Blogs list

Peter Cronyn - Nelligan O'Brien Payne - Peter Cronyn

Auditors Liable for Failing to Catch Livent Fraudulent Activity - Sponsored Article Livent Inc., the infamous live entertainment creation of Garth Drabinsky and Myron Gottlieb, has successfully sued its auditors for failing to detect the fraudulent activities of its senior management. Livent had a voracious need for capital and had accessed North American money markets on the strength of its financial statements. However, those statements were, in fact, rife with a series of fraudulent accounting practices, which gave the appearance of a far more successful and stable enterprise. The fraud was ultimately caught when new equity investors initiated management oversight. Livent was required to restate its financial statements and file for insolvency protection. As part of that process, the Receiver advanced a claim against the former auditors for damages. The Ontario Court of Appeal has recently confirmed the precedent-setting trial decision in which Livent's auditors were found liable to the Receiver. The court awarded damages of $85 million on the basis that a more careful investigation would have revealed the fraudulent activity of management earlier than it was actually discovered. One of the principle arguments of the auditors was that they should not be held liable to the company itself for failing to reveal its own fraud. They also argued that the claim was in reality one being advanced on behalf of Livent's creditors, a group to whom they would not normally owe a duty in law. These arguments were rejected by both the trial judge and the Court of Appeal.  The court found the auditors liable for the 1997 audit onwards. It was the…

Photo : Peter  Cronyn March 21, 2016

Timothy McCunn - Perley-Robertson Hill & McDougall LLP - Timothy McCunn

Thinking of an Exit? - Sponsored Article The low Canadian Dollar is having a significant impact on various sectors of our economy.  One area not often discussed is the price of Canadian companies to U.S. buyers.  How low our dollar will go and for how long is a guessing game.  However, it does present an opportunity for those business owners who are considering selling their business.  In this article we discuss the process of selling a business. Firstly, consider using a broker who has extensive and deep knowledge of the U.S. market since that will likely be the source of your best offers. Secondly, consider what needs to be done prior to putting up the sale sign: (1) ensuring business continuity (2) removing impediments to a sale (3) assessing value and considering any possible re-structuring that could boost value  This stage entails a lot of financial advisor time and is critical in maximizing the value of your business.  Thirdly, negotiating the sale. This typically involves at least four steps: (1) identifying potential buyers (2) negotiating a letter of intent (3) negotiating and signing a purchase agreement (4) closing the transaction After working with your advisor on the identification of potential buyers, the next three steps are ones which involve the most important legal issues.  At the letter of intent (“LOI”) stage you will have many critical decisions to make:  (1) how extensive should the LOI be? I have seen some that are 2 pages and some as long as 30 pages: it really is a balancing act: how many issues…

Photo : Timothy McCunn March 14, 2016

Greg Draper - MNP LLP - Greg Draper

March is Fraud Prevention Month - Sponsored Article Every March is International Fraud Prevention (or Fraud Awareness) Month. 2016 marks the 12th anniversary of the event, which seeks to raise awareness and educate Canadians on how to identify, report and stop fraud. Fraud is a serious issue that has significant financial impacts for individuals and corporations alike, costing Canadians $10 billion annually. The RCMP has noted that 9 in 10 Canadians who are victimized by fraud don’t speak to anyone about it. MNP has continually supported this initiative by participating in fraud awareness events and publishing new insights and blogs related to fraud prevention throughout the year. To discover how MNP can protect you from fraud, contact Greg Draper, MBA, DIFA, FCPA, FCGA, CFE, ICD.D, Vice President of MNP's Valuations, Forensics and Litigation Services team at 403.537.7679 or greg.draper@mnp.ca.

Photo : Greg Draper March 14, 2016

Kelly Fraser - Titus - Kelly Fraser

3 Steps to Prevent Information From Just Walking Out the Door - Organizations put a lot of resources into data loss prevention, information classification and cyber security projects in an effort to ensure our information is safe. We have developed sophisticated methods of detecting sensitive information and stopping it from being copied over the network, uploaded to the cloud, copied to USB sticks and even burned to DVDs. But there is still one (low tech) leak that seems unstoppable: paper. What is to prevent someone from printing out sensitive information and then taking it out the door or losing control of it in some other way? At first glance it may seem there is nothing we can do, but there are steps that can be taken. 1. Data Classification The first step is to crowd source security. Have you ever watched a movie and seen that “Top Secret” stamp on a document, or maybe even an envelope marked “Confidential”? Well it turns out that visibly marking the information does protect it. You can classify files so the sensitivity of the information is always known, even when printed. Those who are security conscious will pick up and secure information if they see it at risk, such as an item marked “secret” and left unattended in the lunchroom. Usually they will follow up that act by identifying the person who put the information at risk and ensuring this does not happen again. So step one – clearly indicate the sensitivity of information when printed. 2. Protective Markings Step two is to assign responsibility. In the case of a printed…

