Maple Leaf Angels Corporation
Headnote
Application for relief from excess working capital requirement and related Form 31-103F1 delivery requirement, trade confirmation requirement and account statement requirements contained in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
The Filer is a not-for-profit, non-share-capital angel investor organization registered as an exempt market dealer in Ontario. The Filer's mandate is to connect accredited investors and early-stage seed companies, enabling innovative companies to grow and realize their potential. The Filer operates a limited business model and does not conduct the full range of activities typically associated with exempt market dealer. Apart from facilitating contact between its members and potential target companies, providing a forum for members to discuss and evaluate potential investments, and providing access to an on-line repository of company information and due diligence materials, the Filer does not provide any financial services to any persons. The Filer does not hold any investor or issuer funds or other client assets of any kind at any time.
As a not-for-profit corporation, the Filer's activities are required to be carried on without the purpose of gain for its members, and any profits are to be used in furtherance of its purposes. As a non-share-capital corporation, the Filer does not have shareholders and instead has one class of voting members. The Filer does not have any equity or debt capital. The Filer's sources of revenue include federal and provincial grants, sponsorships and membership fees. Grants from government agencies account for the majority of the Filer's operating budget. The Filer is not permitted to raise debt capital as such an event would put the Filer in breach of the terms of the Filer's government grants.
The Filer has applied for relief from the excess working capital requirement and related Form 31-103F1 delivery requirement as the Filer is unable to issue equity or debt capital to satisfy this requirement due to its not-for-profit, non-share capital form of organization and the terms of its government grants. The Filer has also applied for relief from the trade confirmation requirement and account statement requirement, due to the limited nature of the Filer's business activities. Relief granted subject to certain terms and conditions, including a five-year sunset provision, based on the unique facts and circumstances of the Filer.
Statute cited
Securities Act, R.S.O. 1990, c. S.5, as am., s. 73.3.
Instrument, Rule or Policy cited
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 12.1, 12.12, 14.12, 14.14.
National Instrument 45-106 Registration Exemptions, s. 1.1.
April 24, 2024
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF MAPLE LEAF ANGELS CORPORATION (the Filer)
DECISION
Background
The Filer is a not-for-profit, non-share-capital angel investor group. Its members are accredited investors (as defined in the Securities Act (Ontario) and in National Instrument 45-106 Prospectus Exemptions) that seek to invest in high-risk, early-stage private operating companies primarily in the information technology, manufacturing, alternative energy, finance and services sectors. The Filer is currently registered in Ontario as an exempt market dealer.
The Filer previously applied for and received relief from certain securities law requirements in the decision In the Matter of Maple Leaf Angels Corporation dated April 30, 2019 (the Prior Decision) based on the unique facts and circumstances of the Filer. Specifically, the Filer operates a limited business model and does not conduct the full range of activities typically associated with an exempt market dealer. Additionally, as a not-for-profit corporation, the Filer's activities are required to be carried on without the purpose of gain for its members, and any profits are to be used in furtherance of its purposes. As a non-share-capital corporation, the Filer does not have shareholders and instead has one class of voting members. Grants from government agencies account for the majority of the Filer's operating budget, and the Filer is not permitted to raise debt capital under the terms of the grants.
The Prior Decision is subject to a five-year sunset.
The principal regulator in the Jurisdiction (the Decision Maker) has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) and specifically pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) for relief from the following (collectively the Relief Sought):
(a) the requirement in section 12.1 [Capital requirements] of NI 31-103 that a registered firm maintain excess working capital, as calculated in accordance with Form 31-103F1 Calculation of Excess Working Capital (Form 31-103F1), in excess of the minimum capital prescribed for the registered firm, being, in the case of a registered dealer, $50,000 (the excess working capital requirement);
(b) the requirement in section 12.12 [Delivering financial information -- dealer] of NI 31-103 that a registered dealer deliver a completed Form 31-103F1 showing the calculation of its excess working capital as at the end of the financial year and as at the end of the immediately preceding year (the Form 31-103F1 delivery requirement);
(c) the requirement in section 14.12 [Content and delivery of trade confirmation] of NI 31-103 that a registered dealer that has acted for a client in connection with a purchase or sale of a security promptly deliver to the client a written confirmation of the transaction setting out certain prescribed information (the trade confirmation requirement); and
(d) the requirement in section 14.14 [Account statements] of NI 31-103 that a registered dealer deliver to a client a statement containing certain prescribed information at least once every three months or, if the client has requested to receive statements on a monthly basis, for each one-month period (the account statement requirement, and collectively with the excess working capital requirement, the Form 31-103F1 delivery requirement and the trade confirmation requirement, the 31-103 Requirements).
