Nick Wright, BA JD MBA LLM (Tax)

Wright Business Law

The offering memorandum exemption (the “OM exemption”) under NI 45-106 is one of the most important pathways for private issuers seeking to raise capital from both accredited investors and eligible retail investors in Ontario. The exemption allows non-reporting issuers, particularly private funds, real estate vehicles, mortgage lenders including mortgage investment corporations (MICs) and operating companies, to conduct exempt offerings without preparing a full prospectus, provided they deliver a compliant offering memorandum and comply with detailed disclosure, financial statement and suitability obligations. For fund sponsors, the OM exemption offers broader investor access than the accredited investor exemption yet demands substantially more regulatory discipline.

Ontario’s approach to the OM exemption is more conservative than some provinces. The Ontario Securities Commission (OSC) requires specific forms of disclosure, imposes investment limits for eligible investors, and expects clear, balanced and non-misleading marketing materials. Issuers relying on the OM exemption must understand the interplay between NI 45-106, NI 31-103, companion policies and Canadian Securities Administrators (CSA) and OSC Staff Notices to operate within the regulatory expectations. This article provides a comprehensive analysis of the OM exemption as it applies to private offerings in Ontario, including its legal foundation, disclosure obligations, suitability requirements, grey areas, filing obligations and compliance expectations.

Regulatory Framework & Sources of Law

The OM exemption is found in NI 45-106 ‘Prospectus Exemptions’, s. 2.9. It permits an issuer to distribute securities without filing a prospectus if it provides each investor with a compliant offering memorandum and obtains a signed risk acknowledgement form in the prescribed format. The OM exemption exists alongside a suite of other prospectus exemptions, including the accredited investor exemption, family, friends and business associates exemption and private issuer exemption.

The core policy rationale behind the OM exemption is investor protection. Unlike accredited investors, who are presumed capable of evaluating investment risks without extensive disclosure, OM-eligible investors include retail investors who rely heavily on statutory disclosure. As a result, the OM exemption requires issuers to prepare an offering memorandum that resembles a shorter, tailored version of a prospectus. It must not contain a misrepresentation and must contain sufficient information to enable a reasonable purchaser to make an informed investment decision, in accordance with Form 45-106F2. This standard is enforced through statutory civil liability for misrepresentation under the Securities Act (Ontario), which applies to the issuer and, in certain circumstances, its directors, officers and promoters.

The exemption interacts closely with NI 31-103 ‘Registration Requirements, Exemptions and Ongoing Obligations’. Any dealer participating in an OM offering must comply with suitability, KYC and KYP requirements, and must manage conflicts of interest. In Ontario, an issuer that is actively in the business of trading in securities may require registration as an exempt market dealer unless an exemption applies.

Ontario does not impose a continuous disclosure regime on non-reporting issuers relying on the offering memorandum exemption. Ongoing obligations are targeted and include prescribed exempt distribution filings, the obligation to amend the offering memorandum for material changes prior to further distributions, and financial reporting and use of proceeds disclosure, including audited annual financial statements and, where applicable, Form 45-106F16 disclosure.

Definitions & Thresholds

Under NI 45-106, the OM exemption is available where the issuer delivers a compliant offering memorandum in the prescribed form and obtains a signed risk acknowledgement from each purchaser. In practice, issuers also require investors to enter into a subscription agreement to establish eligibility for the exemption and support compliance. Key defined terms include:

• Offering Memorandum (OM): A disclosure document that must meet the requirements of Form 45-106F2 in Ontario. It must include detailed information about the issuer, business, financial statements, risks, use of proceeds, compensation, conflicts of interest, investor rights and statutory remedies.
• Eligible Investor: An investor who meets specific net income, net asset or other thresholds under NI 45-106. Eligible investors may invest under the OM exemption subject to Ontario investment limits unless they qualify as accredited investors.
• Investment Limits: In Ontario, non-eligible investors are subject to a $10,000 investment limit in a 12-month period. Eligible investors may, in a 12-month period, invest up to $30,000, or up to $100,000 where a registered dealer has performed a suitability assessment and determined that the investment is suitable.
• Risk Acknowledgement (Form 45-106F4): Mandatory for all purchasers, confirming that the investor understands the risks of investing under the OM exemption.
• Financial Statements: Under NI 45-106, financial statements included in an offering memorandum must comply with NI 52-107. In practice, this generally results in IFRS-compliant financial statements for OM offerings in Ontario, subject to limited accommodations.
• Filing Requirements: Issuers must file Form 45-106F1 (Report of Exempt Distribution) no later than 10 days after each distribution. A copy of the offering memorandum must be filed within 10 days of the first distribution under that offering memorandum, and any amended offering memorandum must be filed within 10 days of its use.

