Participating in the Exempt Market

When investors think of investments, they usually conjure up images of stocks trading on a stock exchange or purchasing a mutual fund. These investments are issued by prospectus, which affords investors with a level of protection. Prospectuses don’t guarantee that an investment will make money; instead it requires “full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed”[i]

But not all investments require a prospectus. Known as “exempt securities”, these investments can let investors fund early stage companies developing oil and gas reserves, innovative new products like technology and green energy, finance building complexes such as student housing or retirement homes, and even provide capital to purchase farm equipment or distribute a movie. The opportunities are endless.

The absence of the prospectus requirement means that investors must qualify under an exemption in order to participate in this market. The most common are the accredited investor (AI) and offering memorandum (OM) exemptions. Under both of the exemptions, investors must satisfy certain criteria concerning their financial circumstances and/or sophistication in order to qualify under the exemptions.

Why the exemptions? The securities regulators aim to balance the needs of entrepreneurs who are looking to raise capital with the protection of the investing public. Beware – exemptions vary from province to province. It’s important to understand the rules that govern each jurisdiction.

Want to learn more about the exempt market? Consider these courses:

[i] Securities Act (Ontario) subsection 56(1)