Why Use An Offering Statement?
DISCLAIMER: Tips, suggestions, draft documents and other information about offering statements on this website are provided solely for general assistance regarding offering statements submitted for receipt to the Financial Services Commission of Ontario. The information provided is of a general nature and is not intended to cover every aspect and point that would be expected for inclusion in the offering statement. No legal opinion or advice is intended or to be inferred with this material.
All actions taken or submissions made based on the information offered on this website are the full responsibility of your organization. On Co-op very strongly recommends that offering statements and other documents relating to capital or debt financing be prepared with the assistance of a professional knowledgeable about the co-operative business enterprise model.
Where there are any conflicts between what appears on this site or other On Co-op materials, and that released by FSCO, The Ministry of Finance or contained within the Co-operative Corporations Act and the Regulations, the Act and Regulations prevail.
Co-operatives raise capital for their development and operations by offering to sell securities to members and non-members. Securities include both shares issued by the co-op and loans made to the co-op as well as other instruments like bonds or debentures.
Where an exemption from offering statements requirements is available, a co-op can raise funds from the sale of securities free of regulation (i.e. no submission to FSCO is required, though proper documentation must still be provided to investors to provide necessary information and reduce future liability to the co-operative). Exemptions exist
In cases where an exemption is not available, an offering statement must be prepared and delivered to each prospective purchaser before they purchase securities. The offering statement must be submitted to the Financial Services Commission of Ontario (FSCO) prior to being given to any prospective investor. If FSCO approves the document, it will then issue a receipt for it, and that receipt is required before the co-op may begin selling securities. The offering statement is roughly similar to a prospectus, which is receipted by the Ontario Securities Commission.
- To browse information on offering statements, and to view a sample of English and French offering statement templates, click here. Templates should be considered the most basic framework, and for that reason are not recommended for use without significant modifications and customizations, as templates or the reuse/borrowing of a previously submitted offering statement cannot take into account the specifics of every co-operative or every situation.
- Please also refer to the Offering Statement presentations, which can be downloaded from the link at right. They include tips and guidelines, as well as outline some of FSCO's expectations when receiving offering statements.
The regulatory process in Ontario for co-op securities is unique in Canada. It is designed to allow prospective purchasers to make informed investment decisions while also ensuring that co-ops can raise their capital from their members and other supporters without undue cost.
The Offering Statement is mentioned in the Co-operative Corporations Act -
- Provides requirement of an offering statement
- Provides for standard of disclosure
- Must comply to form and content
- Provides for refusal of receipt of an offering statement
and in Regulation 178
- Provides exemptions for offering statement
- Provides prescribed information
- Provides content requirement
- Provides continuous disclosure requirement
- Defines material change
- Material Facts
- Approvals and receipts
- Tips on creating offering statements
- Checklist Before Submitting To FSCO
THE HEART OF THE OFFERING STATEMENT: THE DISCLOSURES
A co-operative is required to provide “full, true and plain disclosure of all material facts related to the securities being offered.” This means that the co-op needs to provide sufficient information to investors to allow them to make a reasonably informed decision about whether or not to invest. Determining whether or not a co-op needs to prepare an offering statement and the process of actually preparing and filing an offering statement is a complex process. Co-ops are STRONGLY encouraged to seek the help of experienced legal or financial advisors that can assist them in this process.
The regulations under the Act provide some guidance on the type of information to be included to help a co-op to meet the 'full, true and plain disclosure' standard described in the above paragraph.
All material facts must be made available to potential investors before they can make an investment decision. Sometimes, during the year that a receipted offering statement is valid, the co-op’s business environment will change and make the offering statement no longer reliable. If that change can reasonably be expected to have a significant negative impact on the financial position of the co-operative or if it might prevent the co-operative from achieving the purpose of an offering in a significant or material way, the change is considered to be a material change.
The Act provides information on what it considers non-material. If the change affects the gross sales or revenue of the co-operative by less than $20,000 or affects the net loss or net income by less than $10,000, it is not considered to be material.
Co-ops should consult a lawyer and/or accountant familiar with co-operatives for assistance in determining whether a change might be material.
APPROVALS AND RECEIPTS
Once the offering statement is reviewed and FSCO has determined that it meets the requirements of the Act, a receipt is attached to the offering statement by FSCO, and the entire receipted offering statement is returned to the co-op. When the receipted statement is received, the co-operative may begin selling the securities outlined in the offering statement.
FSCO can refuse to provide a receipt if, in its view: The offering statement or any of the supporting documentation fails to meet the requirements of the Act; The statement contains any information (a promise, estimate or forecast) that is false or misleading; The statement conceals or leaves out any material facts that would be necessary to make any statement true; Or The proceeds of the sale of securities will not be sufficient to accomplish the purpose of the statement.
The receipted offering statements are kept on file at FSCO’s office and must also be made available during business hours at the co-op’s head offices. These are considered public documents and, as such, must be made available to the public.
Offering statements are valid for a year from the date on the statement - i.e the date submitted to FSCO, NOT the date approved (receipted). Approvals can take from 30-90 days or more, and almost always involve two-way communication between FSCO and the co-operative prior to being receipted. This generally means you will have less than the one year period before your offering statement becomes invalid since the approval process is included in the one year timeframe.
TIPS ON CREATING OFFERING STATEMENTS
The preparation of an offering statement can be a time-consuming and costly venture. In addition to the work undertaken by the board, manager and/or staff, it may require lawyers, accountants and others, some of whom charge $300++ dollars an hour. Co-ops sometimes have very little funds as they prepare the offering statement, and may try to cut corners or reduce their reliance on consultants. This may not be the most suitable course of action: the more work that is done to make the document as correct and complete as possible before submitting the document will shorten the amount of time the FSCO review process will take.