Photo : Kelly Fraser March 07, 2016

Calvin Carpenter - MNP LLP - Calvin Carpenter

Tax Changes Could Spell Trouble for Professional Corporations - Sponsored Article As a leading national accounting, tax and business consulting firm in Canada, MNP has been helping professional practices recognize the tax advantages available for professional corporations (PC) for more than 50 years. Some of these tax benefits however, may be curtailed significantly under proposed tax legislation currently being reviewed by the federal government. Although the rules vary by province, practicing members of most professions — such as law, medicine, dentistry or accounting — can choose to incorporate. Under such an arrangement, the professional is an employee of the PC, which carries on the business of the professional practice. Most provinces restrict the activities that the PC may carry on and limit the business of the corporation to the practice of the profession or activities ancillary to the practice. With that being said , the provinces generally permit surplus funds earned by the practice to be left in the corporation and be invested therein, providing a potentially significant tax-deferral advantage. There are various tax reasons why a professional may wish to incorporate, from the potential for significant tax savings or deferral, the various income-splitting opportunities with a spouse or adult children for certain professions or to take advantage of the lifetime capital gains exemption on the first $824,000 of gains on the sale of the shares of the professional corporation, assuming this is permitted and / or feasible in the professional's province. The use of a corporation has often been cited as a great tax deferral mechanism, provided the incorporated professional does not need…

Photo : Calvin Carpenter February 29, 2016

David Contant - Nelligan O'Brien Payne - David Contant

Alternative Dispute Resolution - The Benefit of Experience - Sponsored Article As legal fees continue to rise, business professionals are often faced with a difficult decision. Should I attempt to resolve this dispute on my own, or should I retain a lawyer with expertise in dispute resolution? In his book Outliers: The Story of Success, author Malcolm Gladwell examines what it takes to be successful. Gladwell argues that innate talent will never become expertise without a tremendous amount of practice. Gladwell cites research indicating that the “magic number” of hours it takes to achieve expertise is 10,000 hours.  Most people will probably not spend 10,000 hours developing expertise in dispute resolution. That’s 40 hours/week for nearly five years! As a litigation professional, it took me a long time to get accustomed to alternative dispute resolution, and I learn more every day. I still recall my first exposure to mediation over ten years ago. I am a freshly minted lawyer. I have an almost brand new Blackberry Quark. It sends email to my cellphone! I’m assigned a case. My guy allegedly skimmed money from some type of shady retail distribution operation. Deny, deny, deny… There is a last-minute document produced during discovery. An audio tape of my client? Wait - did he just admit to taking the money? The lawyer says something about a “statement against his own interest?” Man, this law stuff is complicated… The lawyer for the other side is seasoned. He suggests we use his office. It will save money. Makes senses to me. He proposes a mediator. This guy seems okay.…

Photo : David Contant September 19, 2016

Paul Braunovan - Perley-Robertson Hill & McDougall LLP - Paul Braunovan

IP Protection at the Border - The Trans Pacific Partnership - Sponsored Article The Trans Pacific Partnership (TPP) is a trade agreement signed on February 4, 2016 in Auckland, New Zealand.  The TPP is not yet in force as it still needs to be ratified by the twelve member countries.  The TPP will expand the rights and responsibilities of customs officials with respect to identifying and detaining goods that infringe upon the intellectual property rights of others.  However, not everybody is in agreement that border officials have the legal background to be able to assess trade-mark infringement.  Others argue more broadly that the TPP will not benefit Canada’s economy and is designed to promote the interests of other countries such as the U.S. and China. As the TPP was being negotiated, in recent years the Canada Border Services Agency (CBSA) has established an intellectual property rights program for intellectual property rights holders in Canada.  Under this program, the CBSA has established a process whereby IP rights holders can file a Request for Assistance (“RFA”) asking for the CBSA to detain (temporarily) suspected counterfeit goods encountered at the border while the IP rights holder seeks legal redress.  If the CBSA identifies suspected counterfeit goods at the border, they can use the information contained in the RFA application to contact the IP rights holder and inform them of the details they need to allow them to pursue their remedies in the Courts.  Any criminal investigations relating to large scale commercial counterfeiting operations are handled by the Royal Canadian Mounted Police. The TPP would require Canada to enact further…

