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Small and medium enterprises (SMEs) play a significant economic role in Alberta.
SMEs have a number of potential funding sources, including personal funds, trade credit, bank or credit union loans, and government grants. Another potential funding source is the selling of ‘securities’ such as shares, bonds or other interest in the business, or part of its assets or revenues, to investors. Securities law provides the regulatory framework in which the sale of these securities can occur, in a manner designed to protect investors but still foster a fair and efficient capital market.
Securities laws apply to an “issuer” i.e., a person or company, however organized, that is selling its debt, equity or some other “security.” The definition of “security” is broad and includes various types of investments. Securities law imposes an obligation on the issuer of a security to prepare, file and deliver to investors a comprehensive disclosure document called a prospectus that is intended to provide investors with sufficient information to make an informed investment decision. However, in many cases, issuers can comply with the terms of exemptions from the prospectus requirement to raise money.
Issuers that file a prospectus or otherwise become a “reporting issuer” are subject to various ongoing or continuous disclosure obligations. Because ongoing information is made available to prospective investors, secondary trading of the securities of reporting issuers is generally permitted.
Securities laws also impose a registration requirement (essentially a licensing regime) on any person or company that is (or holds themselves out as being) “in the business” of trading or advising in respect of securities or derivatives. Some examples of parties that would be subject to this registration requirement include stock brokers/securities dealers, mutual fund salespersons, portfolio managers and crowdfunding portals. The registration requirement also applies to the manager of an investment fund. In addition, “marketplaces” that facilitate the secondary trading of securities or derivatives are subject to various securities regulatory requirements.
Securities law includes prohibitions against certain behaviour in connection with the trading of securities and derivatives, for example, fraud, misleading statements, market manipulation, unfair practices and insider trading.