What’s in a Trade: When Can I Market My Interests to Investors in Canada? Provincial and territorial securities laws in Canada cast a wide net over what constitutes a “distribution” – that may be subject to the prospectus rules – and what constitutes a “trade” – that may be subject to the dealer registration rules. – The definition of distribution includes a “trade” in securities that have not been previously issued. Canada has a “closed system,” meaning that if the securities of a private issuer have not been qualified by a prospectus, any subsequent trades of such securities in a jurisdiction of Canada must generally qualify for a prospectus exemption. As a result, a secondary sale of a private fund’s securities to an investor in Canada should be done in reliance on a prospectus exemption. – The definition of trade includes any sale or disposition of a security for valuable consideration (subject to an exception for pledges and encumbrances) and any act, advertisement, solicitation, conduct or negotiation, directly or indirectly, in furtherance of the foregoing. Unlike some other jurisdictions, provincial and territorial securities laws in Canada do not set out specific rules pertaining to “marketing” in the private fund context; nor do they provide any guidance as to when a private fund may engage in “pre-marketing” activities. What should a foreign private fund do to navigate this “catch-all” regime? Some recommended approaches include the following:
– Legends. Fund managers should ensure that appropriate legends are included in the fund’s private placement memorandum and marketing materials regarding the persons to whom the fund’s interests are being offered, or the fact that the materials do not constitute an offer or solicitation. – Restricted Access. The fund’s private placement memorandum and marketing materials should be limited to investors who are accredited investors or permitted clients. Websites on which the fund’s private placement memorandum or marketing materials are posted should be password-protected and require persons who access those websites to represent that they are accredited investors.
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Marketing Private Funds in Canada
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