Tips for Issuers for Managing the OM Process

Keep the Process Moving

Jon Oko, CPA, CA

Most would agree that one of the keys to success of many businesses is the ability to raise capital. For some, and especially those whose plans to do so include the issuance of securities to a wider range of investors via an Offering Memorandum (OM), this can be easier said than done.

One of the biggest challenges that both first time and established issuers face in the process is the OM itself and ensuring that all of the requirements to issue an OM are met. Whether you are a new issuer about to embark on your first capital raise or have issued securities in the past under the OM exemption rules, there are some simple strategies that you can follow to make the process as efficient as possible.

Understand NI 45-106

National Instrument 45-106 ‘Prospectus Exemptions’ (NI 45-106) and its companion forms and policies are the rule book for the OM game. NI 45-106 contains critical information for all issuers relying on the OM exemption, including, but not limited to, investment limits for both eligible and non-eligible investors, reporting requirements and timelines for both financial statements and the new Notice of Use of Proceeds form, pronouncements pertaining to marketing materials, and rules and prohibitions relating to the issuance of certain securities under these exemption policies.  

While a detailed understanding of the provisions of NI 45-106 and related policies is not as necessary for the issuer as it is for the securities lawyer, all issuers will benefit from having a general knowledge of the requirements that must be satisfied at the time of issuance of a new or updated OM, and that must be adhered to on an annual basis to ensure that the issuer does not run afoul of the rules and can continue to raise capital.

Have a Quarterback

Very seldom does an OM go final on a first draft. In most situations an issuer will not have a final OM ready to be released until after the second or third iteration. Whether you are issuing a new OM or updating an existing OM, it is critical that your securities lawyer understand the process and that you start with an initial draft and go to a blackline draft and that the drafts are numbered. The securities lawyer needs to be the quarterback of the process and to control the document.

The securities lawyer should be the only one to make changes to the document. It can become very inefficient if there are drafts circulating amongst various parties (see below) and someone other than the lawyer makes changes to the document as you end up with a problem as to what has been reviewed by who and when. It is much more efficient to review blacklined versions and if this process is not followed you run the risk that the integrity of the document is lost. All parties engaged to review the OM must be involved in each blackline.

In addition, there are generally various agreements that must also be executed in conjunction with a new OM depending on your structure, such as Limited Partnership Agreements, Declarations of Trust, Funding, Indemnity, and Marketing Services Agreements, etc. All of these agreements need to be consistent with one another and with the OM itself. Having one person (the securities lawyer) oversee the entire process and ensure these agreements do not contradict one another saves time and effort, which ultimately saves the issuer time and money.

Get More Eyes

While you may be an experienced issuer who has offered securities under the OM exemption rules in the past and have engaged a reputable and experienced securities lawyer to work with you and quarterback the OM process, at times it can be prudent to engage other professionals, such as accountants and business advisors who have experience insecurities offerings, business structuring and tax, to assist in reviewing your OM and related agreements to help ensure your business structure is void of audit and tax pitfalls, and that your business model makes sense from a practical perspective. As an accountant and business advisor, I have seen situations in the past whereby an organizational chart for an issuer would have resulted in much more significant audit, accounting and tax work being required on an annual basis had a simple change not been made to the corporate structure.

In another situation the OM and related agreements outlined an income allocation method to investors that from a theoretical perspective made some sense, but resulted in an extremely complex calculation and made annual tax reporting almost a formidable task. Engaging an accountant and business advisor with experience in the OM process, business structuring and tax to work with you and your securities lawyer in reviewing your OM and related agreements can assist you in avoiding pitfalls that can cause you heartburn (not to mention additional audit and accounting fees), and provide a fresh set of eyes and an additional check and balance to ensure consistency amongst all documents and agreements.

Don’t Forget Your Auditor

As discussed previously NI 45-106 includes requirements as they pertain to financial statements for inclusion in an OM. While most experienced issuers understand these requirements, at times new issuers are unaware that audited financial statements prepared under International Financial Reporting Standards (IFRS) are required to be included in an OM, even if the entities have just been formed. Your auditor should be privy to the OM process and can be working on the audits in parallel with you and your securities lawyer so that the audited financial statements are ready for inclusion once the final OM is complete.

Regardless of your structure your auditor will need to review most of the agreements and the final OM in order to finalize the audit and issue consents that permit the audited financial statements to be included in the OM. The earlier that you are able to provide your auditor with the agreements and a draft of the OM that is close to being final (in addition to all other audit working papers and evidence of the entities that your auditor requires to complete his or her procedures), the more timely the completion of the audited financial statements and consents becomes and the more timely the completion of OM process.

Keep the Process Moving

Issuing an OM or updating an existing OM is time consuming regardless of how experienced you and your securities lawyer are. For most issuers the process goes fairly smoothly, however for some issuers, especially new issuers, at times the process can break down, especially if you as the issuer are not prepared or do not have the financial or personnel resources to move the process along.  

Delays in providing information to your securities lawyer or auditor can result in deadlines being missed and documents and agreements needing to be updated which can cause financial statement to become stale-dated and unusable in the final OM. Having to update agreements, financial statements and the OM as a result of delays add additional costs to the process and impacts your ability to raise capital through the OM exemption rules.

Please note this article was originally published in Exempt Edge Magazine and updated for Educate & Explore.


The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or opinions of Olympia Trust Company, Olympia Financial Group Inc., or any of its affiliates. The author’s views and opinions are based upon information they consider reliable, but neither Olympia Trust Company, Olympia Financial Group Inc. nor any of its affiliates, warrant its completeness or accuracy, and it should not be relied upon as such.

Jon Oko, CPA, CA
Assurance Partner, Crowe MacKay LLP

Jon Oko, CPA, CA is an Assurance Partner with Crowe MacKay LLP in Edmonton. He has over 20 years of experience in public accounting, providing accounting, tax and advisory services to clients in both the private and exempt market sectors.