Types of prospectus exemptions

Generally, securities offered to the public in Ontario must be issued with a prospectus, but there are exceptions. These exemptions are called prospectus exemptions.

7 key capital raising prospectus exemptions

1. Accredited investor

The accredited investor prospectus exemptionAccredited investor prospectus exemption In Ontario, the accredited investor prospectus exemption allows companies to sell their securities to individuals who meet certain income or financial assets criteria without preparing a prospectus.+ read full definition 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 liabilitiesLiabilities What a company owes, including money, goods or services.+ read full definition. Financial assets include cash and bank deposits but not the value of a house.
  • Net assetsNet assets For a person or company, the total of savings and other assets (for example, a house if you own one) minus any debts or liabilities.+ read full definition, alone or with a spouse of at least $5 million. Net assets generally include all of your assets after subtracting your debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition.

Companies can also sell their securities to pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition funds, charities and certain other entities under the exemption.

There are no limits on how much accredited investors can investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition.

2. Crowdfunding

The crowdfunding prospectus exemptionCrowdfunding prospectus exemption In Ontario, the crowdfunding prospectus exemption allows Canadian companies, particularly start-ups and businesses in early stages of development, to sell securities online through a single portal that is registered with the Ontario Securities Commission (OSC). Anyone can buy securities under this exemption but there are dollar limits.+ read full definition 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 CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices and to foster confidence in fair and efficient capital markets.+ read full definition (OSCOSC See Ontario Securities Commission.+ read full definition).

Anyone can buy securities under this exemption but there are limits.

  • Anyone can invest up to $2,500 per investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition 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.

3. Existing security holder

The existing security holder prospectus exemptionExisting security holder prospectus exemption In Ontario, the existing security holder prospectus exemption allows public companies listed on certain exchanges to sell securities to their existing investors.+ read full definition 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 dealerInvestment dealer A securities firm that buys and sells a wide range of investments. They are likely a member of the Investment Industry Regulatory Organization of Canada (IIROC).+ read full definition that it is suitable for the investor.

4. Family, friends and business associates

The family, friends and business associates prospectus exemptionFamily, friends and business associates prospectus exemption In Ontario, 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.+ read full definition 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.

5. Minimum amount investment

The minimum amount investment prospectus exemptionMinimum amount investment prospectus exemption In Ontario, 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.+ read full definition 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.

6. Offering memorandum

The offering memorandum prospectus exemptionOffering memorandum prospectus exemption An exemption that allows companies to sell securities to a wide range of investors based on the availability of an offering memorandum. Anyone can buy securities under this exemption, but there are limits depending on whether they are an eligible or non-eligible investor.+ read full definition allows companies to sell securities to a wide range of investors based on an offering memorandumOffering memorandum A document describing the business of an issuer. This document is designed to help potential buyers make an investment decision when they are considering exempt-market securities.+ read full definition 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 taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition 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 managerPortfolio manager An investment professional who manages your investment portfolio. For example, they buy, sell and monitor investments that fit their clients’ goals and tolerance for risk.+ read full definition, 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.

7. Rights offering

The rights offering prospectus exemptionProspectus exemption An exemption that allows a company lawfully to sell securities without providing a prospectus.+ read full definition 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 prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition 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 registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition 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.

Take action

Learn about the new rules for equity crowdfunding in Ontario and understand the risks of this type of investment.

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