Resources for businesses

The terms of the offering, sometimes referred to as deal terms or a term sheet, outline the key terms and conditions of an investment. 

The Exemption defines the terms of the offering as: 

• the amount of eligible securities offered.
• the type of the eligible securities.
• the price of the eligible securities.
• the closing date of the offering period. 
• the planned use of proceeds.
• if applicable, the name of the dealer facilitating this offering and a link to dealer’s website. 

The terms of the offering may be included in different marketing materials or on the business’ website. The following statement must be included wherever the terms of the offering are made available:

“No securities regulatory authority or regulator has assessed, reviewed, or approved the merits of these securities. Any representation to the contrary is an offence. You may not receive advice about your investment and will not have the same rights as if you purchased under a prospectus or through a stock exchange. The securities being offered are subject to a resale restriction. You might never be able to resell the securities. This is a risky investment.” 

If a business intends to raise capital over a period of several months or if there have been material changes to the business, it should consider whether the terms of the offering need to be updated, including but not limited to, the information relating to the planned use of proceeds and/or progress towards meeting the funding target.  

The Securities Act (Ontario) defines an offering memorandum as any document that describes the business and affairs of an issuer that has been prepared primarily for delivery to and review by a potential investor to assist the potential investor to make an investment decision in respect of securities being sold under a prospectus exemption. It does not include a document setting out current information about the issuer for the benefit of a potential investor familiar with the issuer through prior investment or business contacts. 

Presentation decks, memoranda, brochures, and other types of materials that are provided to potential investors, including materials that include the terms of the offering, may be considered offering memoranda under Ontario securities laws. 

Generally, if an offering memorandum (i.e., materials provided to potential investors) contain a misrepresentation, purchasers of securities during the selling period that were provided with the offering memorandum will have a right of action for damages or recission against the issuer/business. A misrepresentation under the Securities Act (Ontario) means an untrue statement of material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances. 

A business relying on the Exemption must include the following statement in all its offering memoranda: 

“Securities legislation or the subscription agreement may provide a purchaser with remedies for rescission or damages if the offering memorandum (including any amendments thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by securities legislation or the subscription agreement. The purchaser should refer to any applicable provisions of securities legislation and the subscription agreement for particulars of these rights or consult with a legal advisor.” 

A business that has provided an offering memorandum to investors or prospective investors must also deliver a copy of the offering memorandum or any amendment to a previously delivered offering memorandum, to the OSC no later than the 30th day after the end of the reporting period if the business is raising capital without a dealer. If the business is raising capital with a dealer it must deliver a copy of the offering memorandum to the OSC within 10 days of the sale of securities in which the offering memorandum was provided to investors, at the same time as the sale of securities are reported by filing Form 45-106F1 Report of Exempt Distribution.  

General rule 

The Exemption requires businesses to deal fairly, honestly and in good faith with all investors and potential investors. When drafting materials that will be provided to potential investors, businesses should be careful to only include statements that are factual and not misleading.

A statement may be misleading to potential investors if it includes:

• overly promotional language (e.g., “you are guaranteed to triple your investment this year”);  
• forward-looking information and unsupported certainty about future events (e.g., “the company will have revenues of $100 million next year”); 
• unsupported assertions about future growth of markets or demand for a product (e.g., “millions of people will be using x technology by the end of 2025”). 

It is an offence under securities law to make a misrepresentation in any document required to be delivered to the OSC, which includes an offering memorandum. 

If a business intends to raise capital over a period of several months or if there have been material changes to the business as described in the offering memorandum, it should consider whether any updates are required.

Permitted advertising 

The Exemption permits an eligible business to advertise its sale of securities by one or more of the following:

• posting the terms of the offering on the business’ website. 
• posting on social media to announce the sale of securities. This announcement must include a link to the terms of the offering on the business’ website. 
• participating in sponsored demo days where the business can showcase itself.

A business can prepare materials that include the terms of the offering, such as pitch decks, and present them to potential investors that express interest, however these materials cannot be publicly advertised (e.g., posted on a website or social media). 

Mandatory risk disclaimer language

A business relying on the Exemption must include the following disclosure statement where investors can access the terms of the offering:

“No securities regulatory authority or regulator has assessed, reviewed, or approved the merits of these securities. Any representation to the contrary is an offence. You may not receive advice about your investment and will not have the same rights as if you purchased under a prospectus or through a stock exchange. The securities being offered are subject to a resale restriction. You might never be able to resell the securities. This is a risky investment.”

See also What are terms of the offering?

A business relying on the Exemption must include the following disclosure statement in any document that is an offering memorandum: 

“Securities legislation or the subscription agreement may provide a purchaser with remedies for rescission or damages if the offering memorandum (including any amendments thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by securities legislation or the subscription agreement. The purchaser should refer to any applicable provisions of securities legislation and the subscription agreement for particulars of these rights or consult with a legal advisor.”

See also What is an offering memorandum?

The Exemption does not require businesses to prepare financial statements or provide them to investors; however, a business may decide to provide financial statements to enhance transparency and investor confidence. 

Businesses raising capital under the Exemption with the help of a dealer may rely on the offering memorandum prospectus exemption in National Instrument 45-106 Prospectus Exemptions or the crowdfunding prospectus exemption in Multilateral Instrument 45-108 Crowdfunding. If a business relies on these exemptions, it will be required to prepare annual financial statements. 

A business relying on the Exemption is permitted to post the terms of the offering and factual information about the business on its website. 

If a business is posting the terms of the offering on its website, it must include the following risk disclaimer language: 

“No securities regulatory authority or regulator has assessed, reviewed, or approved the merits of these securities. Any representation to the contrary is an offence. You may not receive advice about your investment and will not have the same rights as if you purchased under a prospectus or through a stock exchange. The securities being offered are subject to a resale restriction. You might never be able to resell the securities. This is a risky investment.”

See also What types of materials can be used to market or advertise the sale of securities?

If a business is conducting concurrent offerings, one with a dealer and one without, there will need to be two separate terms of the offering and two separate sections/pages of the business’ website where the terms of the offering are located even if the terms are similar or identical. The terms of the offering that relate to the sale of securities with a dealer must include the name of the dealer and a link to the dealer’s website.

See also Can my business conduct concurrent offerings under the Early-Stage Business Registration Exemption – one with a dealer and one without?

A business can prepare materials that include the terms of the offering, such as pitch decks, and present them to potential investors that express interest, however these materials cannot be publicly advertised (e.g., posted on a website or social media).