Photo of Joe BrennanBy Joe BrennanDecember 11 2015
Business Law

Solving the OM Exemption Puzzle

A Summary of the Offering Memorandum Exemptions in Canada

The offering memorandum exemption rules in Canada are an insanely complex puzzle.  However, with some experienced legal advice, it is a puzzle that can be solved and the offering memorandum exemption can be utilized to your advantage.

If you want to raise money from the public to fund the development of your business, the general rule in Canada is that you must “go public” by filing a prospectus with the applicable securities regulators providing full, true and plain disclosure of all material facts regarding your company and the securities being offered to the public.  

If you don’t want to “go public” but still want to raise money from the public, then you must rely on exemptions from the prospectus requirement to do so.  

The most commonly utilized prospectus exemptions in Canada are the “accredited investor exemption” and the “close family, friends and business associates exemption” since the company raising the money is not required to provide any disclosure document and, if it does provide a disclosure document, the disclosure document does not need to be in any prescribed form or contain any prescribed content (subject to a few select exceptions). However, sometimes a company needs to raise more money than it is able to by relying solely on those exemptions but still does not want to “go public” and file a prospectus.  Another alternative is to rely on the offering memorandum exemption.

The offering memorandum exemption allows you to raise money from investors by providing those investors with an offering memorandum in a prescribed form and containing certain prescribed information. 

That sounds pretty simple and straightforward. Unfortunately it is not.

Canada has 10 provinces and 3 territories and each has its own securities legislation and its own securities regulator. For the most part, these securities regulators work cooperatively to harmonize their rules so that complying with each jurisdiction’s securities legislation, while still complex, is not insanely complex.  

Unfortunately, the rules providing for use of the offering memorandum exemption are not such an example.  As mentioned earlier, they are an insanely complex puzzle.  However, again, with experienced legal advice it is a puzzle that can be solved and the offering memorandum exemption can be utilized to your advantage.

The attached PDF document contains a high level summary of the complex puzzle that is the offering memorandum exemption in Canada.

Invitation for Discussion:

If you would like to discuss the topics raised herein or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Shea Nerland LLP.

Disclaimer:

Note that the foregoing, and the attached document, are for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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