An Insight into OM Exemptions and Accredited Investors in Exempt Market

exempt marketExempt market can provide you excellent investment opportunity but for that it will be necessary for you to have good knowledge of the market. As such in the following sections we will be looking at two of the important terms related to exempt market which are; accredited investors and OM exemptions.

Accredited Investors

As per National Instrument 45-106, in an exempt market an accredited investor is:

  • A person who along with spouse or alone owns financial assets with aggregate realizable worth before taxes exceeding $1,000,000.

It is worth mentioning here that financial assets refer to GIC’s, cash, RRSPs, mutual funds, stocks, bonds and similar liquid investments.

But assets such as rental property, home or vacation property do not fall in the category of financial assets, rather they are fixed assets.

  • A person with before tax net income more than $200,000 in last two consecutive years or combined before tax net income of person as well as his spouse to be more than $300,000 in last two consecutive years.

In addition to it, the person reasonably expects his net income level to rise in current year in comparison to the last two years.

  • A person who with his spouse or alone has $5,000,000 worth of net assets.

OM Exemptions

The Offering Memorandum (OM) exemption can be used by investors except for those residing in the two provinces of Quebec and Ontario.

In case you are residing in Nova Scotia, British Columbia, Newfoundland or New Brunswick then some of the other things to note include:

  1. Even though suitability is still applicable, there are no limits on who is allowed to invest.
  2. It is necessary to deliver the OM to investor to on or before subscription agreement is signed.
  3. It is required to get investor signature on risk acknowledgment form.

If you are living in Manitoba, Alberta, Saskatchewan or Prince Edward Island then only eligible investors can invest. As such the definition of eligible investor consists of people with:

  • Net assets more than $400,000 either alone or along with spouse. Additionally, such person’s before tax net income should be more than $75,000 in the last 2 consecutive years.

The person should also be reasonably expecting net income level to surpass that of last two consecutive years. OR

  • Before tax net income is more than $125,000, either with spouse or alone in last 2 consecutive years. The person should also be expecting the income level to increase in the current year. OR
  • A partnership where all partners are considered as eligible partners. OR
  • An estate or trust where trustees or beneficiaries are regarded as eligible investors.

As can be see you will have to meet any one criterion for becoming an eligible investor.

Synopsis

As we can clearly see there are many different guidelines which need to be followed for becoming accredited investor as well as for using OM exemption. For developing a successful investment portfolio you will have to understand these aspects and act accordingly.