Start-ups in Ontario will soon be able to hit up friends and family for funding under a new prospectus exemption announced today by the Ontario Securities Commission (OSC).

The OSC said Thursday it is adopting a new “family, friends and business associates” exemption that is similar to exemptions that are already available in other Canadian jurisdictions. It says that the new provision, which is slated to come into effect on May 5, is expected to provide a cost-effective way for issuers to raise capital.

The regulator notes that it is still working on proposals for exemptions to allow equity crowdfunding, and an offering memorandum (OM) exemption. It aims to publish either the final version of these exemptions, or put them out for a second comment period, if necessary, in the summer.

The new exemption allows issuers to sell securities to its principals, certain family members, and close personal friends and business associates without a prospectus.

Investors must sign a risk acknowledgement form that sets out the key risks related to the investment and confirming that the investor qualifies to make the investment. The theory is that investors with a close relationship to a principal of an issuer is in a position to evaluate management and access information about their investment without a formal prospectus.

“Early stage issuers will benefit from this exemption as it will provide them with greater access to capital at a critical stage,” said Howard Wetston, chairman and CEO of the OSC. “Investors will also benefit through greater access to opportunities at the ground level, and everyone benefits from greater harmonization across Canada.”

Earlier today, the Canadian Securities Administrators (CSA), including the OSC, announced a number of changes to several other prospectus exemptions. Additionally, another new exemption for existing security holders took effect on Feb. 11.