Photo of Joe BrennanBy Joe BrennanNovember 02 2016
Business Law

Alberta Adopts Start-Up Business Exemption

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Earlier this year, the Alberta Securities Commission adopted ASC Rule 45-517 – Prospectus Exemption for Start-up Businesses (theStart-up Business Exemption). This exemption is available for distributions of securities by Alberta issuers seeking to raise funds in Alberta.  It is designed help start-up issuers with very modest financing needs.  It can be used by issuers raising capital via crowdfunding through an on-line funding portal that is registered as a dealer. Or it can be used by issuers raising capital in more tradition means (i.e. through their personal contacts in the community or through a traditional registered dealer). 

The requirements to use the Start-up Business Exemption are summarized below:

Eligible Issuer

The issuer must be a private issuer with its head office in Alberta.  It cannot be an investment fund or a reporting issuer (or the equivalent thereof) in any jurisdiction.

Eligible Securities

The issuer can only issue non-complex securities under this prospectus exemption, being:

(a)   common shares;

(b)   non-convertible preference shares;

(c)   securities convertible into common shares or non-convertible preference shares;

(d)   non-convertible debt securities linked to a fixed or floating interest rate;

(e)   units of a limited partnership;

(f)    flow-through shares under the Income Tax Act (Canada); or

(g)   an investment shares that is a non-convertible preference share issued by a cooperative organized under the Cooperatives Act (Alberta). 

Maximum Proceeds

Lifetime:  The aggregate funds raised in the start-up business distribution together with all funds raised by members of the issuer group in prior start-up business distributions cannot exceed $1,000,000.

Per Distribution: The aggregate funds raised in any start-up business distribution by the issuer group cannot exceed $250,000.

Per Year:  Not more than one other start-up business distribution in aggregate, can be conducted by any members of the issuer group in the same calendar year.

“Issuer Group”: For this rule, the “issuer group” includes:

(a)   an issuer;

(b)   each affiliate of the issuer; and

(c)   each other issuer that is either of the following:

       (i)   engaged in a common enterprise with the issuer or with an affiliate of the issuer; or

       (ii)  has a founder that is a founder of the issuer.

Maximum Subscriptions Per Investor

The acquisition cost of the securities acquired by the purchaser cannot exceed $1,500.

Notwithstanding the foregoing, if a registered dealer provides the purchaser with positive suitability advice in respect of the acquisition, the maximum acquisition cost of the securities acquired by a purchaser in a start-up business distribution is $5,000.

Offering Document

Before the purchaser enters into an agreement to purchase the securities, the issuer must make available to the purchaser (which can be done through the funding portal) an offering document in compliance with Form 45-517F1.  The purpose of the offering document is to provide purchasers with all of the information about the issuer and its business that an investor should know before purchasing the issuer’s securities.

In addition to the offering document, an issuer may make available to a purchaser any other materials that purport to describe the business and affairs of the issuer and that have been prepared primarily for delivery to and review by a prospective purchaser so as to assist the prospective purchaser to make an investment decision provided that the material:

(a)   is balanced and fair;

(b)   does not contain a statement that, in a material respect and at the time and in light of the circumstances in which it is made, is misleading or untrue; and

(c)   states all facts required to be stated or that are necessary to make any other statement not misleading.

All offering materials provided will be deemed to be an “offering memorandum” under applicable Alberta securities laws.

Financial Statements

The issuer must not make available to a purchaser its financial statements unless the financial statements are prepared in accordance with one of the following:

(a)   Canadian GAAP applicable to publicly accountable enterprises; or

(b)   Part II of the Handbook applied to an issuer as if it were a private enterprise and the financial statements consolidate any subsidiaries and account for any significantly influenced investees and joint ventures using the equity method.

Risk Acknowledgement Form

Investors must complete a Risk Acknowledgment Form (Form 45-517F2) requiring them to positively confirm having read and understood the risk warnings and information in the Risk Acknowledgment Form before they can enter into an agreement to purchase securities.

Rights of Withdrawal

Purchasers must be provided with a contractual right to withdraw from any agreement to purchase the security by delivering a notice to the issuer (or dealer if applicable) within 48 hours after the date of the agreement to purchase and any subsequent amendment to the offering document.

Rights of Action Rescission and Damages

Since the offering document, and other offering materials delivered to purchasers, will be will be deemed to be an “offering memorandum” under applicable Alberta securities laws, purchasers will have statutory rights of damages (against the issuer, its directors and its signing officers) or rescission (against the issuer) if the offering document or other materials made available to the purchaser contain a misrepresentation.

Minimum Offering Amount / Time to Close

The offering document must specify a minimum offering amount.

The issuer must raise the minimum offering amount within 90 days of first delivering the offering document to the purchaser (or making such documents publicly available on a funding portal).  Otherwise all funds must be returned to subscribers.

Commissions or Fees

No commission, fee or other amounts may be paid to the issuer group or any of their principals, employees or agents with respect to the distribution.

Registered Funding Portal

Any person or company acting or proposing to act as an intermediary in connection with the start-up business distribution of securities through an online platform to an Alberta purchaser must be a registered dealer.

However, note that Alberta issuers using the Start-up Business Exemption are not required to use an on-line funding portal.

Invitation for discussion

If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.


The foregoing is for general discussion purposes only and should not be construed as legal advice to any one firm. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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