QUOTE (ThomasBeyer @ Dec 31 2009, 08:15 AM) Mortgages are usually NOT considered a security if it is with one person. If you have more than one person you maybe offering a security BUT there are a number of exemptions !!
Exemption means "exemption to issue a prospectus". A prospectus is an outline of your securities terms and conditions that must be reviewed and approved by the security commission.
Essentially there are 4 exemptions that are relevant to you or any person doing a JV or a mortgage:
1) you are doing JVs or mortgages that involve friends, family or close business associates (see definition below) !
2) you are doing JVs or mortgages with accredited investors. Accredited investors are those that earn over $200,000/year (or $300,000 as a couple) or have investable assets (alone or with a spouse) exceeding $1,000,000 . This is besides their home, i.e. net investable !!
3) They invest over $150,000 .. the so called "acquisition cost". People investing over $150,000 are usually considered "smart" i.e. if they can write a cheque for that amount the security commission assumes that they know what they are doing.
4) You offer securities through an offering memorandum (OM) which is similar a prospectus but has less financial depth and does not have to approved by the security commission but just filed with them.
As long as you do 1-3 you are doing OK in Alberta or BC without filing requirements to my knowledge.
Once you do option 4 (an OM) you must file with the ASC or BC SC. Slightly different rules apply in Ontario. Once you go to the US even more rules apply. In te OM case you must have a good securities lawyer.
You may wish to have them sign a document (see content below) that they are indeed a friend, family or close business associate to cover your butt .. but you do not have to !
A definition of the relevant terms mentioned follows:
Accredited investor (as defined in NI 45-106) is :
(a) an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000; or
(b) an individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year; or
.. there are quite a few more groups .. like institutions, banks ...
"financial assets" means:
(i) cash,
(ii) securities, or
(iii) a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation;
"spouse" means, an individual who,
(i) is married to another individual and is not living separate and apart within the meaning of the Divorce Act (Canada), from the other individual,
(ii) is living with another individual in a marriage-like relationship, including a marriage-like relationship between individuals of the same gender, or
(iii) in Alberta, is an individual referred to in paragraph (i) or (ii) above, or is an adult interdependent partner within the meaning of the Adult Interdependent Relationships Act (Alberta);
"person" includes an individual, a corporation, a partnership, trust, fund and an association, syndicate, organization or other organized group of persons, whether incorporated or not, and an individual or other person in that person`s capacity as a trustee, executor, administrator or personal or other legal representative;
Close personal friend/close business associate questionnaire
_________________________________________________
Name of director, executive officer, control person or founder
___________________
Length of relationship
________________________________________________________________________________
_____________
________________________________________________________________________________
_____________
________________________________________________________________________________
_____________
________________________________________________________________________________
_____________
Details of relationship or prior business dealings
The undersigned understands that the Partnership is relying on this information in determining to sell securities to the undersigned in a manner exempt from the registration and prospectus requirements of applicable securities laws. and neither the Subscriber nor any affiliate or associate of the Subscriber will pay any commission or finder`s fee to any director, officer, founder or control person of the Partnership or an affiliate, nor to the best of the Subscriber`s knowledge, is any director, officer, founder or control person of the Partnership or an affiliate entitled to a finder`s fee or commission, in each case in connection with the Subscriber`s subscription for Units hereunder.
(Note: a person is not a close personal friend solely because the individual is a relative or a member of the same organization, association or religious group or because the individual is a client, customer or former client or customer, nor is an individual a close personal friend as a result of being a close personal friend of a close personal friend of one of the listed individuals above, rather the relationship must be direct. A close personal friend is one who knows the director, executive officer, founder or control person well enough and has known them for a sufficient period of time to be in a position to assess their capabilities and trustworthiness. Further, a person is not a "close business associate" if the person is a casual business associate or a person introduced or solicited for purposes of purchasing securities nor is the individual a close business associate solely because the individual is a client, customer, former client or customer, nor is the individual a close business associate if they are a close business associate of a close business associate of one of the listed individuals above, rather the relationship must be direct. A close business associate is an individual who had sufficient prior dealings with the director, executive officer, founder or control person to be in a position to assess their capabilities and trustworthiness)
Dated: _______________________________.
__________________________________________________
Print name of Subscriber
By _______________________________________________
Signature
_______________________________________________
Print name of Signatory (if different from Subscriber)
_______________________________________________
Thanks for your quick and detailed response Thomas. To clarify... I am looking to refinance a few of my existing properties that have low LTV, to raise funds to develop some other properties I own. So if I put private loans/mortgages in place with no more than one private lender per property, I should not have to worry about BCSC? If you have the time I`d really appreciate your perspective on the content of my website that talks about the private financing I am looking for. I want to make sure that I do not contravene BCSC regulations.
www.affordabl
eholdings.com is still in draft pre-release form but it captures the essence of what I am trying to do. Thanks again for all the comments you post to the forum...I have found them to be very informative.
