Information on legal and business topics from Canadian business lawyer Shane McLean

Archive for the ‘Law’ Category

The Ins and Outs of Granting Equity to Your Tech Startup All Star Team

Posted by Shane McLean on November 13, 2013

This great article by my law partner James Smith is worth checking out if you are considering using equity grants to members of your tech startup team (hint:  you should be):


Posted in Business Structure, LaBarge Weinstein, Law, Misc., Startup | Leave a Comment »

Saskatchewan Proposes Its Own Crowdfunding Prospectus Exemption

Posted by Shane McLean on October 23, 2013

The Saskatchewan Financial and Consumer Affairs Authority (FACC) has announced a detailed equity crowdfunding proposal.  This follows an update by the Ontario Securities Commission (OSC) in August about its own progress on coming up with a new crowdfunding exemption from prospectus requirements (Read more here).

The FACC put out a backgrounder for discussion purposes back in July.  As a follow up to that discussion piece, this month the FACC released a draft order for comment purposes which contained far more detail on what an equity crowdfunding exemption may look like in Saskatchewan.  As with the OSC proposal, the FACC will require that equity crowdfunding be raised through an online portal but the Saskatchewan proposal appears focused on smaller financings than the OSC’s proposal ($150,000 per offering no more than twice a year vs the OSC’s $1.5 Million per year).  On the other hand, the Saskatchewan process seems to be simpler for the issuer, investor and portal than what we expect to see coming out of the OSC.

The high level details of the FACC’s proposed process are as follows:

  • The exemption will be available to private companies only and both the issuer and the investor must have addresses in Saskatchewan (i.e. this is a Saskatchewan only exemption).
  • The issuer must file an issuer information form and each promoter, director, officer and control person of the issuer must file a personal information form ten business days prior to beginning to trade.
  • The issuer must use a defined form of offering document which must be filed ten business days prior to beginning to trade and made available through the portal to investors.  The offering document must disclose how the funds raised will be used and set a minimum offering amount to close the offering, which must be equal to the amount needed to carry out the purpose for which the funds are sought as set out in the offering document.
  • The offering size must be $150,000 or less, no investor may invest more than $1,500 in any offering and the offering period must not be longer than 6 months.
  • There can be no concurrent offering by the issuer or other issuer for the same project.
  • The securities being offered must not be derivatives.
  • The issuer and its promoters, directors, officers and control persons must not use this exemption more than two times in a calendar year.
  • No commission or other amounts are paid to the issuer or its promoters, directors, officers, control persons, employees or agents with respect to the trade.
  • The issuer must file a report of trade within 30 days after the offering closes.
  • Unless another exemption is available, the securities purchased under this exemption will be subject to a hold period until the date that is 4 months and a day after the later of (i) the distribution date; and (ii) the date the issuer becomes a reporting issuer in any province or territory of Canada.

The FACC has clearly set out the requirements it proposes for portals as follows:

  • A portal must file an information form and each promoter, director, officer and control person of the owner of the portal must file a personal information form thirty days prior to beginning to facilitate crowdfunding trades.
  • The portal must not provide advice.
  • The portal must:
  1. Make the offering document of the issuer and certain risk warnings separately available to investors electronically online;
  2. Not allow an investment until the investor confirms online they have read and understood the offering document and risk warnings;
  3. Not release funds to the issuer until the minimum amount to close the offering has been reached and until that time ensure that all the funds received for the offering are held in trust for the investors;
  4. When the offering is closed, provide the issuer with the details of the investors (name, address, telephone number, email address, details of purchase) within 15 days of closing of the offering; and
  5. Ensure issuers and investors have an address in Saskatchewan.

The FACC’s portal requirements are not as demanding as we expect the OSC’s requirements to be (based on the material put out by the OSC to date).  It is interesting to note that under the FACC’s proposals a portal is not required to be registered as a broker or dealer and there is apparently no vetting of the issuer or investor required except to ensure that the investor has read and understood the risks and that the issuer and investor have Saskatchewan addresses.

