In the Matter of Tobias Lütke, 2016 CanLII 97606

November 15, 2016

In the Matter of the Securities Legislation of Ontario (the Jurisdiction)

and

In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions

and

In the Matter of Tobias Lütke (the Filer)

Decision

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption (the Exemption Sought) from the requirement under subsection 53(1) of the Securities Act (Ontario) (the Act) that a distribution be qualified under a prospectus in connection with the sale of Class A Shares by the Filer under a Filer ASDP (as defined below) on terms that effectively replicate the exemption under section 2.8 of NI 45-102 with relief from the application of subsection 2.8(3)(b) of NI 45-102 (the Waiting Period Requirement), 2.8(3)(c) of NI 45-102 (the 45-102 Reporting Requirements), and subsections 2.8(4) and 2.8(5) of NI 45-102 (the 45-102 Expiry Provisions).

Furthermore, the principal regulator in the Jurisdiction has also received a request from the Filer for a decision that the Application and this decision be kept confidential and not be made public until the earlier of (i) the public disclosure by the Filer of the establishment of the first Filer ASDP, and (ii) 60 days from the date of this decision (the Confidentiality Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Yukon and Nunavut (together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. Shopify Inc. (the Issuer) is a corporation incorporated under the Canada Business Corporations Act.

2. The Issuer’s authorized share capital consists of: (i) an unlimited number of Class A shares (the Class A Shares), (ii) an unlimited number of Class B multiple voting shares (the Class B Shares, and together with the Class A Shares, the Shares), and (iii) an unlimited number of preferred shares, issuable in series (the Preferred Shares).

3. Holders of Class A Shares have one vote for every Class A Share. Holders of Class B Shares have ten votes for every Class B Share. The Class B Shares are convertible into Class A Shares on a one-for-one basis at any time at the option of the holders thereof and automatically in certain other circumstances.

4. As of October 12, 2016, 75,997,746 Class A Shares, 12,955,009 Class B Shares and no Preferred Shares were issued and outstanding. The Class A Shares represented 36.97% of the aggregate voting rights attached to all of the Issuer’s outstanding Shares and the Class B Shares represented 63.02% of the aggregate voting rights attached to all of the Issuer’s outstanding Shares.

5. The Class A Shares are listed on the New York Stock Exchange and on the Toronto Stock Exchange under the symbol “SHOP”.

6. The Issuer is a reporting issuer in each of the Jurisdictions and is not in default of the securities legislation in any Jurisdiction.

7. The Filer is the Chief Executive Officer and Chair of the Board of the Issuer.

8. On August 26, 2015, the Filer established an automatic securities disposition plan (the “Filer’s Original ASDP”) which will terminate no later than December 31, 2016. The first sale under the Filer’s Original ASDP occurred on November 17, 2015. At the time of establishing the Filer’s Original ASDP, the Filer was not a control person of the Issuer, as defined in the Act, as the Filer held 511,000 Class A Shares and 8,489,000 Class B Shares, representing, in the aggregate, approximately 13.58% of the votes attaching to all of the Issuer’s then outstanding Shares.

9. As of October 12, 2016, the Filer held an aggregate of 79,000 Class A Shares (the “Filer Class A Shares”) and 7,989,000 Class B Shares (the “Filer Class B Shares”). As a result of conversions of Class B Shares for Class A Shares by other shareholders of the Issuer following the establishment of the Filer’s Original ASDP, as of October 12, 2016, the Filer Class A Shares represented approximately 0.1% of the outstanding Class A Shares, the Filer Class B Shares represented approximately 61.67% of the outstanding Class B Shares, and together, the Filer Class A Shares and Filer Class B Shares represented, in the aggregate, approximately 38.9% of the votes attaching to all of the Issuer’s outstanding Shares.

10. As of October 12, 2016, all of the Filer Class B Shares and Filer Class A Shares were held in the name of 7910240 Canada Inc. and deemed to be beneficially owned by the Filer.

11. The Filer may currently be deemed to be a control person of the Issuer, as defined in section 1.1 of the Act and the securities legislation of the other Jurisdictions in which the Issuer is a reporting issuer.

12. The Filer intends to annually establish new automatic securities disposition plans in order to allow the Filer to make orderly sales of Class A Shares from the Filer’s holdings over time (each, a Filer ASDP) once the Filer’s Original ASDP terminates on December 31, 2016, and subsequently once each Filer ASDP is terminated, as is currently intended, on December 31 of each year.

13. A Filer ASDP will be established in accordance with applicable securities legislation and securities regulatory staff guidance, including, inter alia, section 175(2) of Regulation 1015 under the Act and OSC Staff Notice 55-701 Automatic Securities Disposition Plans and Automatic Securities Purchase Plans (Staff Notice 55-701), including that:

i. a Filer ASDP will include written trading parameters and other instructions in the form of a written plan document;

ii. a Filer ASDP will include meaningful restrictions on the ability of the Filer to vary, suspend, or terminate such Filer ASDP;

iii. a Filer ASDP will include provisions restricting a broker from consulting with the Filer regarding any sales under the Filer ASDP and the Filer from disclosing information to the broker concerning the Issuer that might influence the execution of the Filer ASDP;

iv. at the time the Filer enters into a Filer ASDP, the Filer will not possess any knowledge of a material fact or material change with respect to the Issuer that has not been generally disclosed (Material Undisclosed Information); and

v. a Filer ASDP will be entered into in good faith.

