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Liability Considerations for an Initial Public Offering


Initial Public Offering (IPO) Exposures: Background Information

Whether listing on a Canadian, U.S., or international stock exchange, an initial public offering (IPO) materially changes a company’s risk profile and adds further exposure to directors and officers liability.

Exposure will be increased due to corporate governance responsibilities and compliance requirements in connection with extensive disclosure rules under applicable securities legislation. Public companies are also subject to additional regulatory scrutiny. Disclosure creates significant liability and requires careful consideration, beginning with the statements contained within the prospectus and statements made during the roadshow, followed by any subsequent public disclosure of material information. Matters are further complicated if a company decides to list on various exchanges as each exchange has its own prescribed rules and disclosure requirements.

Legal Basis for Securities Litigation

In Canada, the majority of litigation brought against directors and officers of public companies arises out of actual or alleged violations of the applicable provincial securities act, such as the Ontario Securities Act, as amended by Bill 198.

In the United States, securities litigation is brought against directors and officers on the basis of actual or alleged violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.