Resources for investors

The OSC cannot refer you to or provide a recommendation on potential investment opportunities. Dealers can help you find investment opportunities. The OSC can provide information related to whether a dealer or individual is registered.

Exempt market securities may be sold directly by businesses and through intermediaries such as registered dealers (including exempt market dealers) and crowdfunding portals. Members of an angel investor group can also learn about early-stage businesses raising capital through their angel group.

To find registered dealers and funding portals, or to check a dealer’s registration status as part of your due diligence process, you can go to AreTheyRegistered.ca. 
If you are interested and eligible to join an angel investor group, please contact the specific angel investor group for more details. 

The OSC will be collecting data on the use of the exemptions and is required to make data publicly available pursuant to Ontario’s Digital and Data Directive. 

If you are exploring possible investments in the exempt market, there are some steps to help you determine if a potential investment is right for you. In general, businesses selling securities in the exempt market under the accredited investor or self-certified investor prospectus exemptions can do so without having to provide required disclosure documents about the business. You should consider if you have all the necessary information, or the requisite skills and knowledge, for you to make an informed investment decision. If not, investing in early-stage businesses may not be right for you. 

Evaluating your personal and financial circumstances

It is important to have a good understanding of your own personal and financial circumstances. This includes understanding why you are investing (i.e., your investment needs, such as buying a house, purchasing a vacation or retirement savings) and what your goals are for the investments (i.e., your investment objectives, such as growing your money or getting regular income from your investments), your short- and long-term money needs (i.e., your investment time horizon), and your risk profile (i.e., you can look at all your money invested in an exempt market investment, consider your willingness to accept risk, sometimes referred to as risk tolerance, and your ability to endure potential financial loss, sometimes referred to as risk capacity, and see if you are comfortable with this level of risk).

Your evaluation of this information may determine whether exempt market securities or the specific investment opportunity under review align with your personal and financial circumstances. 

When considering investing in early-stage businesses diversification is a key investment strategy to limit the exposure of risk of any single investment – “don’t put all your eggs in one basket”.  If you hold just one investment and it performs badly, you could lose all of your money. If you hold a diversified portfolio with a variety of investments across different asset classes and industries, it is much less likely that all of your investments will perform badly at the same time. For most retail investors who have the ability to tolerate high risk, exempt market investments are typically only a small part of their portfolio of investments.
More information about diversification of investments can be found here: Diversification | GetSmarterAboutMoney.ca

If you need advice, working with a registered dealer or adviser can also help you better understand your needs and determine if an investment opportunity is suitable for you. 

More information about the role of dealers and advisers can be found here: Registration categories | GetSmarterAboutMoney.ca 

If you would like more information about what it means to work with a registered dealer or adviser, please see the following link: How registration protects investors | GetSmarterAboutMoney.ca 

Conducting due diligence on the business 

Businesses and investment funds listed on a stock exchange are required to provide audited financial statements and publicly disclose timely and current information of all material facts relating to the business to investors. This enables investors to make decisions about whether to invest.

Businesses offering exempt market securities are not required to provide the same amount of information as a public company. In some circumstances, a business may have limited operating history and there may be limited information available about its operations. As a result, you may need to determine if you have enough information about an investment opportunity to make an informed investment decision.

Every investment decision should be carefully considered and thoroughly researched ahead of time. In determining if an investment opportunity is right for you, it is important to research the business behind the investment opportunity and make sure you understand and can evaluate the information.

If available, it may help to speak with the people managing the business, consult with professional advisors and research on the internet to better understand the following information:

• the background of the business;
• the founders and current management of the business, including understanding their experience and qualifications, as well as any enforcement-related issues in the past;
• the business’ financial position, including obtaining financial statements;
• how much money the business has previously raised and whether the current funding round is in line with the plans for the business; 
• the industry of the business, any areas that the business depends heavily on and how various industry factors may impact the business and your potential investment, and 
• details from term sheets, pitch decks or other offering materials.

When conducting due diligence on the business, it is important to consider reliable sources of information that can be independently verified and are balanced, fair and not misleading, and avoid biased or self-serving information about the business. 

Understanding the specific details of the securities offering

There are some areas to consider as part of your review of the potential investment: 

• understanding the terms of the securities offering;
• understanding the rights associated with the securities you are investing in, including any restrictions that a securityholder would normally have, such as voting rights; 
• determining if the details and disclosures of the securities are easy to understand; 
• understanding how the money raised will be used by the business; 
• understanding the current activities of the business and the future plans for the business to grow;
• understanding how the business will make money and within what timeline, and
• understanding the risks arising from early-stage investments, including factors that may impact the plans of the business. 

If a business is raising money on its own under the exemption, you will be dealing with the business directly for any investments. 
If the business is raising money with a registered dealer or if you have an account with a registered dealer, the investment process will typically be done with the registered dealer. 