IMPORTANT: Even though we have included a few examples on our site, there really is no true "template" for offering statements as each co-op and each set of circumstances is unique. Still, the documents we've included will provide guidance -- plus, all receipted offering statements are considered public property and may be reviewed in person at the FSCO offices, and may provide insights as you create your own offering statement.
THREE KEY ITEMS
- Before beginning to write an offering statement, ensure your business plan is up to date and realistic. You will need to refer to various parts of the business plan or incorporate it into the offering statement. If your business plan contains sensitive information about your business or industry, FSCO may allow you to summarize those areas in your submission, but be sure to talk to them about this prior to submission of the Offering Statement.
- Think about the offering statement in a similar fashion to a company applying for a bank loan and providing the loans manager with all of the information needed to understand and approve it.
- The offering statement must provide “full, true and plain disclosure of all material facts related to the securities being offered". This is an elusive target and must balance reasonable, thoughful and relevant disclosures against providing too much or too little information. Throwing every possible disclosure and bits of information about your co-op into the offering statement is not helpful to either FSCO or the investor -- nor is understating or ignoring risks, concerns or challenges. Demonstrate careful editing and show a deep understanding of the unique risks in this venture.
NINETEEN OFFERING STATEMENT TIPS
- The Offering Statement is not a marketing device. Only include the required information, not sales and marketing language.
- Every offering statement should be customized for the co-operative and its situation. If using previously approved offering statements as a guide, ensure that all the text which may have been cut and pasted truly reflects the current offering statement application.
- When submitting your offering statement to FSCO, be sure to include a valid email address for communication. The format doesn't specifically call for an email address, but including one as part of the cover letterwill assist the process greatly.
- Submit only the complete and final copy! Do not submit interim or "draft" documents to FSCO, for example to ask their opinion about the completeness or validity of your offering statement. Send only the completed document, and don't forward the offering statement in bits and pieces.
- Provide a brief history of the co-operative. Describe how your co-op will operate on a "co-operative basis" and what the governance structure will be.
- The offering statement should describe the business plan of the organization and specifically highlight why there is a need to raise capital.
- Disclosures should be reasonable but meet the "full, true and plain disclosure" test. Balance disclosure with repetition, brevity and too much detail.
- If there are issues, risks, or emerging risks, identify them clearly. Once they have been identified, explain the solutions or how the challenges can be mitigated.
- If financial statements are included, the reasons for their inclusion should be clear, and references to any numbers should be accurately described.
- If assumptions are used, be transparent that they are assumptions and not fact.
- Explain how the investment will be repaid. What is the exit strategy over the life of the investment?
- Include visual diagram of the business structure and key relationships
- Mention the escrow agreement to hold the members' funds until the capital will be used
- Include a glossary of terms and acronyms included in the offering statement
- Include the co-op's by-laws as an appendix to offering statement
- Seek, and include, legal opinions for FSCO’s use on contentious issues. Doing this prior to submitting the offering statement will save your organization time.
- Create an executive summary that accurately reflects the offering statement in 1-2 pages. This is a summary for the reviewers, not an official part of the offering statement, so do not include anything that was not mentioned in the offering statement itself. For example, you might want to summarize why the need to raise capital exists, summarize the issues to manage and the the risks, present the solutions, etc.
- If FSCO has questions about your submission, it sends them in a formal letter, but may begin with an email inquiry. Be sure to provide an email address. Your reply and revision to the offering statement will generally be sent back to FSCO the same way they communicated with you. This process takes time, which is the primary reason that everything reasonably possible be undertaken in the first iteration of the offering statement.
- It is extremely rare that FSCO will accept your offering statement without asking for clarification on a number of items or requesting some type of additional material.
If submitting changes or updates to a previously submitted offering statement:
- Include a separate summary of what was changed and why, making specific references. It may be helpful to include the 'red lined' version of the document showing the changes that were made from the original version. Also include a clean, correct and fully edited final version.
- Review the entire document to be sure that changes have been updated throughout the document, and that all references have been 'refreshed'. Have someone external to the process proof read the document before submitting.
- If changes were significant compared to an earlier version (or to an earlier approved offering statement), be sure to update the list of risks and solutions and provide other explanations. Simply increasing the amount requested from $1million to $5million with exactly the same supporting documentation will cause additional questions, for example.
All tips presented in this article are for purposes of guidance only. On Co-op does not warrant or guarantee the completeness or currency of the information, or that the information provided will be without error or omission. Always consult a professional when creating an offering statement.
Offering Statement package submission for approval checklist
- Include a cover letter providing contact information, include email address. This letter should include information to on who you are and what you are trying to do.
- Remember to include the $50 fee
- Include two copies of the offering statement, signed, dated at or after the effective date of the offering i.e. if your offering statement is effective June 1, 2013, do not date the paperwork May 28, 2013.
- Include audited financial statements when applicable with auditor’s consent
- Ensure your forecasts match with any contracts or obligations you have indicated (e.g. for renewable energy co-ops, your forecast should be for 20 years, which is thelength of your FIT contract).
- ACCURACY COUNTS! Be sure that spelling and arithmetic is correct. Ensure that references, paragraph numbering, page numbers, tables of contents etc, etc are correct. Edit for clarity and readability. Always have at least one, preferably two or more people not directly associated with the process proof-read the document before submitting. Ensure that all the documents, appendices,and attachments you reference are included in the package!
- Attach all relevant contracts referred in offering statement, including membership agreements