If you want the quick facts, start right below. For a longer explanation, scroll down to Seeking Investment from the General Public.

What is a prospectus?

A formal document that includes detailed information about the security and the company offering it, and which must be filed and approved by the Securities Regulatory Authority (SRA) when a company (public or private) plans to offer securities for purchase. 

What is a prospectus exemption?

A specific set of rules that allow companies to bypass the requirement of filing a prospectus when distributing securities. 

How many prospectus exemptions are available?

Out of the 8 main capital raising exemptions available, Equivesto relies on 4: Startup Crowdfunding Exemption, Accredited Investor Exemption (AI), Offering Memorandum Exemption (OM), and Family, Friends, and Close Business Associates Exemption (F&F).

How does the Equity Crowdfunding exemption work?

It allows all companies which are incorporated or organized in Canada to raise funds online from the general public through a single funding portal that must be registered with the SRA.  

How does the Accredited Investor exemption work?

It allows all companies and investment funds to raise funds from accredited investors only. 

How does the Offering Memorandum work?

It allows all companies to raise funds from the general public based on an Offering Memorandum being made available to investors.  

Seeking Investment from the General Public

As per the laws of each province and outlined in their provincial Securities Act (Ontario Securities Act) , companies seeking to issue their shares must do so through a document called a Prospectus.  This 100+ page document takes months to prepare, requires audited financial statements, often costs over $100,000, and is a big piece of a company ‘going public’ and listing on a stock exchange.  

Hold on, we don’t want to have to do any of that.  

In order to help smaller companies looking to raise capital without having to list on a stock exchange, the securities regulators created special rules called prospectus exemptions that, you guessed it, allow companies who meet certain requirements to be exempt from the daunting requirement of a prospectus. Each province sets their own prospectus exemptions, but there are several exemptions that all provinces share.  

Learn more about Securities Regulators here.

Private Issuer Exemption

All businesses that are not public use prospectus exemptions to raise capital.  Even if you never realized, you probably used a prospectus exemption to raise capital for your own business.  The most popular exemption is called the Private Issuer Exemption.  This exemption allows companies with less than 50 shareholders to issue shares and receive investment from their friends and family without needing to complete any paperwork or file anything with the government.  Most small businesses are set up and funded this way.  When people talk about being afraid that ‘if they have more than 50 shareholders they won’t be a private company any more’, what they are actually referring to is losing the ability to use the Private Issuer Exemption to raise capital without having to file paperwork. 

Accredited Investor Exemption

Another popular prospectus exemption is the Accredited Investor (AI) Exemption.  This exemption allows companies to raise money from Accredited Investors with only minimal paperwork.  An Accredited Investor is essentially a wealthy individual, someone with over $1,000,000 excluding their home. There are other ways to qualify as an Accredited Investor which you can learn about here.  The AI exemption is most frequently used by angel investors, venture capital companies, or private equity companies to invest in businesses.  You do need to file paperwork when using the AI exemption: a Risk Disclaimer the investor must sign, which ensures that they accept the risks and confirms their AI status, and a Report of Exempt Distribution (a short document).  These documents need to be filed with the regulator shortly after closing the round, and there are no ongoing filing requirements.  

Startup Crowdfunding Exemption

To make equity crowdfunding legal, each securities regulatory authority (one for each province) has had to create and approve their own prospectus exemption related to equity crowdfunding.  Initially there wasn’t agreement across all provinces and territories.  In 2021, all of Canada agreed to one unified set of rules called 45-110 Startup Crowdfunding Exemption. Equivesto is proud to have provided feedback to the regulators during the creation of these unified rules.

Equivesto allows you to raise from multiple provinces using this shared exemption.  This exemption requires companies to prepare a Crowdfunding Offering Document.  

Crowdfunding Offering Documents are 10-20 page summaries of your company, your offering, and your team. These documents ensure potential investors get all the information they need to invest and must be filed with the regulator in each province a short time after the campaign closes.  Don’t worry, Equivesto takes care of everything to keep it nice and simple for you.