Photo : Paul Braunovan February 16, 2016

Catherine Tremblay - MNP LLP - Catherine Tremblay

Shareholders Beware: Does Your Buy-Sell Clause Set a Fair Price? - Sponsored Article Just as every apartment needs a fire escape, every shareholders’ agreement needs a buy-sell clause to set a price for the company’s shares on the occurrence of certain triggering events. A buy-sell clause outlines a process and pricing mechanism for the sale of the shares of a departing shareholder (e.g. upon death, disability, retirement, etc.) that necessitates a change in the ownership of a closely-held private company. The purpose of the clause is to provide a pre-determined procedure that ensures a fair price for all shareholders, while ensuring an orderly transfer of control to the remaining owners. Yet, in this author’s experience, these clauses can often create havoc if the pricing provisions are not properly thought out. This article provides an overview of some commonly used pricing mechanisms and discusses the pros and cons of each. Don’t use Book Value! The pricing mechanism in the buy-sell clause should be designed to ensure that both the buying and selling shareholders will be able to automatically transact at a price that is fair to all parties. One solution commonly adopted is for the shareholders to base the price on the net book value of the company. Net book value is simply the difference between the assets and liabilities reported on a company’s balance sheet at a point in time. The calculation of net book value is typically a straightforward mathematical exercise, but it may not result in a fair price. To understand why, consider the following example: - When ABC Corp. was founded, it issued 100 shares…

Photo : Catherine Tremblay February 16, 2016

Loren Kroeker - MNP LLP- Loren Kroeker

Federal Budget Highlights - Sponsored Article On Tuesday, March 22, 2016, the Honourable Bill Morneau, Minister of Finance, delivered the new Government of Canada’s first Federal Budget, Growing the Middle Class. According to Minister Morneau, “our plan will recapture the hope and optimism for the future that existed in previous generations, and put it to work for the next. Real change is not just about today or tomorrow. It is about revitalizing the economy in the years and decades to come, so that it works for the middle class and helps those working hard to join it.” Projecting a deficit of $29.4 billion in 2016-17 with a gradual decline to a deficit of $14.3 billion in 2020-21, Minister Morneau also announced the repeal of the balanced budget legislation enacted under the previous government. For the full document, click here To learn more, contact Loren Kroeker, CPA, CA, Senior Vice President, Tax, at 250.734.4330 or Loren.Kroeker@mnp.ca.  

Photo : Loren Kroeker March 30, 2016

Philip Aubry - Perley-Robertson Hill & McDougall LLP - Philip Aubry

Investor Crowdfunding Coming to Ontario - Sponsored Article The Ontario Securities Commission (“OSC”) announced last month (November 5, 2015) that it will join Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia in allowing businesses to participate in equity crowdfunding regulations.  Provided all necessary Ministerial approvals are obtained, investor crowdfunding will finally come into force in Ontario and other jurisdictions on January 25, 2016.   Although accredited investors have been allowed to participate in equity crowdfunding since 2013, the new regulations will allow all investors to participate, with restrictions on how much they can invest, as well as limits on what the company can raise in order to limit risk. Under the OSC’s new rules, businesses will be required to offer such equity stakes through registered crowdfunding platforms.  These crowdfunding platforms will be responsible for background checks and other due diligence on companies and investors. Other key conditions of the new OSC regulations include offering non-complex securities such as common shares and non-convertible preference shares as well as issuers will be required to complete a Risk Acknowledgement Form and an offering document.  In addition, businesses will have a limit of $1,500,000 in capital they can raise and investment limits for investors will be $2,500 per investment and in Ontario, $10,000 total in a calendar year per investor.  Accredited investors are limited to $25,000 per investment and in Ontario, $50,000 in total per calendar year. Although crowdfunding has many benefits including faster access to funding for start-ups and businesses, there are a few issues a business should consider prior to using the crowdfunding exemption. Some of the…

