Question of the Week: What are the prospectus exemptions? Part 7: Offering Memorandum exemption

Our blog series on prospectus exemptions concludes this week with Part 7 on the offering memorandum exemption. You can find links to the entire series at the end of this post.

Under the offering memorandum exemption an issuer can sell securities to anyone independent of their relationship. Like the start-up crowdfunding exemption in last week’s post, a disclosure document called an offering memorandum must be prepared.

 

There are two types of offering memorandums that can satisfy the exemption requirements. If the securities issuer is a reporting issuer and they have filed an annual information form with securities regulators they can use the short form document, Form 45-106F3. If the issuer does not file an annual information form, then they must use Form 45-106F2.

If the securities issuer is a non-reporting issuer, they must use the long form offering memorandum, Form 45-106F2 which contains seven key elements:

  • A term sheet that provides a description of the offering

  • A table showing a use of proceeds – where the money will be used

  • A description of the issuer and its business

  • A description of any special features of the securities being offered

  • A description of the risks associated with the issuer and its business that may affect its ability to meet its objectives and the risks that the securities may not generate profits for the investor

  • A description of the rights given to securities purchasers under securities laws

  • Financial statements

 

The issuer can sell securities in any amount to anyone as long as the following requirements are met before the purchaser signs the agreement:

  • The purchaser signs Form 45-106F4 Risk Acknowledgement to confirm they understand the risk involved in the purchase

  • The issuer delivers an offering memorandum to the purchaser

 

The exemption can only be used by the issuer to sell securities. A holder of these same securities cannot use the offering memorandum exemption to sell their securities.

The offering document and a report of trade must be filed with securities regulators 10 days after the close of the distribution.

You should consult with legal counsel familiar with securities laws if you have any questions about the prospectus exemptions and how to comply with the requirements to rely on the prospectus exemption.

 

Prospectus Exemptions Series:

Part 1: Private issuer exemption
Part 2: Family, friends and business associates exemption
Part 3: Employee, Director, Officer and Consultant exemption
Part 4: Accredited investor exemption
Part 5: Minimum amount ($150,000) exemption
Part 6: Start-up crowdfunding exemption
Part 7: Offering Memorandum exemption