Remarque : les informations contenues dans ce guide ne constituent en aucun cas des conseils juridiques, financiers ou d'investissement. Les émetteurs sont invités à solliciter l'avis d'un conseiller juridique et financier indépendant avant de procéder à toute offre de titres.

Community bonds are investments, meaning they’re considered securities and their issuance is subject to Canadian securities laws. An organization can’t simply offer them to the public in the same way they’d run a donation campaign.

In many cases, an organization offering investments must prepare a formal legal disclosure document called a prospectus. But for many community-serving organizations, the costs associated with creating a prospectus are prohibitive—from legal fees for drafting to filing fees paid to the regulator, the cost can total in the hundreds of thousands of dollars.

However, there are exemptions under Canadian securities law that allow community-serving organizations to raise capital from supporters in their communities without a prospectus.

But first, who regulates securities in Canada?

Unlike some other countries, Canada does not have a national securities regulator. Instead, provincial and territorial government bodies oversee securities laws. That means the rules that apply to a community bond offering can depend on where the organization is located and where investors live.

However, these regulators often work together through the Canadian Securities Administrators (CSA)—including creating and implementing a national law called National Instrument 45-106 (NI 45-106), which allows certain organizations to raise capital without filing a prospectus if they meet specific requirements.

Prospectus exemption available to community bond issuers

Most community bond issuers Tapestry supports are eligible to issue without prospectuses under section 2.38 of National Instrument 45-106, often referred to as the Not for Profit Issuer Exemption. This exemption applies to organizations organized exclusively for educational, benevolent, philanthropic, charitable, religious, scientific, fraternal, athletic, or social welfare and not for profit.

Not every nonprofit organized for these purposes is automatically eligible, though. It can depend on:

  • How the organization is incorporated and whether its governing documents clearly establish nonprofit purposes
  • How surpluses are handled, namely that they’re reinvested into the mission and aren’t distributed to individuals associated with the organization
  • Consistency between incorporation documents and bylaws and real day-to-day operations

Because eligibility depends on both structure and operations, organizations should not assume the exemption applies automatically. A legal review is usually an important early step before launching a community bond offering.

For cooperatives, the pathway is a bit different. These organizations typically need to have their offering materials reviewed by provincial legislators, like the Financial Services Regulatory Authority in Ontario. The Tapestry team helps co-ops interested in raising community bonds navigate their province’s or territory’s specific rules so they can move forward with confidence.

What organizations should still provide

Even if a full legal prospectus is not required under the Not for Profit Exemption, community bond investors still need clear information about the product they’re purchasing.

A responsible issuer should explain what the organization does, who leads it, why it’s raising money, how much is being raised and with what terms, how they expect to repay investors, the financial condition of the organization, and the risks involved in the investment.

At Tapestry, we support organizations through disclosing all of this information in what’s called an offering package. This is a package of documents including:

  • a 5-10 year business plan
  • an offering statement with details about the project, target amount being raised, repayment strategy, financial projections, projected impact, basic bond terms, and risks investors should be aware of
  • a term sheet outlining in plain language the terms of the bonds being offered
  • and a trust agreement, a document that makes clear the relationship between the issuer, the bondholders and an independent trustee who acts on behalf of the investors should any need for enforcing investors’ rights arise.

Clear and detailed disclosure helps investors make informed decisions. It builds trust between the issuer and its community of supporters—and community bonds can provide an opportunity to grow that trust long-term.

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