NEW RULES FOR RAISING CAPITAL
(May 2002)
by Lianne Macdonald & Del Elgersma
One of the biggest challenges for any
new
business is raising the money needed
to get
the business started. Many entrepreneurs
start with a loan from family, friends
or
a financial institution. For companies
based
on a new concept or technology, a bank
loan
may not be available until the product
or
service is proven. A loan from family
or
friends may not cover the costs of
research
and development.
Another method for raising money is
to sell
shares to investors. However, the regulations
and restrictions that apply have made
this
method too costly for many new businesses.
In response to this concern, the British
Columbia Securities Commission adopted
new
rules in April to make it easier for
businesses
- especially small and medium size
businesses
- to raise money from investors. The
new
rules also increase the opportunities
for
investors to make speculative investments
in amounts that fit within their personal
comfort levels.
The rules create four new and expanded
exemptions
from the prospectus disclosure requirements
that apply to companies raising money
from
the public.
The four exemptions are summarized below:
- Accredited Investor Exemption - allows companies to raise any amount of
money from financial institutions, pensions,
investment dealers, established companies
and wealthy individuals (as defined in the
rules) without a disclosure document.
- Family, Friends and Business Associates Exemption - allows companies to raise any amount of
money from family members, close friends
and close business associates (as defined
in the rules) without a disclosure document.
- Private Issuer Exemption - allows "private issuers" (generally
companies with less than 50 shareholders)
to raise money from family members, close
friends, business associates and wealthy
individuals without a disclosure document.
- Offering Memorandum Exemption - allows companies to raise any amount of
money from anyone provided that the investor
acknowledges the risks of investing and receives
an offering memorandum - a short, simple
disclosure document. Investor protection
provisions have been added giving purchasers
almost identical rights to those they get
under a prospectus. The rights include a
two-day right to cancel the purchase and
broader rights to cancel or sue for damages
if there is a misrepresentation in the offering
memorandum.
The new rules are the results of a joint
project of the B.C. and Alberta Securities
Commissions. The new rules apply in both
provinces (although Alberta has additional
restrictions for the offering memorandum
exemption). If we can help your company take
advantage of these new rules to raise capital,
or if you have questions about how they might
affect you as an investor, please call us.
|
