The Offering Memorandum (OM) exemption allows Canadian private companies to raise capital from everyday (non-accredited) investors without filing a wildly expensive prospectus. However, you must provide a highly detailed disclosure document and audited financial statements to your provincial securities regulator, which requires strict legal compliance.
Understanding the OM Exemption in Canada
Raising capital for a growing business is one of the biggest challenges founders face. In Canada, the general rule is that if you want to sell shares of your company to the public, you must file a “prospectus” with provincial securities regulators like the Ontario Securities Commission (OSC) or the Autorité des marchés financiers (AMF) in Quebec. A prospectus is an incredibly complex, expensive document meant to protect investors from fraud. Because this process is too costly for most small to medium-sized enterprises (SMEs), the government created specific legal shortcuts known as “prospectus exemptions.”
The most robust of these shortcuts is the Offering Memorandum (OM) Exemption under National Instrument 45-106. 🔍 This rule allows your private company in Toronto, Calgary, or Vancouver to legally take investment money from regular people who are not wealthy “accredited investors.” In exchange for this freedom, you must provide potential investors with an Offering Memorandum. This is a plain-English document that clearly outlines your business model, the risks of the investment, and how you plan to use their funds.
It is vital to understand that the OM exemption is not a free pass to take money from anyone without consequences. If you provide false or misleading information in your OM, investors have a statutory right to sue your company or cancel their investment. Navigating these federal and provincial securities laws is highly complex, so finding a specialized corporate finance lawyer from our directory is strongly recommended before pitching to investors.
Step-by-Step Process for Raising Capital with an OM in Canada
Using the OM exemption requires strict adherence to provincial securities rules. While National Instrument 45-106 applies across Canada, there are minor variations depending on whether you are raising money in Ontario, Alberta, British Columbia, or Quebec. Generally, the process follows these steps.
Step 1: Determine Investor Limits
Before accepting any cheques, you must classify your investors. 👤 In provinces like Ontario and Alberta, a standard non-eligible investor can only invest a maximum of $10,000 CAD per year under this exemption. If the investor is deemed an “eligible investor” (meaning they meet specific income or net asset thresholds), they can invest up to $30,000 CAD, or up to $100,000 CAD if they receive positive advice from a registered portfolio manager.
Step 2: Draft the Offering Memorandum (Form 45-106F2)
You cannot just write a business plan on a napkin. You must use the legally required Form 45-106F2. This document must detail your company’s structure, share price, management team, conflicts of interest, and a strict breakdown of exactly how the raised funds will be spent (the “Use of Proceeds”).
Step 3: Prepare Audited Financial Statements
Unlike a simple startup pitch deck, an OM requires cold, hard numbers. 💻 You must include financial statements that have been audited by an independent accounting firm. This is often the biggest hurdle for young companies, as auditing is expensive and time-consuming.
Step 4: Obtain Signed Risk Acknowledgement Forms
Before finalizing the investment, every investor must sign a Risk Acknowledgement Form (Form 45-106F4). This form proves that they understand they could lose their entire investment. Furthermore, investors have a mandatory 2-day cancellation right. They can change their mind and request their money back within two business days of signing the agreement.
Step 5: File with Regulators via SEDAR+
Once the funds are collected and the shares are issued, your job is not over. 📩 Within 10 days of closing the investment round, you must file a Report of Exempt Distribution (Form 45-106F1) along with a copy of your OM through the federal SEDAR+ online system. You must also pay the required filing fees to the securities commission in every province where an investor resides.
Comparing the OM Exemption by Province
While Canada has tried to harmonize securities laws, there are distinct differences between jurisdictions. Here is how the rules generally apply.
| Province | Investment Limit for Non-Eligible Investors | Filing Requirements |
|---|---|---|
| Ontario (OSC) | Maximum $10,000 CAD per 12-month period. | Must file OM and Form 45-106F1 on SEDAR+ within 10 days. |
| British Columbia (BCSC) | Generally no strict dollar limit, but suitability rules apply. | Must file OM and Form 45-106F1 on SEDAR+ within 10 days. |
| Quebec (AMF) | Maximum $10,000 CAD per 12-month period. | OM must generally be translated into French to comply with language laws. |
How Much Does it Cost to Use the OM Exemption?
Using the Offering Memorandum exemption is much cheaper than a full prospectus, but it still requires a significant budget. Here are the typical costs as of May 2026.
- Audited Financial Statements: Hiring an independent CPA to audit your books is the largest expense, usually ranging from $10,000 to $30,000 CAD depending on your company’s complexity.
- Legal Fees: Having a securities lawyer draft the OM, review subscription agreements, and ensure provincial compliance generally costs between $15,000 and $40,000 CAD.
- Regulatory Filing Fees: Provincial regulators charge fees when you file your Report of Exempt Distribution. In Ontario, for example, the fee is generally $500 CAD or a small percentage of the capital raised, whichever is higher.
- Translation Costs: If you are raising funds in Quebec, translating your legal OM into French can cost an additional $3,000 to $7,000 CAD.
How Long Does the Process Take?
Raising capital legally is a marathon, not a sprint. ⏱ It is important to plan your cash flow accordingly.
- Drafting and Auditing: Preparing the OM and waiting for your accountants to finish the audited financial statements typically takes 2 to 4 months.
- Marketing and Fundraising: Finding investors and pitching your OM can take anywhere from 3 to 6 months.
- Cooling-off Period: After an investor signs the paperwork, you must wait 2 business days before cashing their cheque to honour their cancellation rights.
- Filing Deadline: You must officially file the paperwork on SEDAR+ within exactly 10 days of issuing the shares.
Frequently Asked Questions (FAQ)
Do I need to hire a registered dealer to sell my shares?
It depends. While some provinces allow you to sell shares directly to investors without a registered dealer, doing so frequently or setting up a dedicated sales team might trigger the requirement to register as an Exempt Market Dealer (EMD). A securities lawyer can advise if your activities cross this line.
What happens if there is a mistake in the Offering Memorandum?
If the OM contains a misrepresentation (a false statement or an omission of a material fact), Canadian securities laws grant investors the statutory right of action. They can legally sue the company, its directors, and the promoters for damages, or demand the complete rescission (cancellation) of their investment.
Can I advertise my OM on social media?
Yes, but with strict limitations. You can generally mention that you are raising capital and direct people to where they can obtain the Offering Memorandum. However, you cannot make exaggerated claims, and all promotional materials must align perfectly with the facts stated in your legally filed OM.
Does the OM exemption work for real estate syndications?
Yes. Many real estate development groups and Mortgage Investment Corporations (MICs) use the OM exemption to pool money from regular Canadians to fund large commercial projects or housing developments.
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