A principal-business corporation (the “Issuer”) issues publicly-listed shares pursuant to flow-through share agreements to individual investors (the “Investors”), who sell their shares to an end-purchaser (the “Liquidity Provider”) after the renunciation of eligible resource expenditures.
In some circumstances involving smaller FTS offerings, the Issuer may not retain an Underwriter (to whom it otherwise would have paid a fee in the range of 3 to 6% of the FTSs subscription price (an “Offering Assistance Fee”) to assist in finding Investors and, instead, the Promoter will provide such assistance in consideration for an Offering Assistance Fee. Would this result in the FTSs becoming prescribed shares under Reg. 6202.1?
CRA responded:
In very general terms, [prescribed shares] would include shares that have attributes or benefits not normally associated with a common share. In addition, any arrangements or privileges designed to guarantee the Investor a minimum return or guarantee the original investment will generally cause a share to be a prescribed share.
Generally, we would not expect that the payment of an Offering Assistance Fee by the Issuer to the Promotor of a FTS offering would, in and by itself, cause shares issued under the FTS offering … [under] section 6202.1 … if the Offering Assistance Fee is paid in circumstances where all the parties involved in the FTS offering, namely the Issuer, the Investor, the Promotor and the Liquidity Provider, deal with one another at arm’s length and the amount of the Offering Assistance Fee is equal to the fair market value of the services for which it is paid. … [A]ll of the facts and circumstances surrounding a FTS offering would need to be considered in detail before concluding whether a particular share issued under that FTS offering is a prescribed share … .