Similar to a Reg A+, an OM exemption allows privately held Canadian companies to raise capital from a wider range of investors (including retail investors), without taking on debt or going public. Also known as a private placement memorandum, this document is often prepared by an investment banker during a private placement to provide investors details regarding the issuing company and securities offered to help assess their investment interests.
Although an offering memorandum and prospectus share similar attributes, an OM is targeted towards private placement investments, as opposed to public companies seeking capital through an IPO. It is more cost-effective and subjected to less requirements and disclosure standards than filling a prospectus. An offering memorandum also protects retail investors from making investment decisions based on falsified information, as issuers are legally required to ensure transparency and accuracy throughout the reporting.
An offering memorandum can be broken down into two models, the British Columbia and Alberta model. Provinces reporting under these models are subjected to different fulfillment requirements. For example, British Columbia and Newfoundland & Labrador allow retail investors to invest freely without limits, while other provinces restrict them to a maximum threshold of $10,000, due to protection measures set for these individuals.
The greatest advantage of investing in offering memorandum companies is not only discovering new products and services, but also purchasing shares with high growth and payoff prospects. As with any investment, offering memorandum startups can be considered risky as they lack liquidity and certainty. But as great risks come with great rewards, such investment allows for great wealth-building opportunities. After investing in an OM company, a shareholder is entitled to a warrant, which enables them to buy additional shares in the future at the originally purchased price. Thus, if the company succeeds and stock price rises, OM investors have the opportunity to buy more shares at that fixed price which may be significantly cheaper than the market price. The prospect of investing in a high payoff opportunity, and supporting the growth of early-stage companies can be highly rewarding.