevant forms: OSC Rule 45-508 Extension to Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption; Ontario Instrument 45-509 Report of Distributions under the Self-Certified Investor Prospectus Exemption (Interim Class Order) (

These initiatives mark the beginning of a more investor-friendly ecosystem in the startup space in Ontario. The ESCE facilitate access for small businesses to raise capital and make it easier for investors to seek investment opportunities. For more information on certain of the pre-existing prospectus exemptions please see our previous article:

We at KMB are experienced at drafting the appropriate legal documentation required to effect the sale, trade, or distribution of securities through an exempt distribution, in a cost-effective manner that enhances value for you, the client. If you have any questions regarding this or any aspect of your business, please do not hesitate to get in touch with me at 905.276.0431 or We are here to help.

This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.

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