Education · Topic 3 of 6
The Exemptions
Every exempt-market sale walks through a specific legal door. Each door has entry requirements, and each trades away some of the protection a public offering would give you. Here is each one, honestly.
How to read an exemption
Recall the skeleton key from Foundations: every sale of securities needs either a prospectus or an exemption. Each exemption answers three questions:
- Who can buy? — the eligibility test.
- What must you be given? — the disclosure requirement, from full documents down to nothing at all.
- What are the limits? — caps on amounts, resale restrictions, required forms.
Two things are true of every exemption. First, resale restrictions: exempt securities generally can't be resold freely — often not for at least four months, and practically often never, because no market exists. Assume you hold until the deal ends. Second, the exemption is the issuer's responsibility but your risk: if a sale is made under an exemption you didn't actually qualify for, the legal protections you'd expect may not apply as intended.
One more honest note: exemption rules are harmonized nationally in outline but differ by province in detail — caps, availability, and forms vary. What follows is the national shape; the fine print is provincial. This is education, not legal advice.
The dealer or issuer must determine — and document — which exemption covers your purchase. If nobody can tell you plainly which one applies to you, walk away; that answer is the deal's legal foundation.
Accredited investor — the widest door
The workhorse of the exempt market. If you qualify, most private offerings are legally open to you, with no cap on how much you can invest — and, notably, no requirement that you be given any particular disclosure at all.
For individuals, the main thresholds (simplified — combined income can also count with a spouse):
- Income: over $200,000 in each of the last two years ($300,000 with a spouse), reasonably expected again this year; or
- Financial assets: over $1 million in cash and securities, alone or with a spouse, net of related debt; or
- Net assets: over $5 million total, including real estate.
The logic: at these levels, the law presumes you can absorb losses or buy advice. Notice what the presumption is not: that you understand any particular deal. Qualifying is a legal status, not a diploma.
You'll typically certify your status in the subscription agreement, and in most cases sign a prescribed risk acknowledgement form. Take the certification seriously — it's a legal statement, and inflating your numbers to qualify strips protection from exactly one person in the transaction: you.
Being courted as an “accredited investor” is not a compliment — it's a classification that reduces what must be disclosed to you. The label should raise your diligence, not lower it.
Offering memorandum — the retail door
The OM exemption is how the exempt market reaches ordinary investors. The issuer must give you an offering memorandum — a prescribed disclosure document covering the business, the securities, the use of your money, the risks, and (usually audited) financial statements — and you must sign a risk acknowledgement.
In several provinces including Ontario and Alberta, individual investors face annual caps under this exemption: commonly $10,000 across a 12-month period for ordinary investors, rising to $30,000 for those meeting “eligible investor” thresholds — or $100,000 with advice on suitability from a registered firm. (Details and availability vary by province.)
Those caps are the regulators telling you something with a number: this category of investment has produced enough total losses that the law limits ordinary exposure to it. Treat the cap as information, not an obstacle.
The OM itself is the most underused protection in the market. It's long because it must answer the questions that matter. The Diligence topic includes a guided tour of reading one — item by item, including where problems tend to hide.
An OM handed over after you've verbally committed, or “available on request,” inverts the entire point. The document comes first; the decision comes after.
Family, friends & business associates — the relationship door
Issuers can raise money from people genuinely close to their principals — specified family members, close personal friends, and close business associates — with minimal formal disclosure, on the theory that the relationship itself gives you insight into the people you're backing.
The words “close” carry legal weight. A close personal friend is someone with a relationship long and deep enough to assess the principal's character and ability — not a golf acquaintance, not a fellow member of a large congregation, not someone you met at a seminar last month. Regulators have repeatedly sanctioned issuers for stretching this.
Why you should care about the stretching: this exemption is a favourite dress for affinity fraud — schemes that spread through churches, cultural communities and social circles precisely because trust substitutes for scrutiny there. If a stranger-adjacent promoter is treating your community as a distribution channel, the “friends” exemption is being used against its purpose.
Even when the relationship is real, apply the same diligence you would to a stranger — arguably more, because saying no is harder and the money often matters more. A risk acknowledgement form is required in several provinces (Ontario and Saskatchewan among them) for good reason.
The hardest rule in this market: the warmth of the relationship and the quality of the investment are independent variables. Loving your brother-in-law is not due diligence on his fund.
Minimum amount — the $150,000 door
A purchaser investing at least $150,000 in cash, in a single transaction, may buy without a prospectus under the minimum-amount exemption. The theory: anyone writing a cheque that size can look after themselves.
The critical modern detail: since 2015, this exemption is not available to individuals in Canada — only to companies, trusts and other non-individual entities (and the entity can't have been created just to aggregate small investors for the deal). Regulators withdrew it for people after watching it used to push ordinary investors into concentrating their savings to “reach the minimum.”
That history is the lesson. Any structure whose effect is to concentrate a large share of your net worth into a single private deal — whatever exemption it travels under — is recreating exactly the harm this rule was rewritten to stop.
Where you'll still meet it: through corporations, family trusts, and holdcos. If you control such an entity, the exemption is available to it — and the concentration math applies to you just the same.
If anyone proposes restructuring your affairs so an exemption becomes available — incorporating, pooling with others, moving assets — pause. The restructuring is being done to remove protections aimed at you.
Crowdfunding — the small-cheque door
Startup crowdfunding lets early-stage businesses raise limited amounts from the public in small individual investments, through a registered funding portal. The national framework caps what an issuer can raise per year and what an individual can put into a single offering — a few thousand dollars for most people, somewhat more where a registered dealer advises on suitability.
The register currently lists 10 crowdfunding portals operating under the startup exemption — you can see them in the directory. The portal's registration governs the platform's conduct; the startups themselves are typically very young companies with the failure rates young companies have.
Honest framing for this corner of the market: treat crowdfunding cheques as money you're prepared to lose entirely, invested partly for reasons beyond return — supporting a founder, a product, a community. Most startups fail; a portfolio of many tiny positions is the only sane shape here, and the caps effectively enforce that.
The upside of the small-cheque structure is real too: it's the one exempt-market door where the size limits do the concentration discipline for you.
Same rule as everywhere: verify the portal is registered before creating an account. Fake “crowdfunding sites” are a recurring fraud pattern, and the register is how you tell them apart.