A. What documentation will I need to complete?

Subscription agreement

A subscription agreement is a common document used to set out the purchase and sale contract between a business raising money and an investor. A subscription agreement typically outlines the parties involved, details of the securities being offered, purchase terms, representations and warranties, risk disclosures, the subscription closing process, liability provisions and other clauses, as appropriate.

Investors should carefully review the subscription agreement and can seek legal advice before signing the agreement. The Law Society Referral Service connects people looking for legal assistance with a lawyer or paralegal. 

For accredited investors

To make an investment as an accredited investor, you must complete sections 2 to 4 of Form 45-106F9 Form for Individual Accredited Investors to certify that you acknowledge the risks associated with the investment and confirm that you meet at least one of the “accredited investor” criteria to be able to invest. You will also have to share certain information with the business or registered dealer.  

For self-certified investors

To make an investment under the self-certified investor prospectus exemption, you must: 

1. certify that you meet at least one qualifying criteria by completing the Confirmation of Qualifying Criteria form in Annex 1 to Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order), and
2. confirm that you understand the risks of investing by completing the Acknowledgement of Risks form in Annex 2 to Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order) 

B. What information will I have to share with the business or registered dealer? 

Investing directly with the business 

A business raising money directly from investors under the exemption is required to obtain from investors the required forms confirming the type of investor (i.e., an accredited investor or an investor that qualifies under the self-certified investor prospectus exemption). For more information, see above: “What documentation will I need to complete?”.

The business may ask you for personal, financial, and investment-related information to help verify the information you provide. As part of this process, you may want to inquire into the steps the business will be taking to protect this information. 
If a business is uncertain if you are an accredited investor or a self-certified investor, they should not be selling securities to you. 

Investing through an intermediary, such as a registered dealer 

If you are working with a registered dealer such as an exempt market dealer, you will need to provide information to the dealer, as part of the onboarding process and as part of your discussions with the dealer’s representatives, as there is a requirement for a registered dealer to take reasonable steps to establish the identity of a client and ensure that it has sufficient information about a client to meet its suitability determination obligations. 

The information collected may include the following:

• personal circumstances 

  • date of birth
  • address and contact information
  • civil status or family situation 
  • number of dependents
  • employment status and occupation 
  • whether someone other than the client is authorized to provide instructions on the account, and
  • whether someone other than the client has a financial interest in the account 

• financial circumstances

  • annual income
  • liquidity needs
  • financial assets, which may include a breakdown of deposits and type of securities such as mutual funds, listed securities and exempt securities
  • net worth, which may include all types of assets and liabilities, and 
  • whether the client is using leverage or borrowing to finance the purchase of securities
• investment needs and objectives – these are the results you want to achieve when investing, such as capital preservation, income generated by invested capital, capital growth or speculation 
• investment knowledge
• risk profile – this is your willingness to accept risk (risk tolerance) and your ability to endure potential financial loss (risk capacity)
• investment time horizon – investors with a longer investment time horizon may have a greater degree of flexibility when building a portfolio, whereas a short investment time horizon may mean that conservative investments may be the only suitable option.

Depending on how a business is raising money, you may need to complete certain required forms to confirm what type of investor you are (e.g., an accredited investor or an investor that qualifies under the self-certified investor prospectus exemption). For more information, see above: “What documentation will I need to complete?”.

Once a subscription agreement is signed, funds have been transferred by the investor to the business, and any minimum offering amount is met, there is generally no requirement for the business to return the funds to the investor.
Unlike securities sold on an exchange, securities sold in the exempt market under a prospectus exemption can generally not be resold and there is no secondary market for these securities, making the securities illiquid. The exceptions are if the business becomes a public company (referred to as a reporting issuer under Ontario securities laws) or the securities are resold under another prospectus exemption. There are very few prospectus exemptions available to investors to resell their securities. Investors are often limited to reselling to accredited investors or to directors or officers of the business. In some cases, the shares cannot be resold if the business includes restrictions on the resale of shares in the shareholder agreements.

The Securities Act (Ontario) or the subscription agreement may provide investors with a right of action for damages or a right of rescission against the business if there are misrepresentations in in any document that is an offering memorandum, as defined in subsection 1(1) of the Securities Act (Ontario), that describes the business and has been prepared for review by a prospective investor to assist them in making an investment decision in respect of the securities being sold by the business in the exempt market. If no documents are provided by the business, then the investor will not have a right of action for damages or rescission based on misrepresentation. Investors should refer to the applicable provisions of the Securities Act (Ontario) and the subscription agreement for particulars of these rights or consult with a legal advisor to determine their rights. The subscription agreement may also confer additional rights related to access to information about the business, voting, dividends, etc.