A “Trade” (i.e. selling shares to investors in this case) triggers the “Registration” requirement, even if the trade is not a “distribution”. Just because there is not a prospectus requirement does not mean there is no registration requirement to sell the shares to an investor. However, most prospectus exemptions will come with a registration exemption to sell the shares.
Assembling a prospectus is usually not cost-effective for most MICs, hence raising funds through selling shares needs to fall under an exemption under securities law, which will depend more so in which province your shareholders are located. Thus, most MICs will distribute their shares based on an exemption catered to the province they intend to solicit investors/shareholders from. Common Prospectus Exemptions Include:
- Accredited Investor: Those investors who are sophisticated or deemed to be, such as institutions, governments, persons or companies who meet an income and asset test.
- “Private Issuer”, i.e. Closely-held Issuer Exemption: The shares are all subject to restrictions on transfer found in the Articles of Incorporation, and all the shares cannot be owned by more than 50 persons, not including employees, former employees, or corporate affiliates. The purchasers must be a director/officer/employee of the MIC or Affiliate of the MIC, or close family, friends and business associates of those individuals, or an accredited investor. Except when selling to an accredited investor, no commissions or finder’s fees can be paid to the director/officer/employee of the MIC.
- Family, Friends and business associates: Except in Ontario and modified in Saskatchewan, the definition is pretty broad.
- Founder, control person and family: Applies only in Ontario and much narrower definition of the Family, Friends and Business associates.
- Offering memorandum: Only applies for BC, NB, NS, NL, AB, MB, PE, QC, SK, NT, YT, NU (potentially ON in the near the future)
- Minimum amount investment: The purchase price for the shares is at least $150,000 in total paid in full at the time of distribution.
Common Registration Exemptions Include: MICs are considered Mortgage Investment Entities as defined by the Canadian Securities Administrators. Thus are subject to registration (IFM, Adviser or Dealer) requirements unless (except in Alberta):
- The MIC partakes an active role in originating its mortgages (hence required Mortgage Brokers and Brokerages).
- The MIC does not actively buy or sell its mortgages as part of its native investment strategy.
- The mortgages originate in the name of the MIC or through an agent retained by the MIC like an administrator.
- The MIC directly funds its own mortgages.
- The MIC is the Mortgagee on the commitments.
- The MIC administers/services the mortgage loans directly or through an agent like a Mortgage Administrator.
- Does not advise other MICs on investing and investment strategies, however may request a exemption of the advisors are licensed Mortgage Brokers and Brokerages
- Dealer registration will be required to sell/trade the MIC’s shares in most circumstances if not selling/trading its own shares under a prospectus exemption to friends, family, business associates, accredited investors etc… Hence registering with an EMD is common.