The Listed Issuer Financing Exemption (LIFE), effective since November 21, 2022, allows issuers listed on Canadian stock exchanges with active businesses to distribute freely tradable listed equity securities to the public in reliance on their continuous disclosure record and a brief offering document. LIFE marks a significant shift in Canadian capital markets, broadening access to investment opportunities and making it easier for public companies to raise capital.
Through LIFE, issuers benefit from access to a broader pool of potential investors, including retail investors who traditionally had limited access to these offerings. The exemption provides a streamlined way to distribute freely tradable securities while offering investor protections similar to a prospectus, including statutory rights of withdrawal, rescission, and damages.
Issuer Eligibility
To distribute freely tradable listed equity securities (or units with warrants) under LIFE, an issuer must meet specific criteria:
· Listing Requirement: The issuer must have equity securities listed on a recognized Canadian stock exchange.
· Reporting Status: It must be a reporting issuer in at least one Canadian jurisdiction for the 12 months preceding the offering.
· Disclosure Compliance: All required periodic and timely disclosure documents must have been filed under Canadian securities laws.
LIFE is not available to issuers that are investment funds, issuers whose operations have ceased, or issuers primarily holding cash or an exchange listing (e.g., capital pool companies, SPACs).
Offering Limitations and Requirements
Issuers using the LIFE exemption are subject to specific limitations on the amount raised and on shareholder dilution:
· Funding Cap: Issuers may raise up to the greater of $5 million or 10% of their market capitalization (capped at $10 million) within a 12-month period.
· Dilution Limit: Issuers cannot increase their outstanding listed equity securities by more than 50% in a 12-month period, including any shares issuable upon the exercise of warrants. This was clarified in CSA Staff Notice 45–330: Frequently Asked Questions about the Listed Issuer Financing Exemption, published on June 1, 2023, which offers guidance on common issues that have emerged since LIFE’s introduction.
Issuers must have sufficient funds to meet business and liquidity objectives for the next 12 months. If the funds raised under LIFE are insufficient to meet these requirements, the issuer must set a minimum offering amount that will fulfill the 12-month funding requirement.
Funds raised under LIFE cannot be allocated to significant acquisitions, restructuring transactions, or other activities requiring shareholder approval. Offerings must be completed within 45 days of the initial announcement.
According to the CSA Staff Notice 45–330, issuers may conduct LIFE offerings in multiple tranches. However, if a minimum offering amount is required to meet 12-month objectives, this amount must be reached in the first tranche. The final tranche must close within 45 days of the offering announcement.
Disclosure and Reporting Requirements
Before soliciting purchasers, issuers must file a news release and a completed Form 45–106F19 Listed Issuer Financing Document with regulators in each jurisdiction of the offering. If the issuer has a website, the offering document must be posted there.
The offering document should be concise (around five pages) and include:
· Details of the Offering: Including type, number, price of securities, and minimum/maximum amounts.
· Issuer Business Description: An overview of the issuer’s business, recent developments, and objectives.
· Use of Funds: Allocation of proceeds to meet business goals.
· Investor Rights: Including statutory rights of action in case of misrepresentations.
The document must contain a certification that it discloses all material facts and is free of misrepresentation, signed by the CEO and CFO. Should a material change occur before closing, the issuer must pause the offering, amend the document, and issue a new release.
Issuers are also required to file a Form 45–106F1 Report of Exempt Distribution within 10 days of closing in each jurisdiction where the distribution occurred.
Cross-Border Opportunities and Compliance for U.S. Investors
While LIFE is a Canadian framework, U.S. and other non-Canadian investors may participate if certain conditions are met. Issuers must ensure compliance with the securities laws in the jurisdictions of foreign investors, particularly U.S. regulations for U.S.-based investors. U.S. securities law may impose hold periods on these securities despite the Canadian free-trade status under LIFE.
To minimize regulatory concerns with the U.S. SEC, issuers may consider geofencing the portions of their website where the LIFE offering document is accessible, restricting access for U.S.-based IP addresses.
Issuers are advised to work closely with legal counsel when targeting non-Canadian investors, especially in the U.S., to navigate these additional regulatory requirements.
Types of Securities and Additional CSA Clarifications
CSA Staff Notice 45–330 provided further guidance on LIFE’s permitted securities and practices:
· Allowed Securities: Issuers may distribute listed equity securities or units with warrants exercisable into listed equity securities. Flow-through shares and charitable flow-through shares may qualify, provided they meet the exemption’s conditions. However, broker’s warrants or securities issued for debt are not permitted.
· Concurrent Offerings: Issuers may combine LIFE with other exemptions, like the accredited investor exemption, though these other exemptions often require a hold period, while LIFE does not.
Real-World Impact and the Role of Platforms
Since its introduction, LIFE has proven beneficial, particularly for small- and mid-cap companies. The exemption allows issuers to expand their shareholder base efficiently, while retail investors gain access to opportunities previously limited to a select group. This democratization has positively impacted Canadian markets.
Platforms like Capiche (capiche.io) streamline the logistics and compliance of LIFE offerings, ensuring issuers can reach a wider audience without excessive administrative burdens. Platforms help manage documentation, subscriptions, and regulatory compliance, simplifying the offering process for issuers and investors alike.
Conclusion
The Listed Issuer Financing Exemption has significantly changed Canadian capital markets, enabling public companies to raise capital from retail investors in a streamlined and compliant manner. LIFE is effectively equity crowdfunding for public companies, allowing issuers to expand their shareholder base while offering retail investors unprecedented access to investment opportunities.
With greater awareness and adoption, the LIFE exemption is expected to continue reshaping Canada’s market landscape, fostering a more inclusive and dynamic capital-raising environment for issuers and investors alike.