The Filer has also applied to repeal the Prior Decision effective as of the date of this Decision (the Repeal and Replacement Relief Sought).
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision (the Decision).
Representations
This Decision is based on the following facts represented by the Filer:
1. The Filer is a non-share capital corporation incorporated under the Canada Corporations Act (the CCA) on September 6, 2007 and continued under the Canada Not-For-Profit Act (NFP Act) on June 19, 2014. The Filer is a not-for-profit organization under the Income Tax Act (Canada). The Filer's head office is in Toronto, Ontario.
2. The Filer operates as a membership organization, with its membership limited to investors who are "accredited investors", as defined in section 73.3 of the Securities Act (Ontario) and in section 1.1 of National Instrument 45-106 Prospectus Exemptions (NI 45-106).
3. As a not-for-profit corporation, the Filer's activities are required to be carried on without the purpose of gain for its members, and any profits or other accretions to the Filer are to be used in furtherance of its purposes.
4. The Filer currently has
(a) 60 members;
(b) a board of directors, currently consisting of eight individuals; and
(c) three officers or employees, including Maxime Girard, the Filer's Managing Director, Mohammed Ghalayini, the Filer's Board Chairman, and Murray Neal, the Filer's Head of the Audit & Finance Committee.
5. Members of the Filer's board of directors serve without remuneration.
6. The Ultimate Designated Person (UDP), Chief Compliance Officer (CCO) and sole Dealing Representative (DR) of the Filer is Maxime Girard, the Filer's Managing Director.
7. The Filer's mandate is to connect accredited investors and early-stage seed companies, enabling innovative companies to grow and realize their potential.
8. The Filer's members are sophisticated investors who seek to invest in high-risk, early-stage private operating companies (Target Companies) primarily in the information technology, manufacturing, alternative energy, finance and services sectors. The Target Companies will typically but not exclusively have less than $1 million in annual revenues.
9. The Filer's objective is to provide members a forum to review Target Companies for potential investment. The Filer may also facilitate meetings between its members and the Target Company's management to better enable members to evaluate the prospects of such Target Company.
10. If any of the Filer's members are interested in investing in such Target Companies, they may invest their own money directly in such Target Companies. The members will conduct their own due diligence on such Target Companies before deciding whether and how much they wish to invest in such Target Companies. This type of investing is commonly known as "angel investing", and accordingly, the members of the Filer are sometimes referred to as "angel investors".
11. The members of the Filer generally structure their investments in Target Companies by way of one or more of the following: (i) preferred shares; (ii) common shares; (iii) convertible debentures; (iv) structured loans, (v) warrants and options and (vi) "simple agreements for future equity" (SAFEs). The structures are negotiated by the members and the Target Companies in each case and will depend on the requirements of the Target Company as well as the requirements and expectations of the members as investors. The Filer does not recommend any structure or investment vehicle to the members.
12. Apart from facilitating contact between its members and potential Target Companies, providing a forum for members to discuss and evaluate potential investments, and providing access to an on-line repository of company information and due diligence materials, the Filer does not provide any financial services to any persons.
13. Since the Filer's members are sophisticated investors with extensive business experience, the members may discuss the relative merits of potential Target Company investments among themselves. However, the Filer does not promote any investment or provide any advice on the suitability of any investment opportunities, nor does it carry on any other advising activity.