One potential barrier to the use of equity crowdfunding in Saskatchewan is the small size of the projects permitted.   The maximum amount that can be raised is $150,000, the amount raised must be “the amount needed to carry out the purpose” and no concurrent fundraising for the same project is allowed.  Issuers will have to be creative and careful about how they define the purpose of their fundraising to ensure that they can complete it using not more than $150,000 in financing.

Technically, this is still a request for comment by the FACC, but it is interesting to see another Canadian jurisdiction put out a detailed (but different) set of proposed rules for an equity crowdfunding exemption.   We will be watching to see which jurisdiction is first to actually implement a new rule and then to see how the different rules are eventually harmonized, if at all.

Posted in Crowdfunding, Financing, Law, Misc., Startup, Venture Capital | Leave a Comment »

Crowd funding in Ontario’s future

Posted by Shane McLean on September 5, 2013

In December 2012 the Ontario Securities Commission published a Staff Consultation Paper seeking comments on a number of potential new prospectus exemptions.  One of the potential exemptions that created a bit of excitement in the startup community was an exemption which would allow Canadian companies to raise equity financing through crowd funding, which is essentially a process of raising financing from a large number of small investors through an online portal.

Borrowing heavily from the concepts established by the US regulators in the JOBS Act approved in early 2012 (most of which has yet to be implemented in practice), the OSC described the following possible crowd funding structure:

  • The funding would have to be raised through a registered funding portal that meets certain qualifications.
  • A company would not be able to raise more than $1.5 Million in a 12 month period using the crowd funding exemption.
  • An investor’s investment in any one company would be limited to $2,500 and the investor’s aggregate investments in a calendar year using the crowd funding exemption would be limited to $10,000.
  • Investors would have to sign a form of risk acknowledgement.
  • Investors would have a 2 day cooling off period during which they could withdraw.
  • The company would be required to provide a pre-defined level of disclosure about the company, the financing and the funding portal.
  • The company would have certain ongoing disclosure obligations to investors that came in through the crowd funding exemption.

On August 28, 2013 the OSC released a progress report.  The good news for crowd funding fans is that the feedback received by the OSC on the crowd funding proposal has been positive.  As a result, the OSC will continue its work to come up with a definitive framework based on the proposed structure.  The key area where further deliberation and focus may be required seems to be on the role of the funding portal including the qualifications needed and the processes to be followed by such intermediaries.

The bottom line is that it sounds like Ontario companies and investors can expect to be able to someday take advantage of a crowd funding prospectus exemption for equity financings along the lines described above.   Regulators in other Canadian provinces are looking into this issue too and we would hope that any structure ultimately settled on will be rolled out as a harmonized policy across the country.

Posted in Crowdfunding, Financing, Law, Misc., Social Media, Startup, Venture Capital | Leave a Comment »

TSX Venture Exchange Rescinds “Founder Share Restrictions”

Posted by Shane McLean on August 19, 2013

Since 2007 and 2008 the TSX Venture Exchange has had restrictions regarding the number of “founder shares” that could be outstanding after any new listing such as an IPO, reverse takeover or Capital Pool Company qualifying transaction.  Although other types of shares are included, the “founder share” definition was often employed to catch shares that were originally issued for less than $0.05 per share.  Unless a qualifying major financing happened at the same time as the new listing, the restrictions prohibited new listings where the “founder shares” would represent more than 15% of the outstanding shares post closing.

Companies completing an RTO or a Capital Pool Company QT would often run up against this restriction, especially if the private target company had a small number of shareholders who received their shares for a minimal investment amount.  In those kinds of deals, the private company founders often end up holding a large piece of the public company, triggering the “Deal Structure and Founder Share Guidelines”.  In my experience, the TSXV was often flexible in applying the Founder Share Restrictions and would sometimes accept that the dollar value paid by the founders for their initial allotment of private company shares was not really indicative of the full value “paid” by the founders through their years of effort in growing the company.  But even in those cases, coming up against the Guidelines could slow a deal down while you work on building an argument and dealing with the Exchange.