Photo : Philip Aubry January 07, 2016

Karin Pagé - Perley-Robertson Hill & McDougall LLP - Karin Page

My employee suffers from a disability: What do I need to know? - Sponsored Article According to the Canadian Life and Health Insurers Association, an average of 1 in 3 people will be disabled for 90 days or more at least once before they reach age 65. As an employer, you have an obligation to accommodate any employee suffering from a disability and any medical leave associated with such disability – to the point of undue hardship. But, what does that actually mean?  There is no simple answer to that question as such will be dependent on the particular employee’s circumstances, and those of the employer, taking into account cost and health and safety considerations, if any. The duty to accommodate includes both procedural and substantive elements. Therefore, an employer must demonstrate that it took steps to explore and assess accommodation options for the particular employee. Your employees must also cooperate in the accommodation process, including: informing you of any accommodation needs; answering questions and providing information regarding relevant restrictions or limitations, including information from health care professionals, where appropriate; participating in discussions regarding possible accommodation solutions; and meeting agreed-upon performance and job standards once accommodation is provided. At various stages of their disability, an employee may require modification to their work schedule, work environment, and/or responsibilities. An employer must consider whether such accommodation is feasible, without causing undue hardship. Naturally, what may cause undue hardship to one employer may not be for another. An important factor is the size of the organization. While a large organization may be in a position to transfer an employee to another…

Photo : Karin Pagé May 16, 2016

Dale Barrett - Barrett Tax Law Firm - Dale Barrett

The Lifetime Capital Gains Exemption: Plan ahead - Sponsored Article People often ask me about the Lifetime Capital Gains Exemption (the “LCGE”), which for the 2015 tax year is $813,600, and many just assume that any capital gain can be covered under the exemption.   Actually, the LCGE allows one to dispose of Qualified Farm Property, Qualified Fishing Property, or shares of a Qualified Small Business Corporation and not pay any capital gains tax on the first $813,600.  And as the wording suggests, there are qualifications. In general only ½ of a capital gain is taxable, and with the LCGE, the 2nd half can be non-taxable too up to $406,800 (in 2015) – by virtue of a capital gains deduction. With many people either actively in the process of selling their business or planning for this eventuality, there is a great deal of confusion as to what kinds of sales would be subject to the LCGE, and thus many people don’t take the necessary steps to protect themselves, which can cost hundreds of thousands of dollars. The Qualified Small Business Corporation A gain from the sale of shares of a Canadian controlled private corporation can qualify for the LCGE if a number of conditions are satisfied; one of those being that at the time of sale, all or substantially all of the assets (90%+) of the business are used principally in an active business carried on primarily in Canada.    What this means in practice is that the in the course of an audit the LCGE could be at risk if the Canada…

Photo : Dale Barrett November 23, 2015

Gregory Sanders - Perley Robertson Hill & Mcdougall LLP - Gregory Sanders

The Use of Trusts - Sponsored Article Trusts have been around for six centuries.  In that timespan, their uses have evolved as circumstances have changed. Trusts were first used to distinguish between legal ownership and beneficial ownership.  Trusts evolved out of this environment to find equitable solutions to difficult problems.  Today the basic concept of a trust remains the same.  It allows one person to have legal ownership while another person has beneficial ownership. The use of trusts has evolved dramatically over the years and varies depending on the nature of the jurisdiction in which they are used.  For example, jurisdictions that have complex tax systems have developed trusts in order to provide for tax and estate planning.  However, in jurisdictions where tax is not a motivating factor, the use of trusts is a key ingredient in asset preservation. Trusts are not a static environment.  As circumstances change, the use of trusts in different jurisdictions continues to evolve and new and inventive uses can be applied. It has not been long since Leona Helmsley, heir to the hotel chain, decided that she needed to ensure her pets were cared for following her death and wanted to provide a fund for their care.  What better way to do that than through the use of a trust.  But how can you have a trust where the only beneficiary is a pet and, even more thoughtworthy, how can you ensure that the trustee use the proceeds of that trust for the benefit of the pets?  It’s not as if the pet can initiate…

Photo : Gregory Sanders April 18, 2016

Alicia S. Natividad - ASN Law Professional Corporation - Alicia S. Natividad

Is there a duty of good faith? - Sponsored Article When people enter into contracts, there is a presumption that each person is acting in good faith.  In fact, in contract law, there is a duty of good faith that is measured by the relationship between the contracting parties.  If the parties have an on-going long-term relationship, the level of good faith imposes greater flexibility between the parties beyond the strict terms of a contract.  But, if the parties have a one-off contractual relationship, there is less flexibility in not adhering to the strict terms of the contract, especially if the parties are commercially knowledgeable and experienced. This was the case in the purchase of a newly-built commercial condominium unit by 2336574 Ontario Inc. (“the Purchaser”) from 1559586 Ontario Inc. (“the Vendor”), 2016 ONSC 2467.  The purchase price was $639,000.00 payable by four deposits totalling $40,000.00, $31,999.50 on interim occupancy, and the balance on the closing date. The Purchaser took interim occupancy of the unit and paid $31,999.50.  When the condominium corporation was declared, the Vendor set a final closing date.  The Purchaser requested an extension of the closing date without giving reasons.  The Vendor denied the request.  The next day the Vendor contacted the real estate agent who arranged the sale and was told that the Purchaser was having difficulty arranging financing.  The Purchaser’s lawyer again notified the Vendor’s lawyer that the Purchaser could not close on the closing date.  The Vendor’s lawyer then tendered the closing documentation on the Purchaser’s lawyer and waited until 4:30 p.m. on the closing date.  When…

