CANADA Law and Practice Contributed by: Darin Renton, Jill Winton, Amy Chao and Irena Ninkovic, Stikeman Elliott LLP
National instruments (NIs) are securities rules that have been adopted by the securities regulators in all Jurisdictions, and apply nationally. Alternative funds that are offered via offering mem - orandum in the exempt market are generally not subject to authorisation or review by any regulatory body. However, issuers that distribute securities in the exempt market may become “market participants” under applicable securities law. Market participants are subject to record-keeping requirements and com - pliance reviews of their books, records and docu - ments by securities regulators. Managers of private funds that are not investment funds are not subject to registration; see 3.3 Regulatory Regime for Man- agers . In Canada, the sale of securities to the public is sub - ject to the prospectus requirement. As such, either a prospectus must be filed with the securities regula - tors, or the alternative fund can rely on an exemption from such requirement in order to distribute its secu - rities. Securities cannot be sold under a prospectus until it receives clearance (a receipt) from the securi - ties regulators. The OSC Service Commitment state - ment published in 2024 provides for a 40 business- day timeline for the issuance of a receipt for the final prospectus after all materials are received in the final form for routine offerings. Offerings that are complex or raise new policy issues take longer for the OSC to review. An offering memorandum is generally not subject to regulatory review. The “accredited investor” exemp - tion under NI 45-106 is the most common prospectus exemption relied on to distribute securities of both Canadian resident and non-resident alternative funds. Registered dealers, including exempt market dealers, can distribute securities of non-resident alternative funds to accredited investors and other exempt buy - ers through private placements. Foreign dealers may distribute such securities to permitted clients under the “international dealer exemption” (IDE), subject to conditions under NI 31-103. Alternative funds that distribute securities by way of prospectus become reporting issuers (public funds)
subject to National Instrument 81-102 Investment Funds (NI 81-102), among other rules. Public funds are subject to fundamental investment restrictions and operating requirements, as well as requirements for enhanced and continuous disclo - sure. Certain restrictions and requirements contained in securities laws, including NI 81-102, are designed in part to ensure that the investments of the fund are diversified and relatively liquid, including investment restrictions relating to investments for control, invest - ments in real property and loan syndications, and investments in other investment funds (fund-on-fund structures), as well as illiquid securities and the use of leverage and derivatives, short selling and securi - ties lending. Other laws applicable to alternative funds in Canada include: • tax laws that apply at both the federal and provin - cial levels; • trust law; • limited partnership law; • anti-money laundering and terrorist financing laws; • anti-spam legislation; • data privacy laws; and • in the Province of Quebec, French language usage laws. 2.3 Disclosure/Reporting Requirements An offering memorandum (OM) delivered to prospec - tive investors in certain Jurisdictions is required to include prescribed disclosure relating to certain con - flicts of interest and disclosure relating to purchaser statutory rights of action for damages or rescission where the OM contains a misrepresentation. Alterna - tive funds that distribute securities to permitted clients may be exempted from these disclosure requirements, provided that certain conditions are met. There is generally no regulatory review or approval process for marketing and offering documents of alternative funds offered by way of a private place - ment. Certain Jurisdictions, such as Ontario, require a copy of the OM (and any amended OM) to be deliv - ered to or filed with the securities regulators within ten days of the distribution made under the OM. Spe -
62 CHAMBERS.COM
Powered by FlippingBook