These thresholds establish a regulated retail access channel while ensuring investors receive structured and comprehensive disclosure.

Application in Practice

Using the OM exemption begins with drafting a compliant offering memorandum document. The OM must be prepared in the format prescribed by Form 45-106F2, which is divided into substantive sections, including executive summary, business description, capital structure, risks, fees and conflicts, financial statements, distributions, redemption rights and investor rights. The OM must avoid misleading statements, must be internally consistent and must include substantive risk disclosure that is tailored to the issuer’s business.

Issuers must prepare subscription documents that incorporate eligibility questions, investor representations, anti-money laundering (AML), know your client (KYC) procedures and risk acknowledgements. Where the issuer works with a registered exempt market dealer (EMD), the dealer must conduct suitability assessments as required by NI 31-103. Suitability analysis requires KYC, product knowledge and a determination that the investment is suitable for the investor.

Because the OM exemption creates statutory civil liability for misrepresentations, issuers must conduct thorough due diligence to ensure disclosures are accurate and up to date. The OM must be updated for material changes before securities are distributed. This requires ongoing monitoring and internal controls to ensure information remains current.

Marketing materials are subject to heightened scrutiny. OSC Staff have repeatedly emphasized that marketing documents must be fair, balanced and consistent with the OM. Any material that goes beyond what is in the OM or creates a misleading impression could attract regulatory action. Issuers must maintain records of all marketing materials and ensure that they align with the OM’s risk disclosures.

After each closing, issuers must file Form 45-106F1 within 10 days. Where an offering memorandum is first used, or later amended, the applicable version must be filed within the prescribed timeframe. Issuers also must deliver audited annual financial statements where required. For ongoing offerings, the offering memorandum must remain current, including updated financial disclosure for prescribed interim periods in accordance with Form 45-106F2. These filings are made via the SEDAR+ system.

The OM exemption creates statutory civil liability for misrepresentation under the Securities Act (Ontario), including rights of rescission or damages. This liability framework materially increases disclosure risk and requires issuers to implement rigorous verification and diligence processes.

Grey Areas & Regulator Focus

Despite its structured framework, the OM exemption contains several grey areas that can expose issuers to regulatory risk. A primary concern for regulators is overly promotional or misleading disclosure. Issuers often wish to present growth projections or market opportunities, but regulators expect that forward-looking information be supported by reasonable assumptions. Any imbalance between risk disclosure and marketing language is a common source of OSC concerns.

Another grey area involves suitability obligations. In Ontario, issuers relying solely on the OM exemption without using a registered dealer must ensure that they are not considered to be in the business of trading. If they are in the business, they may be required to use a third party EMD or register as an EMD themselves. OSC Staff have indicated that repeated or continuous distribution activities may cross the business-trigger threshold.

Financial statement requirements can present challenges for early-stage issuers, particularly where sufficient historical financial information is not available in a form that satisfies NI 52-107 (which generally requires IFRS for OM exemption offerings). While NI 45-106 and Form 45-106F2 provide limited accommodations, these are narrow and require careful structuring to avoid non-compliance.

Another area of regulatory focus concerns redemption rights and liquidity representations. Issuers must ensure that redemption features described in the OM are feasible given the issuer’s liquidity position. Unduly optimistic statements about redemption frequency or investor liquidity have been the subject of regulatory reviews.

