Nick Wright, BA JD MBA LLM (Tax)
Wright Business Law

A private placement memorandum (PPM) is a disclosure document commonly used in Canadian exempt market offerings, particularly those conducted under the accredited investor exemption in National Instrument 45-106 ‘Prospectus Exemptions’. 

Although a PPM is generally not required by securities legislation and has no prescribed statutory form, it has become standard market practice for many private capital raises. A well-prepared PPM describes the issuer and explains the securities being offered, the investment strategy, the principal risks, and other information material to an investment decision.

This article explains how a PPM differs from an offering memorandum (OM) under NI 45-106, when issuers typically use one, what information it should contain, and the principal regulatory considerations associated with preparing and using a PPM in Canada, with a focus on Ontario.

PPM vs. Offering Memorandum

A PPM and an OM are both disclosure documents used in exempt market offerings, but they serve different legal purposes. The terms are sometimes used interchangeably in commercial practice, although they should not be treated as synonymous.

A PPM is generally prepared for offerings relying on the accredited investor exemption or another prospectus exemption, other than the OM exemption, under NI 45-106. Securities legislation does not prescribe its form or content. Instead, the issuer determines the scope of the disclosure based on the nature of the business, the securities being offered, and the prospective investors. The level of disclosure depends on the issuer and the offering. A start-up raising seed capital may prepare a relatively concise PPM, while a private investment fund or real estate limited partnership will typically require substantially more detailed disclosure regarding investment objectives, valuation, fees, governance, conflicts, liquidity, and subscription procedures.

An OM serves a different function. It is the prescribed disclosure document used when an issuer relies on the offering memorandum exemption under NI 45-106. Where applicable, it must comply with Form 45-106F2 and other prescribed disclosure requirements. Investors purchasing under the OM exemption benefit from statutory rights of action for misrepresentation.

The principal distinctions are summarized below: 

Private Placement Memorandum (PPM)	Offering Memorandum (OM)
Commonly used for accredited investor and other exempt offerings	Used when relying on the offering memorandum exemption
Generally voluntary	Required under the OM exemption
No prescribed statutory form	Prescribed disclosure requirements
Content tailored to the issuer and the offering	Content prescribed by securities legislation
Commonly used by private funds, REITs, MICs, limited partnerships, and other exempt issuers	Used to satisfy the disclosure requirements of the OM exemption
Liability depends on the applicable contractual, statutory, and common law framework	Investors receive statutory rights of action for misrepresentation

Issuers should ensure that the terminology used throughout their offering documents is consistent with the prospectus exemption being relied upon. Referring to a voluntary PPM as an “offering memorandum” may create unnecessary uncertainty regarding the legal framework governing the offering and the rights available to investors.

When Is a PPM Used?

Although a private placement memorandum is not required for most exempt market offerings, it has become standard practice in many private capital raises. They are widely used by private investment funds, private equity funds, real estate funds, mortgage investment corporations (MICs), real estate investment trusts (REITs), and operating companies seeking capital from exempt purchasers.

A PPM is typically delivered as part of the issuer’s subscription package, together with the subscription agreement and other investor documentation. It provides investors with a single source of information about the offering and establishes a consistent disclosure record throughout the capital-raising process.

Where securities are distributed through a registered exempt market dealer (EMD), the PPM also supports the dealer’s know-your-product (KYP) and suitability obligations under National Instrument 31-103 ‘Registration Requirements, Exemptions and Ongoing Registrant Obligations’. Dealers frequently rely on the PPM when evaluating the issuer, the investment strategy, the principal risks, and other material characteristics of the investment before recommending it to clients.

A PPM should be reviewed throughout the offering. If a material change occurs before the offering is completed, the issuer should update the document or provide supplemental disclosure so that investors continue to receive current and accurate information.

What Does a Typical PPM Contain?

The level of disclosure for a PPM depends on the issuer, the securities being offered, and the complexity of the transaction. A start-up raising seed capital will generally require a shorter PPM than a private investment fund or real estate limited partnership conducting a more complex offering.

A typical PPM explains the issuer’s business, management team, the securities being offered, the intended use of proceeds, and the issuer’s investment strategy. It also describes the principal risks of the investment, management compensation, fees and expenses, material conflicts of interest, and related-party transactions so that investors can properly evaluate the offering.

Many PPMs include audited or unaudited financial information to provide greater transparency, even where financial statements are not required by the applicable prospectus exemption. Investment funds and similar issuers commonly describe their valuation methodology, redemption rights, and any restrictions on investor liquidity. Depending on the issuer and the transaction, a PPM may also summarize material Canadian income tax considerations and explain the subscription process.

Regardless of its length, a PPM should provide accurate, balanced, and internally consistent disclosure that enables investors to understand the investment, its material risks, and the terms of the offering.

Common Regulatory Issues

Although a private placement memorandum is generally not prescribed by securities legislation, it remains subject to the general requirements of Ontario securities law. Common regulatory issues include inaccurate or misleading disclosure, inconsistencies between offering documents and marketing materials, unsupported performance projections, and inadequate disclosure of conflicts of interest.

Issuers should ensure that the terminology used throughout their offering documents remains consistent with the prospectus exemption being relied upon and does not create confusion regarding the applicable legal framework or investor rights.

Forward-looking information is another area of regulatory focus. Business plans, financial projections, target returns, and anticipated performance should be supported by reasonable assumptions and presented in a balanced manner. Material assumptions, qualifications, and risks should accompany any forward-looking statements so that investors receive a fair understanding of both the potential opportunities and the associated risks.

Conflicts of interest should also be disclosed clearly. Investors should understand how managers, promoters, general partners, and related parties are compensated, whether affiliated entities provide services to the issuer, and whether related-party transactions may occur. Transparent disclosure enables investors to assess the potential impact of those relationships before making an investment decision.

Issuers should ensure that the PPM remains consistent with subscription agreements, investor presentations, pitch decks, websites, and all other marketing materials. Inconsistent disclosure across offering materials may increase both regulatory and litigation risk if investors receive conflicting information during the offering.

Taken together, these considerations illustrate why careful preparation and maintenance of a PPM are essential throughout an exempt market offering.

Conclusion

A PPM has become the principal disclosure document used in many Ontario exempt market offerings. When prepared carefully, it can improve investor disclosure, support regulatory compliance, and facilitate the due diligence conducted by registered exempt market dealers.

Every PPM should be tailored to the issuer, the securities being offered, and the prospectus exemption being relied upon. By providing accurate, balanced, and consistent disclosure throughout the offering process, issuers can improve investor confidence while reducing the risk of regulatory scrutiny and misrepresentation claims.

Book a Consultation

If you are preparing a private placement memorandum, forming a private investment fund, or raising capital under a prospectus exemption in Ontario, contact us to schedule an initial consultation with Nick Wright.