14. The Filer charges its members an annual membership fee which members are required to pay in order to maintain good standing as members of the Filer. The Filer's members may attend events at which members can receive education about angel investing, network with other angel investors and review business proposals of potential Target Companies.
15. The Filer's other sources of revenue include the following:
(a) federal grants, and
(b) sponsorships.
16. The Filer operates within a larger angel investment ecosystem that geographically covers all of Ontario. These angel networks work in collaboration with other organizations within the broader innovation mandate of the province, including the Regional Innovation Centers. These angel investor organizations are further supported by the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) through the Investing in Business Innovation program. Grants from these government agencies account for the majority of the Filer's operating budget.
17. To date the Filer's members have
(a) invested over $40 million in over 80 companies; and
(b) participated in over 20 successful exits.
18. The Filer maintains a website at www.mapleleafangels.com. The Filer's members can log in to a password-protected platform called Dealum, which is used by all angel investor groups in Ontario under the coordination of Angel Investors Ontario (AIO) to view information about potential transactions in a virtual deal room. The Filer's Dealum platform primarily services as a repository of information and does not operate as a "crowdfunding" or similar type of portal. The Filer's members make their investments directly with the Target Companies and not through the Filer's website. Information in the virtual deal room and other information about prospective offerings is not accessible to members of the public.
19. The Filer provides opportunity for members who are accredited investors to discuss the relative merits of potential Target Company investments among themselves and benefit from other members' investment experience and expertise. The Filer does not offer, and its members do not invest through, a fund. The Filer is not able to rely on the dealer registration exemption in section 8.10 [private investment club] of NI 31-103 (the private investment club exemption) since, among other reasons:
(a) the Filer is not structured as a private investment fund;
(b) the Filer may have, from time to time, more than 50 members; and
(c) the Filer pays remuneration to certain officers for management and administration services.
20. Although the Filer is not able to rely on the conditions in the private investment club exemption, the Filer submits that it operates a limited business model that is generally analogous to a private investment club for accredited investors.
21. Other than as described above, the Filer does not promote any investment or provide any advice on the suitability of any investment opportunities, nor does it carry on any other advising activity.
22. The Filer does not engage in any direct trading or settlement of securities in respect of any particular securities offerings.
23. The Filer does not hold any investor or issuer funds or other client assets of any kind at any time, either in connection with an offering of securities or otherwise.
24. The Filer is not in default of the Legislation.
Request for relief from the excess working capital requirement and Form 31-103F1 delivery requirement
25. The Filer submits that compliance with the excess working capital requirement and Form 31-103F1 delivery requirements would be inconsistent with its status as a not-for-profit, non-share capital organization that is prohibited from raising capital due to the conditions in its government grants and that the cost of such compliance would outweigh the benefits to its members.
26. As a non-share-capital corporation, the Filer does not have shareholders and instead has one class of voting members. The Filer does not have any equity or debt capital.
27. The Filer is not permitted to raise debt capital as such an event would put the Filer in breach of the terms of the Filer's government grants. Specifically, under the grant agreement between Angel Investors Ontario (formerly known as the Network of Angel Organizations -- Ontario) and Maple Leaf Angels, the Filer is not permitted to "create or incur a liability for borrowed money....". Similarly, under the Filer's agreement with FedDev Ontario, the Filer is required to be a non-share-capital, not-for-profit entity.
28. As a non-share capital corporation incorporated under the NFP Act, the recommended best practice is that the Filer file audited annual financial statements with Corporations Canada not less than 21 days prior to its Annual General Meeting and deliver its financial statements to its members (the NFP Act financial statement requirements). As a registered dealer, the Filer is required under section 12.12 of NI 31-103 to deliver its annual audited financial statements to the regulator no later than the 90th day after the end of its financial year (the 31-103 financial statement requirements). The Filer currently has a March 31st financial year end. The Filer is in compliance with its NFP Act financial statement requirements and 31-103 financial statement requirements.
