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Listed Issuer Financing Exemption: An Easier Way for Public Companies to Raise Capital

11 November 2022 - Canada

Raising capital is about to get a bit easier for public companies.   

Starting November 21, 2022, public companies will be able to raise funds under a new prospectus exemption recently announced by the Canadian Securities Administrators. The Listed Issuer Financing Exemption under NI 45-106 uses a simplified offering document which avoids the cost and time needed to create a prospectus. 

To use this exemption, companies must fill out a Listed Issuer Financing Document (45-106F19), file a news release, and post the document on its website if it has one. After completing the offering, companies using the Listed Issuer Financing Exemption must file a report of exempt distribution (45-106F1) as if they completed a private placement. 

The requirements to use the Listed Issuer Financing Exemption are: 

  • Must be listed on a stock exchange recognized by Canadian Securities regulators, such as the TSX, TSXV, and CSE.
  • Must be a reporting issuer for at least 12 months immediately before announcing the offering.
  • Have active business operations (not a Capital Pool Company or any other company whose primary assets are cash or its listing.) 
  • Be up to date on all disclosure requirements.
  • Issue a press release announcing the offering.
  • Prepare a Listed Issuer Financing Document (and post it on its website if the issuer has one)’

Limitations of the new Listed Issuer Financing Exemption include: 

  • Issuers are limited to raising $5,000,000 or 10% of their market capitalization (up to a maximum of $10,000,000), whichever is greater. 
  • In any 12 months, the Listed Issuer Financing Exemption cannot raise the outstanding listed equity securities by more than 50%. 
  • The funds raised cannot fund a significant acquisition, a restructuring transaction, or any other transaction requiring the approval of any security holder. 
  • Only a listed equity security (i.e. the class of publicly listed shares) or units of listed shares and a warrant convertible into listed shares are eligible for the exemption. 
  • Investment funds are not eligible. 

One benefit of the Listed Issuer Financing Exemption is that it provides greater flexibility to issuers. It allows them to decide who can assist them with raising capital. Raises under the exemption do not require an agent or underwriter. As a prospectus-exempt distribution, exempt market dealers can facilitate distributions and help public companies raise funds. 

It’s an exciting opportunity for both public companies and exempt market dealers, enabling them to expand their services into the public markets and giving public companies more choices in selecting partners to help them raise capital. 

Another benefit to investors is that the securities purchased under the Financing Document will not have a four-month hold and will be freely tradeable. Compared to a private placement, the subscription agreement can be simplified, as companies will not have to confirm the investor is eligible for other exemptions, such as being an accredited investor. Investors may value the increased flexibility compared to a private placement, allowing public companies to attract a wider pool of investors to the primary market. 

It is anticipated that TSXV and CSE will apply private placement pricing rules, including allowing the securities to be issued at a discount to the market price, within the rules of the applicable exchange. That makes the Listed Issuer Financing Exemption even more attractive to potential investors making the capital raise easier for companies. 

In contrast to many recently implemented exemptions, the national scope, increased flexibility for both issuers and investors, and the low compliance burden for issuers make the Listed Issuer Financing Exemption an attractive one that is expected to be used frequently by issuers. 

Additional research by Farhan Ahmed


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