14. It is anticipated that pursuant to the terms of a Filer ASDP, among other things:

i. all sales of Class A Shares will be conducted by a broker on behalf of the Filer;

ii. all sales of Class A Shares will be conducted over a period that is specified in the corresponding Form 45-102F1 Notice of Intention to Distribute Securities under Section 2.8 of NI 45-102 Resale of Securities (a Form 45-102F1) filed when the Filer ASDP is entered into; and

iii. all sales of Class A Shares will be made by a broker with no participation by or direction or advice from the Filer.

15. It is the intention of the Filer and the Issuer that all sales under any Filer ASDP be exempt from subsection 76(1) of the Act and from liability under section 134 of the Act regarding trades in securities of a reporting issuer with knowledge of a material fact or change not generally disclosed, and corresponding law and regulation in all of the Jurisdictions.

16. Under the Filer ASDP intended to be effective January 1, 2017, it is the intention of the Filer to sell up to 511,000 Class A Shares.

17. If the Filer is deemed to be a control person of the Issuer, any sale of the Filer Class A Shares would be considered a “control distribution” (as such term is defined in NI 45-102).

18. In the absence of the Exemption Sought:

(a) the implementation of a Filer ASDP in accordance with the principles set out in Staff Notice 55-701 would effectively be rendered impossible for the Filer as the Waiting Period Requirement and the 45-102 Expiry Provisions would prevent continued or successive dispositions under the Filer ASDP by requiring that the Filer refile a Form 45-102F1 respecting the proposed sales of Class A Shares every thirty (30) days over the course of the duration of a Filer ASDP and that the Filer wait at least seven days before making the first trade after each filing of a Form 45-102F1; and

(b) the 45-102 Reporting Requirements would require that the Filer complete and file an insider report for each and every sale of Filer Class A Shares within three days of the completion of such sale.

19. The grant of the Exemption Sought would allow the Filer to establish a Filer ASDP in accordance with Staff Notice 55-701 and relieve the Filer of the administrative burden of repeated Form 45-102F1 filings, while still providing timely and meaningful public disclosure of the intended and completed sales by the Filer of Class A Shares consistent with the policy rationale underlying section 2.8 of NI 45-102. Furthermore, the Exemption Sought will relieve the Filer of the seven day waiting period contemplated by subsection 2.8(3)(b) of NI 45-102, which may impede the operation of a Filer ASDP.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) each Filer ASDP includes meaningful restrictions on the ability of the Filer to vary, suspend, or terminate the Filer ASDP;

(b) all sales of Class A Shares under a Filer ASDP are conducted by a broker with no participation by or direction or advice from the Filer;

(c) at the time the Filer enters into a Filer ASDP, the Filer does not possess any Material Undisclosed Information;

(d) the total number of the Class A Shares sold in any calendar year in reliance on the Exemption Sought does not exceed 2% of the total number of outstanding Class A Shares outstanding as of the commencement of the Filer ASDP under which Class A Shares are first sold during the calendar year;

(e) the Filer files or causes to be filed one completed and signed notice (a Notice) in the form of Form 45-102F1 at least seven days prior to the first trade of Class A Shares under any Filer ASDP that discloses the aggregate number of Class A Shares intended to be sold under the Filer ASDP, and the commencement date and expiry date for the sales of Class A Shares under the Filer ASDP (the period between the commencement date and the expiry date referred to as the Sales Period);

(f) the Sales Period under any Filer ASDP does not exceed one calendar year;

(g) the Notice for a Filer ASDP is signed no earlier than one business day before it is filed;

(h) the Filer files, or causes to be filed, insider reports within five days of the completion of each sale under a Filer ASDP in accordance with the primary insider reporting obligation in section 3.3 of National Instrument 55-104 Insider Reporting Requirements and Exemptions and subsection 107(2) of the Act;

(i) the Notice filed in connection with trades under any Filer ASDP expires on the earlier of:

i. the end of the applicable Sales Period; and

ii. the date that the Filer files the last of the insider reports reflecting the sale of all Class A Shares referred to in the Notice;

(j) the Filer does not conduct further sales of Class A Shares under a Filer ASDP following the expiry of the Notice for that Filer ASDP;

(k) the Filer does not conduct sales of Class A Shares under a Filer ASDP prior to the expiry of the Notice for any previously commenced Filer ASDP;

(l) the Issuer is and has been a reporting issuer in the jurisdiction of Canada for the four months immediately preceding each trade under any Filer ASDP;

(m) the Filer has held any Class A Shares, or securities that were converted into such Class A Shares, sold under a Filer ASDP for at least four months prior to the trade of such Class A Shares;

(n) no unusual effort is made to prepare the market or to create a demand for the Class A Shares;

(o) no extraordinary commission or consideration is paid to a person or company in respect of the trade;

(p) the Filer has no reasonable grounds to believe that the Issuer is in default of securities legislation; and

(q) the Exemption Sought shall terminate on January 1, 2020.

Furthermore, the decision of the principal regulator in the Jurisdiction is that the Confidentiality Relief is granted.

“Edward P. Kerwin” “Garnet Fenn ” Commissioner Commissioner Ontario Securities Commission Ontario Securities Commission