The TSXV recently announced that they have rescinded the Deal Structure and Founder Share Guidelines.  This is a positive change in my view.  The guidelines seemed unnecessary in light of the many other safeguards built into the TSXV policies around new listings to ensure that the deal value is justified and that private company founders stick around for a while after closing.

Posted in Capital Pool Company Program, Financing, Law, Mergers and Acquisitions, TSX Venture Exchange | Leave a Comment »

Some Important Pricing Policy Changes at the TSX Venture Exchange

Posted by Shane McLean on August 12, 2013

In the first week of August the TSX Venture Exchange announced some important changes to its policies around pricing of certain securities.   The changes are summarized by the TSXV as follows.

Minimum Price for Warrants and Options: The minimum allowable exercise price for share purchase warrants and incentive stock options will be reduced from $0.10 to $0.05 per share. This will apply to the full term of the warrant or option.

Minimum Price for Convertible Debentures: The minimum allowable conversion price for debentures will be reduced from $0.10 to $0.05 per share for the first year of the term of the debenture. It will remain at $0.10 per share for the balance of the term of the debenture.

Minimum Price for Initial Public Offerings: The minimum allowable offering price for a non-Capital Pool Company initial public offering will be reduced from $0.15 to $0.10 per security.

These changes will be welcome relief for issuers that regularly trade at sub 10 cent levels, particularly as they relate to the pricing of warrants and options.

Warrants are often issued as a free “sweetener” in connection with the sale of shares in a private placement transaction.  As an investor incentive, 10 cent warrants are obviously not as attractive as warrants priced closer to market value.  Allowing companies to issue options at or around their market price may serve to generate more investor interest, which is always a positive for the companies.

As for option pricing, clearly the perceived value of options as an incentive to employees, directors and consultants is greatly reduced if the exercise price is higher than the trading price of the company’s shares.  Allowing companies to go with an exercise price below 10 cents will increase the perceived value of options as remuneration, possibly allowing issuers to save some much needed cash.

The TSXV says further details will come later this month.  No effective date for these changes has been announced, but the TSXV has indicated that it will consider allowing issuers to rely on the intended changes right away.

Posted in Financing, Law, TSX Venture Exchange | 1 Comment »

Common Mistakes for New Public Companies

Posted by Shane McLean on February 21, 2013

Here is a link to a recent article in the Financial Post ( which comes from the Ontario Securities Commission. It sets out some of the more common mistakes the Ontario Securities Commission has seen from newly listed public companies. The mistakes listed essentially boil down to: (i) not putting enough effort into compliance with rules and laws applicable to public companies; (ii) not understanding securities laws; and (iii) issues with disclosure, either by providing inappropriate disclosure or not providing disclosure on a timely basis.

I have seen a lot of issuers make a lot of mistakes and would put the disclosure issues at the top of the list in terms of importance. The other issues around the rules, securities laws etc. can often be dealt with by ensuring the company has good external advisors. In my  view the disclosure obligations are something that management must really internalize and understand because, at the very least, they need to have a good sense of when to call on their external advisors for advice on whether and when disclosure is required.

Posted in Capital Pool Company Program, Law, TSX, TSX Venture Exchange | Leave a Comment »

Notice and Access Comes to Canada

Posted by Shane McLean on January 23, 2013

Here is my latest post from the LW Connect Blog:

Amendments to Canada’s securities laws come into effect in February introducing a process referred to as “Notice and Access” for public company shareholder meetings taking place March 1, 2013 or later.  The “Notice and Access” process provides issuers (other than investment funds) with the ability to deliver a prescribed form of notice to shareholders directing them to a non-SEDAR web site where they may access the balance of the meeting materials.  This process should reduce both printing and mailing costs for issuers because they can avoid printing and mailing the meeting circular and financial statements to all shareholders.  The Notice and Access is available for all types of shareholder meetings. For each issuer, it will be important to review its governing corporate statute (e.g. Canada Business Corporations Act, Ontario Business Corporations Act, etc) to determine if the Notice and Access process will meet all shareholder meeting notice requirements under such statute.   For more information about Notice and Access please feel free to contact Shane McLean at or (613) 599 9600 ext. 262