Photo : Alicia S.  Natividad September 02, 2016

Shann Bosnell - TUC Managed IT Solutions - Shann Bosnell

When Lightning Strikes – Why Business Continuity is Critical! - Sponsored Article On August 20, 2015 a Google Data Center serving European customers in Belgium experienced something out of the ordinary.  It was struck by lightning.  Not once.  Not twice.  But 4 times in succession.  Whoever said “lightning does not strike the same place twice” was sorely mistaken.  Although the data center systems were built to redundancy, the lightning still ended up causing damage.  That damage resulted in the loss of customer data that is not recoverable.  In the grand scheme of things, the data lost accounted for only 0.000001% of a percent of all the data stored.  Sounds like a small percentage, right? But, what if you were one of the companies whose data was affected? What if that data was critical to your business?  I’m thinking you wouldn’t care about percentages. Statistically, data is far more secure and available in a data center than in nearly every businesses’ server room.  Ultimately, most companies don’t have the capital and experience to build a data center to match a professional facility.  But, what the example above has shown, is that even massive data centers provided by companies like Google are still susceptible to failure and disaster.  Most people think that because they move their solutions and data “to the cloud” they don’t have to worry about data loss.  Statistically speaking, moving to hosted solutions absolutely helps ensure data availability and backup, yet no solution is perfect.  Despite the Google example above, not all failures happen due to natural disasters.  What’s worse than a tornado or…

Photo : Shann Bosnell September 14, 2015

Lorraine Mastersmith - Perley-Robertson Hill & McDougall LLP - Lorraine Mastersmith

“SAFE” Capital Raising for Emerging Companies - Sponsored Article One of the biggest challenges facing emerging growth companies is raising capital to fund growth. Depending on the stage of the company’s growth, funding can come from a myriad of sources, from friends & family, angel investors, government programs, venture capital and private equity through to accessing the public markets. In the early stages of pre-revenue product development, establishing a value for the company at which to price equity investments can be difficult. To facilitate access to capital in this early stage, a relatively new alternative that is gaining in popularity is the Simple Agreement for Future Equity or “SAFE”. First introduced in late 2013 by the Y Combinator accelerator in Silicon Valley, the SAFE (followed by a similar agreement dubbed the “Keep It Simple Security” (“KISS”) by another accelerator, 500 Startups in mid-2014) presents start-up companies with an alternative to equity or convertible debt financing. These documents are short (usually only 5 pages) and flexible agreements, designed to be simple to understand, negotiate and administer. In exchange for providing cash to the company, investors obtain a contractual right to receive the company’s equity at a future date, at a price to be determined at that later date. Similar to convertible debt or debentures, this alternative is a quick and relatively simple way to provide companies with cash in exchange for a promise of future equity, with a significant difference in that these instruments typically do not accrue interest and do not have stated maturity dates. The SAFE (or KISS) is essentially an…

Photo : Lorraine Mastersmith September 14, 2015

Solomon Gold - Perley-Robertson Hill & McDougall LLP - Solomon Gold

What Information Does an Applicant Have to Include When Filing A Patent Application? - Sponsored Content You’ve decided that you want to file a patent application for your invention.  What information about the invention do you have to disclose in your application? The Canadian Patent Act states that an application must correctly and fully describe the invention and its operation or use as contemplated by the inventor.  To meet this requirement, the application will include a written description of the invention, supported by drawings, where appropriate.  The application will also include at least one claim which defines the scope of the applicant’s invention.  Care is usually taken when consulting with a patent professional to craft claims that best capture the invention by including components that define the invention while at the same time differentiate from what has come before.  While the scope of the claims has traditionally been seen as the most important part of the application, courts in Canada and in the United States have recently been considering what constitutes an adequate description as well. A patent is often thought of as a bargain between an applicant and the government granting the patent.  In exchange for the applicant’s disclosure of the invention in the application, the government grants a patent for an invention meeting criteria for patentability, the patent giving the patentee exclusivity in what it has claimed for the term of the patent.  The application will be published eighteen months following filing, and the description must be sufficient to enable anyone to practice the invention once the period of exclusivity expires. Therefore, what is set out in…

