From “Closed Company” to “Private Issuer” – A Small Revolution for Private Businesses

FROM“CLOSEDCOMPANY”TO“PRIVATEISSUER”–ASMALLREVOLUTION
FORPRIVATEBUSINESSES

MARIE-ÈVECÔTÉ*
LEGER
ROBICRICHARD,LLP
L
AWYERS,PATENTANDTRADE-MARKAGENTS
ThedeadlineofOctober12,2007isquicklyapproaching.Itisthereforeimportantto
keepinmindthemodificationsbroughttotheQuébecsecuritiesregulatoryframework
asfurtherexplainedherein.
MostcompaniesandcorporationsdoingbusinessinQuébec(collectivelythe
“corporations”)considerthemselvesas”private”corporations,inotherwordwords
“closedcompanies”,sincetheirsecuritiesarenotlistedfortradingonthestock
exchangeorotherwisepubliclytraded.However,asofSeptember14,2005,
importantmodificationswerebroughttotheQuébecsecuritiesregulatoryframework,
namely(i)theamendmentoftheQuébecSecuritiesAct(the”Act”)removingmostof
itsprospectusandregistrationexemptions,includingtheexemptionpertainingto
“closedcompanies”and(ii)theadoptionofRegulation45-106–Prospectusand
RegistrationExemptions(“NI45-106”)andRegulation45-102–ResaleofSecurities
(“MI45-102”).
Amongstallthesemodifications,NI45-106providesforcertainexemptionsfor
“privateissuers”,whichcanbecomparedtotheformer”closedcompany”exemption,
aslongascorporationsmeetregulatoryrequirements.
Thedefinitionof”privateissuer”isfoundatSection2.4ofNI45-106andissimilar,in
manyrespects,tothatofthe”closedcompany”,butalsoencompassesamajor
difference.Thetransferrestrictioncontainedintheissuer’sconstatingdocuments
nowextendstoalltypesofsecuritiesthatmaybeissuedbyacorporation,andnot
onlytoshares.Inparticularcases,thismodificationrequirescertaincorporations
createdbeforeNI45-106’scomingintoforcetoamendtheirarticlespriorto
October12,2007,whichistheexpirydateofthedelaygrantedbytheAutoritédes
marchésfinanciers(“AMF”)toproceedwithsuchamendmentand,consequently,to
beabletobenefitfromthe”privateissuer”exemption.



















































©CIPS,2007.*WithLEGERROBICRICHARD,LLP.amultidisciplinaryfirmofLawyers,andPatentandTrade-mark
Agents.PublishedintheSpring2007Newsletterofthefirm(Vol.11,No.2).Publication068.081.

2
Itisimportanttorememberthatmeetingtherequirementsoftherestrictionon
transferofsecuritiesmentionedabovedoesnotautomaticallyprovideanissuerthe
benefitoftheexemptioninSubsection2.4(3)ofNI45-106.Onemustalsoanalyze
eachsecurityissuanceperformedbytheprivateissuertodetermineifitmeetsthe
exemption’sotherrequirements,particularlythoserelatingtopersonstowhom
securitiesmaybeissued.Furthermore,transfersofsecuritiesacquiredunderNI45-
106exemptionsaregovernedbyMI45-102.Therefore,aholderwishingtoresellits
securitiesmusthaveknowledgeofandrefertotheexemptionunderwhichitacquired
thesaidsecurities.Insuchcase,thesellerhastheobligationtoensurethatthe
applicableconditionsofMI45-102aremet.Suchmodificationsrepresentamajor
departurefromtheformerrules,underwhichassoonasacorporationmetthe
requirementsoftheclosedcompanydefinition,itwasautomaticallyexemptedfrom
theapplicationofmostoftheAct.
Asaconsequenceofsuchnewregulations,allcorporationsactiveinQuébecare
nowsubjecttoandmustabidebythesesecuritiesregulations.Inthisrespect,itis
highlyrecommendedtocomplywiththerequirementsallowingcompaniestobenefit
fromthenew”privateissuer”exemptionunderNI45-106whenrequired,failingwhich,
certaincorporationsmay,incertaincases,irrevocablylosetheir”privateissuer”
status,asituationwhichcouldhaveadverserepercussions,suchassubstantialcosts
andobligationsincasesofissuanceandtransferofsecurities.
Pleasedonothesitatetocontactusinordertoobtainmoreinformationregardingthis
matterortoevaluatewhetheryourcorporationmustcomplywiththeabove-
mentionedrequirementspriortoOctober12,2007.

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