8 key capital raising prospectus exemptions
1. Accredited investor
The accredited investor prospectus exemption allows companies to sell their securities to individuals who have:
- Net income before taxes of more than $200,000 in each of the two most recent calendar years and expected net income of more than $200,000 in the current calendar year.
- Net income before taxes combined with a spouse of more than $300,000 in each of the two most recent calendar years and expected combined net income of more than $300,000 in the current calendar year.
- Financial assets, alone or with a spouse, of at least $1 million before taxes but net of related liabilities. Financial assets include cash and bank deposits but not the value of a house.
- Net assets, alone or with a spouse of at least $5 million. Net assets generally include all of your assets after subtracting your debt.
Companies can also sell their securities to pension funds, charities and certain other entities under the exemption.
There are no limits on how much accredited investors can invest.
2. Self-certified investor
The self-certified investor prospectus exemption allows companies to sell securities to an individual who holds certain designations or degrees related to Canadian securities regulation, or who has relevant experience in the same industry or sector as the company.
The self-certified investor prospectus exemption is not available for purchases of securities of investment funds. The purchase price of all securities purchased by a self-certified investor or their permitted designate under the exemption in a 12-month period cannot be more than $30,000.
The self-certified investor prospectus exemption is in effect until April 25, 2024.
3. Crowdfunding
The crowdfunding prospectus exemption allows Canadian companies, particularly start-ups and businesses in early stages of development, to sell securities online though a single portal that is registered with the Ontario Securities Commission (OSC).
Anyone can buy securities under this exemption but there are limits.
- Anyone can invest up to $2,500 per investment but not more than $10,000 in total for all investments under the crowdfunding exemption in a calendar year.
- An accredited investor can invest up to $25,000 per investment but not more than $50,000 in total in a calendar year.
- Certain very large investors, such as banks and governments, can invest any amount.
4. Existing security holder
The existing security holder prospectus exemption allows public companies listed on certain exchanges to sell securities to their existing investors.
Investors who already hold the security being offered by a company can invest up to $15,000 in a 12-month period using this exemption. However, the investment limit of $15,000 in a 12-month period may be exceeded if the investor has received advice from an investment dealer that it is suitable for the investor.
5. Family, friends and business associates
The family, friends and business associates prospectus exemption allows companies to sell securities to the owners, offices and directors of the business or most of their immediate family members, their close business associates, or their close personal friends.
There are no limits on how much investors can invest under the exemption.
Warning
Some scammers pitch fraudulent investments as “exempt” securities. Learn more about investment scams, and contact the OSC to check before you invest.
6. Minimum amount investment
The minimum amount investment prospectus exemption allows companies to sell their securities to an investor who is not an individual person (such as a company) provided the purchase price of the security is at least $150,000 and is paid, in cash at the time of the purchase.
7. Offering memorandum
The offering memorandum prospectus exemption allows companies to sell securities to a wide range of investors based on an offering memorandum being made available to investors. An offering memorandum is a document that outlines a company’s business and affairs.
Anyone can buy securities under this exemption, but there are limits depending on whether they are an eligible or non-eligible investor.
To qualify as an eligible investor, you must have:
- Net assets, alone or with a spouse, exceeding $400,000.
- Net income before tax exceeding $75,000 in the previous two calendar years, with an expectation to exceed that level in the current year.
- Net income, alone or with a spouse, exceeding $125,000 in the previous two calendar years, with an expectation to exceed that level in the current year.
Limits on the amounts you can invest:
- For eligible investors:
- The purchase price for all securities purchased under the exemption in the 12 months before the purchase cannot be more than $30,000.
- For investors who receive advice from a portfolio manager, investment dealer or exempt market dealer that an investment above $30,000 is suitable, the price for all the securities purchased by the investor under the exemption in the 12 months before the purchase cannot be more than $100,000.
- For non-eligible investors:
- The purchase price for all securities purchased under the exemption in the 12 months before the purchase cannot be more than $10,000.
8. Rights offering
The rights offering prospectus exemption allows public companies to sell securities to their existing security holders. Rights to purchase securities are issued by the company and distributed to security holders on a pro rata basis.
Holders of rights can decide whether to exercise the right to purchase securities of the company by paying the subscription price for the securities. There are no limits on how much investors can invest under this exemption.
Information on withdrawal rights, disclosure documents and risk acknowledgement forms
For further information on all of the prospectus exemptions listed above, such as whether you can change your mind after you have signed an agreement to purchase the securities, the types of disclosure documents that you are entitled to receive, and whether or not you must complete a risk acknowledgement form, read this publication from the Ontario Securities Commission.
Caution
The availability of a prospectus exemption to distribute securities does not mean there is a corresponding registration exemption. Learn more about who needs to register to sell in the exempt market.
Key point
Prospectus exemptions can help companies because they let them raise money in less time and with less cost than preparing a prospectus.