Photo : Solomon Gold August 14, 2015

Warren Creates - Perley-Robertson Hill & McDougall LLP - Warren Creates

Federal Express: New Immigration Program, One Year In - Sponsored Article On 1 January 2015, the federal government launched a revamped ‘Express Entry’ system for economic immigration to Canada. Before this new program, potential economic immigrants to Canada followed a straightforward application process with a predictable outcome. So long as an applicant met the qualifying criteria, included the right documents, and applied before the yearly application quota was met, the application would eventually be approved. Though the wait was often very long, each applicant was ensured an eventual decision on their application. The new system is designed to eliminate backlog and ensure swifter processing times. Under the new system, each prospective economic immigrant fills out an online profile. Once complete, the electronic database assigns a points total based on a “Comprehensive Ranking System”. Points are awarded for factors such as Canadian work experience, education, and language skills. A profile will only remain in the system for 12 months, after which it is removed and the individual must reapply. Candidates who meet the requirements of one of the four federal Express Entry programs are accepted into the Express Entry Pool. From this pool, the federal government periodically picks the top-ranked candidates and invites them to pay the processing fee and submit a formal application for permanent residence. Ontario Express Entry In June 2015 the Ontario government launched two Express Entry streams under the Ontario Immigrant Nominee Program (OINP). These streams allow the province to nominate candidates from the federal Express Entry pool who meet certain education, skilled work experience, and language ability standards and who…

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Photo : Warren  Creates January 18, 2016

Michael Citrome - Barrett Tax Law Firm - Michael Citrome

Bad Debt? Could Be Worse - Sponsored Article The Income Tax Act is the Federal legislation that governs income tax in Canada. It’s a big, complex piece of legislation that is constantly being updated, not in the least because it is one of the government’s most important tools for steering Canada’s economy. Want Canadians to save for their retirement, buy homes or replace their computers? The Income Tax Act is there to promote it. Investing? Know Your Rights  One of the policy objectives of the Income Tax Act has historically been to encourage Canadians to invest in small business. The lifetime capital gains exemption for small business corporations is a well-known example of the Income Tax Act making it possible to profit from the sale of your business to the tune of over $800,000 of tax-free capital gains. But what about the dark side of business investments – when you lose money? The Income Tax Act has created a special category of loss, called an Allowable Business Investment Loss or ABIL (pronounced like “able”), that makes the loss of certain investments a little more bearable, if you fit into the category.  Not All Losses Created Equal So first of all, what’s a loss? Logically, you’d think it means the opposite of income. But in Income Tax, there are different kinds of income, and so there are also different kinds of losses. Most investments, when you profit, give rise to a capital gain. Capital gains are treated differently from other forms of income. For one thing, unlike ordinary business income, generally only…

Photo : Michael  Citrome October 12, 2015

David Lowdon - Perley-Robertson Hill & McDougall LLP - David Lowdon

Better Capital Raising Opportunities for Small Businesses and Start-ups - Sponsored Article A New Family, Friends and Business Associates Exemption for Ontario The first source of funding for many small businesses or start-ups is the owner’s network of family, friends and business associates.  While other jurisdictions have a prospectus exemption catering to this fundraising opportunity, for several years Ontario has not. The Ontario Securities Commission (“OSC”) recently announced a new prospectus exemption for investments by family, friends and business associates (the “FFBA Exemption”).  The FFBA exemption came into effect on May 5, 2015. The FFBA Exemption recognizes that existing networks of family, friends and business associates may be the most cost-efficient way for early stage companies to raise capital without disclosure requirements or intermediary involvement.  It will likely broaden access to capital beyond what is currently available under the existing Private Issuer exemption and it replaces Ontario’s much narrower Founder, Control Person and Family Exemption.  It will also increase investment opportunities for investors who are closely related to the corporation but who would not have qualified under previously existing exemptions. The FFBA Exemption introduces two new requirements.  First, an issuer will be required to submit a report of exempt distribution to the OSC.  In addition, a risk acknowledgement form must be signed by both the investor and the issuer.   The FFBA Exemption has the following key conditions: It is available to both reporting and non-reporting issuers but is not available to investment funds. The exemption applies to a distribution of any security by an issuer or selling security holder. There is no limit on…

Photo : David  Lowdon June 12, 2015