29. The Filer understands that the excess working capital requirement serves a number of important objectives, including
(a) providing protection against insolvency due to liabilities exceeding the realizable value of assets, thereby providing protection to client assets and minimizing disruption to clients in the event of a firm's insolvency;
(b) ensuring the liquidity of a firm which will allow it to meet its day-to-day obligations; and
(c) providing the regulator with sufficient time to intervene to facilitate an orderly wind down, if necessary and serving as a red flag/signal to the regulator that the firm may have potential problems which will help in the assessment of the solvency of a registrant and their fitness for registration.
30. The Filer submits that, in view of its not-for-profit, non-share capital form of organization and the terms of its government grants that prohibit the Filer from raising debt capital, the costs of compliance with the excess working capital requirement and Form 31-103F1 delivery requirements would outweigh the benefits to its members.
Request for relief from trade confirmation and account statement requirements
31. Similarly, the Filer submits that compliance with the trade confirmation requirement and the account statement requirement is inconsistent with its operations and that the cost of such compliance would outweigh the benefits to its members.
32. The trade confirmation requirement in section 14.12 of NI 31-103 applies to "a registered dealer that has acted on behalf of a client in connection with a purchase or sale of a security".
33. The Filer's activities on behalf of a member in connection with a purchase or sale are more limited than a conventional dealer since
(a) the Filer's role is generally limited to facilitating meetings between issuers and investors, providing a forum for members to discuss and evaluate potential investments, and providing access to an on-line repository of company information and due diligence materials; and
(b) the Filer does not hold or have access to any client funds or securities.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Prior Decision is revoked and the Relief Sought is granted, provided that and for so long as:
(a) unless otherwise exempted by this Decision or by a further decision of the Decision Maker, the Filer complies with all requirements of a registered dealer under Ontario securities law;
(b) the Filer deals fairly, honestly and in good faith with its members and prospective members;
(c) the Filer has its head office in Ontario;
(d) the Filer remains a non-share capital corporation organized under the NFP Act and a not-for-profit organization under the Income Tax Act (Canada);
(e) the Filer's primary sources of funding remain as set out in paragraphs 14 and 15 above;
(f) the Filer's mandate and activities remain substantially as set out above in paragraphs 7 to 13, and 16 above;
(g) the Filer has established, maintains and applies policies and procedures reasonably designed to ensure that membership in the Filer and participation in events sponsored by the Filer is limited to accredited investors;
(h) the Filer establishes, maintains and applies policies and procedures reasonably designed to ensure that the Filer, its representatives, and any member involved in evaluating or conducting due diligence in connection with an offering provides written disclosure to all members of any existing or potential conflict of interest in accordance with Division 2 of Part 13 of NI 31-103;
(i) except as set out in paragraphs 7 to 13, and 16, neither the Filer nor any representative of the Filer provides a recommendation or advice to any member or prospective member in connection with an offering or potential offering;
(j) except as set out in paragraphs 7 to 13, and 16, the Filer is not involved in the negotiation, documentation, financing and transaction closing of any investment;
(k) the Filer does not hold, handle or have access to any funds or securities of any investor or issuer;
(l) the Filer maintains
(i) a copy of all information posted by the Filer, its members or issuers on its website, and
(ii) information it is required to keep under applicable securities law,
for at least seven years in a safe location and in a durable form and agrees to deliver to the Commission at such time or times as the Commission may require, any of the books, records and documents (including the information posted on the website) of the Filer;
(m) the Filer provides each member with a copy of its audited financial statements not less than 21 days prior to its Annual General Meeting;
(n) the Filer provides each member with a copy of this Decision;
(o) the Filer notifies the Director in writing
(i) at least 30 days prior to any material change in the Filer's business operations, business model or capital structure, including any material addition to or modification of the services it provides to issuers or investors; and
(ii) within 30 days of becoming aware that grants from the government agencies referred to in paragraph 16 above will no longer account for the majority of the Filer's operating budget;
(p) this Decision may be amended by the Director from time to time upon prior written notice to the Filer; and
(q) this Decision shall expire on the earlier of:
(i) one year after the date hereof; and
(ii) 90 days after any material changes in the Filer's business, operations or capital.
Application File #: 2024/0171