Demystifying Offering Statements for Ontario Co-operatives

For many new and growing co-operatives, few processes sound as intimidating as preparing an Offering Statement. During the early stages of development, it's often viewed as something only large or established organizations need to worry about. In reality, an Offering Statement may become an important part of your co-op's financing strategy if you plan to raise capital from members or community investors. Understanding when an Offering Statement is required, and when it isn't, is an important first step for any group considering the co-operative model.

What is an Offering Statement?

An Offering Statement is simply a disclosure document designed to help people make informed investment decisions when they're investing in a co-operative. While it does involve regulation and careful preparation, it has enabled Ontario co-operatives to raise capital from their members and communities to finance everything from renewable energy projects and agricultural ventures to community businesses, worker co-operatives, housing, and more.

Think of an Offering Statement as the co-operative equivalent of a prospectus used by investor-owned corporations.

It explains:

• What the co-operative does

• The securities being offered

• How the investment proceeds will be used

• The risks involved

• The rights attached to the investment

• The co-operative's financial position and business plan

The goal isn't to convince someone to invest. It's to ensure potential investors have enough information to make an informed decision.

Ontario's Co-operative Corporations Act requires "full, true and plain disclosure" of all material facts related to the securities being offered. In other words, investors should understand both the opportunities and the risks before they decide to participate.

Why do co-operatives have a different process?

Ontario's regulatory framework is actually unique in Canada.

When lawmakers reviewed co-operative legislation in the early 1970s, they recognized that securities rules designed for publicly traded corporations weren't well suited to member-owned businesses. Co-operatives raise capital differently, often from the very people who use their services or support their mission.

The Offering Statement process was developed specifically to balance two important objectives:

• allowing co-operatives to raise capital from their members and communities; and

• ensuring investors receive enough information to make informed decisions.

That balance continues to support community investment while maintaining strong investor protection today.

Does every co-op need an Offering Statement?

No. Many co-operatives can raise capital without preparing an Offering Statement because exemptions exist under Ontario legislation.

Generally speaking, an Offering Statement is not required if:

• fewer than 35 people or organizations hold shares or other securities issued by the co-op;

• the co-op is raising $200,000 or less through the offering, even if it has more than 35 security holders;

• an individual member purchases no more than $1,000 in securities in a year, and no more than $10,000 over their lifetime, provided the offering otherwise meets the exemption requirements; or

• another exemption under the Co-operative Corporations Act applies.

Only when a co-operative exceeds those exemption limits is an Offering Statement generally required. So, understanding these exemptions early can save considerable time and help shape an effective financing strategy.

What information does an Offering Statement include?

An Offering Statement provides investors with a comprehensive picture of both the co-operative and the investment opportunity.

It will include:

• information about the co-operative and its business;

• directors and officers;

• details of the securities being offered;

• how the funds will be used;

• financial statements;

• business plans and financial projections;

• material contracts and legal matters;

• risks associated with both the business and the investment; and

• any other information that could reasonably influence an investor's decision.

While this sounds extensive, the purpose is transparency for investors.

Who reviews an Offering Statement?

Offering Statements are reviewed by the Financial Services Regulatory Authority of Ontario (FSRA).

FSRA's role isn't to decide whether an investment is "good" or "bad." Rather, it reviews the document to ensure it meets the legislative requirements and provides full, true and plain disclosure of all material facts.

If satisfied, FSRA issues a receipt for the Offering Statement. Only after receiving that receipt can the co-operative begin selling the securities described in the offering.

Offering Statements remain valid for up to 12 months. If a material change occurs during the offering (such as a significant change to the co-op's financial position or the project being financed), the co-operative must notify both FSRA and investors by filing a Statement of Material Change.

What about "High-Risk" Offering Statements?

Not every Offering Statement presents the same level of risk.

Recognizing this, FSRA introduced guidance for High-Risk Offerings in 2020. Rather than prohibiting these offerings, the guidance requires co-operatives to provide additional disclosure so prospective investors have an even clearer understanding of the risks involved.

A High-Risk Offering may include characteristics such as:

• a start-up co-op with little operating history or few assets;

• a business model that functions primarily as an investment vehicle rather than serving a clearly defined member or community need;

• securities marketed primarily on the expectation of financial returns;

• offerings that rely heavily on optimistic financial projections;

• investments presented as low-risk or guaranteed; or

• securities marketed broadly to retail investors rather than people participating directly in the co-operative.

If an offering is considered high risk, FSRA expects additional information to be included in the Offering Statement. This enhanced disclosure may include:

• upcoming debt repayment obligations;

• where investors rank if the co-op becomes insolvent;

• refinancing and liquidity risks;

• interest rate sensitivity;

• contingency plans if fundraising targets are not achieved; and

• a more detailed assessment of the risks that could affect the co-op's operations.

The purpose isn't to discourage innovative or early-stage co-operatives. Instead, it's to promote transparency, strengthen investor confidence, and ensure people understand the risks before investing.

Raising capital is about more than paperwork

Preparing an Offering Statement is only one part of building a successful financing strategy.

Before deciding whether to issue shares or other securities, co-operatives should first understand:

• how much capital is needed;

• what the money will be used for;

• whether equity or debt financing makes the most sense; and

• what financing options best fit the co-operative's business model.

Some co-operatives are well suited to raising share capital. Others may rely more heavily on member loans, traditional financing, grants, or a combination of funding sources. The right approach depends on the co-op's goals, business plan, and stage of development.

Modernizing the rules for today's co-operatives

While Ontario's Offering Statement framework has helped co-operatives raise capital for decades, some of the exemption thresholds have remained largely unchanged despite significant inflation and rising project costs.

Today, many start-up and expanding co-operatives can exceed the current exemption limits much sooner than was originally intended, requiring them to prepare a full Offering Statement even for relatively modest community financing campaigns.

That's why the Ontario Co-operative Association continues to advocate for modernizing the Co-operative Corporations Act, including increasing the Offering Statement exemption thresholds. Updating these limits would allow more co-operatives to raise modest amounts of capital from their members and communities without the time and expense of preparing a full Offering Statement, while still maintaining appropriate investor protections.

You don't have to navigate it alone

Offering Statements can feel complex, but they are a well-established tool that has helped Ontario co-operatives finance growth for decades.

Whether your co-operative qualifies for an exemption, requires a standard Offering Statement, or is planning a more complex capital raise that may be considered a High-Risk Offering, early planning makes all the difference.

Working with experienced co-op developers, legal counsel, and financial professionals can help ensure your financing strategy aligns with both your business goals and Ontario's regulatory requirements.

The Ontario Co-operative Association works with groups at every stage of co-operative development. From exploring financing options and selecting an appropriate corporate structure, to connecting co-ops with experienced legal, accounting, and co-operative development professionals. If your co-operative is considering raising capital, we are here to help.

Check out our free resource: Using Offering Statements to Raise Capital for more information.

Submitted by: Jennifer Ross, Executive Director, Ontario Co-operative Association