Posted in Law, TSX, TSX Venture Exchange | Leave a Comment »

Roundup of Most Read CBLB Posts

Posted by Shane McLean on January 22, 2013

I was reviewing the stats for this blog recently and thought it would be neat to list the top 10 most popular posts to date:

10.  Update on the Ontario Emerging Technologies Fund (October 13, 2009)

9.     CPC Combinations Part 2 (September 16, 2009)

8.     From Wellington Financial -5 Pre Deal Questions to ask Your Venture Debt Lender (October 28, 2009)

7.    Ontario Small Claims Court Limit Raised to $25,000 (January 13, 2010)

6.    CPC Combinations Part 1 (August 9, 2009)

5.    What are Preferred Shares? (July 2, 2009)

4.    What is a Special Purpose Acquisition Corporation?  (June 7, 2009)

3.    Unanimous Shareholder Agreements  (September 22, 2009)

2.    Financing Term Sheet Basics (June 21,2009)

1.    What is the Capital Pool Company Program?  (May 28, 2009)

Since these posts continue to draw a lot of attention, my plan over the next several months is to review and update each one.  Most of these date back 3 years and things change so they could use a refresh.  Thanks for reading everyone.

Posted in Business Structure, Capital Pool Company Program, Financing, Law, Misc., Special Purpose Acquisition Corporations, Startup, TSX Venture Exchange, Venture Capital | Leave a Comment »

A Caution for CPCs Looking at Foreign Targets

Posted by Shane McLean on December 13, 2012

Here is a copy of my latest posting at LWConnect, the LaBarge Weinstein LLP Blog:

A word of warning to any Capital Pool Companies considering the acquisition of a company or assets located outside of Canada and the United States: If your CPC is a reporting issuer in Ontario and the resulting issuer will not be a mining or oil and gas issuer, the disclosure for your transaction must be made by prospectus.  Basically that means that rather than preparing a filing statement or information circular as you do with all other CPC qualifying transactions you will have to prepare a non-offering prospectus and file it with the Ontario Securities Commission for review.  At that point, the OSC takes over the review of your disclosure and the TSX Venture Exchange’s review becomes an exercise limited to ensuring that the resulting issuer will meet TSX Venture Exchange listing requirements.

Given recent highly publicized scandals involving companies with foreign assets listed on Canadian exchanges, the OSC has been subjecting these transactions to a surprisingly high level of scrutiny, including review of the business and financial merits of the transaction. It can be debated whether this degree of scrutiny into the business/financial side of a deal by the OSC is appropriate, but it does seem to be the new way of things so CPCs looking at foreign qualifying transactions should be prepared.

Posted in Capital Pool Company Program, Law, Mergers and Acquisitions, TSX Venture Exchange | Leave a Comment »

Ontario Small Claims Court Limit Raised to $25,000

Posted by Shane McLean on January 13, 2010

Effective as of January 1, 2010, the upper limit on claims brought before the Ontario Small Claims Court was raised from $10,000 to $25,000.   This change will almost certainly increase the overall number of claims that are brought in the $10,000 to $25,000 range.  Prior to this change it was not unusual for plaintiffs with claims in that range to give up the amount over $10,000 in order to bring their claim into the jurisdiction of the Ontario Small Claims Court with its lower costs and quicker timelines.

Of interest to Ontario based businesses, I expect to see a larger number of vendor disputes and employment matters ending up in Small Claims Court than before.   This includes claims in the $10,000 – $25,000 range that might previously have been brought in Small Claims Court but capped at $10,000 and claims that might otherwise be in the over $25,000 range but are close enough to $25,000 that the plaintiff believes it to be in their interests to limit their claim to $25,000 in order to bring it in Small Claims Court.

Posted in Law, Misc. | 1 Comment »