Offering Memorandum Exemption Promotes Greater Access to Equity Financing in Ontario

February 17th, 2016 by

By Ivan Merrow

Entrepreneurs, start-ups, and business owners in Ontario have found it easier to raise capital as of January 13, 2016, thanks to securities law amendments to National Instrument 45-106 Prospectus Exemptions.

The amendments make it easier to raise capital by exempting Ontario issuers from the requirement to distribute a prospectus as long as their investors meet certain criteria. Eligible Ontario issuers may now deliver an offering memorandum (“OM”), typically a less onerous and less costly obligation than a prospectus.

Not only do the amendments create a new OM exemption in Ontario, but as of April 30, 2016, the amendments will harmonize the OM exemptions that currently exist in Alberta, New Brunswick, Nova Scotia, Quebec and Saskatchewan.

The OM exemption adds to the potential pool of prospectus-exempt investors previously available to Ontario issuers. This is good news for growth-oriented firms looking outside their immediate network for investors. Eligible Ontario issuers may now seek prospectus-exempt equity financing from non-accredited investors and individuals without having to demonstrate a prior business or personal relationship.

The OM exemption does have its drawbacks. The new pool of investors made accessible by the OM exemption, the “eligible investor” and “non-eligible investor” classes, are subject to annual investment limits. Depending on a potential investor’s income or assets, alone or combined with a spouse, that individual may be limited to annual investment of $10,000, $30,000, or $100,000 under the OM exemption.

While most Ontario issuers will welcome the new OM exemption, non-reporting issuers may nonetheless find the process onerous. For example, the OM exemption requires disclosure of audited financial statements. In Ontario and New Brunswick, non-reporting issuers relying on the OM exemption are also considered “market participants,” and are therefore required to keep records and possibly undergo compliance reviews pursuant to provincial securities law.

For more details on the OM exemption and other prospectus exemptions available to issuers raising capital in Ontario, contact the corporate law team at Devry Smith Frank LLP 1-416-449-1400.

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