What this module covers
Most securities sold to the public in Canada are sold under a prospectus. Many private investments are sold instead under exemptions from the prospectus requirement, and the accredited investor exemption is one of them. This module sets out where the accredited investor definition sits, quotes the paragraphs of it that rest on an individual's income, financial assets and net assets, and explains the premise behind it and what that premise leaves out. It then describes the other exemptions and categories that sit alongside it, the kinds of investment distributed under them, and the risks the definition does not remove.
- The prospectus and its exemptions
- Where the definition sits
- Why the exemption exists
- Other exemptions and categories
- What is distributed under the exemptions
- The limits of the definition
The prospectus and its exemptions
A prospectus is a disclosure document that an issuer files with securities regulators before selling securities to the public. The regulator reviews it and issues a receipt, and the investor who buys under it has rights set out in securities law if the document contains a misrepresentation. Listed stocks and bonds, mutual funds and exchange-traded funds are sold this way.
Securities can also be sold without a prospectus, under an exemption. The exemptions are set out mainly in National Instrument 45-106 Prospectus Exemptions (NI 45-106). Each exemption has conditions: who may buy, what must be provided to the buyer, and what the issuer must do. The part of the market in which securities are sold under these exemptions is called the exempt market. It is a regulated market with a different structure from the prospectus market.
The difference that matters most to an investor is the disclosure. Without a prospectus, no regulator has reviewed an offering document before the sale. The information an investor receives depends on the exemption used and on what the issuer chooses or is required to provide.