Finally, conflicts of interest among directors, officers, promoters and related parties must be disclosed prominently. Failure to provide fulsome conflict disclosure is a frequent source of regulator enforcement action.

Interactions with Adjacent Regimes

Use of the OM exemption requires coordination with several parallel regulatory frameworks. Dealer registration under NI 31-103 remains a central consideration, particularly in assessing whether distribution activities trigger the “in the business” threshold where no registered intermediary is engaged. Where an exempt market dealer is involved, its regulatory obligations will shape the distribution process and impose structural discipline on investor onboarding, documentation and oversight.

Where the issuer constitutes an “investment fund”, additional requirements may arise. In particular, NI 81-106 can apply to pooled vehicles with redemption features, introducing ongoing obligations relating to audited financial statements, net asset value determination and management reports of fund performance.

Tax considerations also arise, particularly where the issuer is a flow-through entity such as a MIC or mutual fund trust (MFT). The OM must clearly describe the tax consequences of the investment, including distributions, allocation of income and potential withholding tax for non-residents.

Illustrative Scenarios

Consider a private real estate fund that wishes to access retail investors. The fund prepares a compliant offering memorandum, including audited financial statements, and relies on the OM exemption in Ontario. Investors qualify as eligible investors with limits assessed through a suitability review by a registered EMD. The fund files Form 45-106F1 after each closing and updates the OM for material changes related to development timelines and valuation. This scenario illustrates the operational intensity required for OM-based offerings.

In another scenario, an early-stage operating company seeks to raise a modest amount of capital from both accredited and non-accredited investors. The issuer prepares an OM and uses a registered dealer to conduct suitability assessments. The OSC may scrutinize marketing materials, particularly if they contain forward-looking statements.

A third scenario involves a private credit fund using the OM exemption to access a broader investor base. A threshold issue is whether it is an “investment fund.” Where it deploys pooled capital into credit assets with pro rata returns and no active operating business, that characterization will often apply. This does not affect the availability of the OM exemption, but it shapes disclosure. The OM should address the credit strategy, underwriting, valuation and liquidity features. The characterization also raises registration considerations, including potential investment fund manager (IFM) registration under NI 31-103 and dealer registration triggers.

Compliance Checklist

Prepare a compliant offering memorandum

• No misrepresentation; disclosure sufficient to make an informed investment decision
• Balanced risk disclosure and required financial statements

Implement investor onboarding controls

• Deliver OM and risk acknowledgement
• Verify eligibility and retain records

Coordinate with dealer (if any)

• Suitability, KYC/KYP and marketing alignment

Meet ongoing obligations

• Update OM for material changes
• File Form 45-106F1 within 10 days of each closing

Control marketing

• Consistent with OM, no unsupported claims
• Approve and track OM marketing materials
• Ensure required filings and incorporation by reference where applicable

Maintain governance and controls

• Ensure accuracy and currency of disclosure

What’s Changing

The CSA continues to review the OM exemption, with a focus on investor protection, disclosure quality and suitability practices. CSA and OSC Staff Notices have identified recurring issues, including inconsistent financial disclosure, overly promotional marketing and insufficient conflict disclosure. Recent NI 31-103 reforms, particularly those addressing conflicts of interest and KYP obligations, are likely to increase compliance expectations for dealers involved in OM offerings. Issuers should monitor CSA and OSC guidance closely and adjust disclosure and distribution practices as expectations evolve.

Conclusion and Next Steps

The offering memorandum exemption offers a powerful yet demanding pathway for raising capital from a broader investor base in Ontario and across Canada. It allows issuers to access retail investors while avoiding the cost of a full prospectus, but requires disciplined disclosure, suitability processes, financial reporting and regulatory oversight. A well-designed OM offering can support a scalable and compliant capital raising platform, but only where issuers understand and implement the necessary legal framework in full. Sponsors must integrate NI 45-106 disclosure obligations, NI 31-103 suitability and registration requirements, and OSC policy expectations to manage regulatory risk effectively.

Book a Consultation

If you are an issuer or investment fund raising money in reliance on the offering memorandum exemption in Canada, contact us to schedule an initial consultation with Nick Wright.