The prospectus requirement and the exempt market

The rule and the exception

The rule: a distribution of securities — a sale of new securities by the issuer, or of a control block — requires a prospectus receipted by the regulator. The exception: NI 45-106 lists circumstances in which the buyer is judged not to need one, and the sale may proceed without a prospectus. Those sales make up the exempt market.

The sentence the paper tests is this: an exemption removes the prospectus, not the rules. The seller must still be registered (or exempt from registration); the securities are still securities; misrepresentation is still an offence; and what the buyer receives is restricted — it cannot be freely resold until the restriction lifts. Exempt is not unregulated.

Worked example — Ossington Brewing's private placement

Ossington Brewing, a private company with 22 shareholders, raises $1,200,000 by selling shares to three buyers with no prospectus.

Buyer 1 — Priya, an accredited investor. Priya has earned $260,000 in each of the last two years and expects the same this year. At time of writing (2026) NI 45-106 defines an individual accredited investor as one who, alone or with a spouse, has financial assets over $1,000,000 net of liabilities; or has financial assets over $5,000,000 alone; or had net income over $200,000 (over $300,000 with a spouse) in each of the two most recent years with a reasonable expectation of the same; or has net assets of at least $5,000,000. Priya qualifies on income. The exemption's logic: she can afford advice and afford the loss. She signs a risk acknowledgement form; that is the individual accredited investor's one piece of paperwork.

Buyer 2 — Tomas, the founder's brother. Ossington is a private issuer — not a reporting issuer, with securities held by not more than 50 persons (employees aside) and transfer restrictions in its articles. Under the private-issuer exemption it may sell to family, close friends and close business associates of its principals, to accredited investors and to existing holders, without a prospectus. Tomas buys under this exemption.

Buyer 3 — Harbourfront Capital, a fund. Harbourfront buys $150,000 of shares for cash in one purchase. That is the minimum-amount exemption — and it is available only to a purchaser that is not an individual. Had Priya tried to use it, she could not; her route was the accredited-investor test.

An offering memorandum may accompany any of these sales, and a separate exemption is built around one; where an OM is used, it carries statutory rights of action for misrepresentation.

After the sale — resale restrictions

Securities bought in the exempt market are not freely tradeable. For a reporting issuer, NI 45-102 imposes a restricted period of four months from the distribution before the securities may be resold without a prospectus. For a non-reporting issuer like Ossington the position is stricter: the securities cannot be freely resold until the company becomes a reporting issuer and the four months have run. Priya, Tomas and Harbourfront all hold paper they cannot flip next week — that is the price of buying without a prospectus.

Three buyers to classify

A pension fund investing $2,000,000 — accredited investor (a non-individual with net assets of at least $5,000,000). A dentist with $1,400,000 of financial assets — accredited investor (financial-assets test). A retail investor with $40,000 in savings and no connection to the company — no exemption applies; a sale to her needs a prospectus (or the offering-memorandum route, with its own conditions).