Canadian Securities regulations generally restrict a company from selling its securities without filing a prospectus, with the applicable securities regulator(s). As the preparation and filing of a prospectus is a time consuming and costly process, it is often not suitable for companies with low expendable capital, such as start-ups. Further, once a company files a prospectus and sells its securities through the open market, it is subject to onerous continuous disclosure obligations, including filing audited financial statements.

A common way for a company to raise capital, without filing a prospectus with securities regulators is through a private placement of its securities, which permits the sale by certain issuers to certain groups of people, as provided for in National Instrument 45-106 – Prospectus Exemptions (NI 45-106). Often these transactions are referred to as “exempt market” transactions. Private placements are commonly used by early stage and private companies, to raise capital while keeping costs low.

NI 45-106 sets out several exemptions which companies can rely on to sell its securities without filing a prospectus. There are certain differences to private placement rules across the country. Common prospectus exemptions that companies issuing securities in British Columbia rely on include the following:

  1. Private Issuer

A company can sell securities to the below listed persons, in reliance on this prospectus exemption, if it is not a reporting issuer, has less than 50 security holders (exclusive of employees of the company), its incorporating documents have restrictions on the transfer of its securities, and the company has not previously sold securities to anyone other than those in the below list.

A private issuer can sell its securities to:

  • directors, officers, employees or control persons of the issuer;
  • family members (spouse, parent, grandparent, sister, brother or child) of the directors, senior officers or control persons;
  • close personal friends or close business associates of the directors, senior officers or control persons
  • current security holders;
  • family members of the selling security holder; and,
  • accredited investors.
  1. Accredited Investor

A company can sell any amount of its securities in reliance on this prospectus exemption if sold to accredited investors, who include:

  • financial institutions;
  • registered advisers or dealers;
  • pension funds;
  • mutual funds selling only under a prospectus or to accredited investors or persons buying at least $150,000.00 of securities ;
  • corporations, limited partnerships, trusts or estates having net assets of at least $5 million;
  • individuals with at least $1,000,000.00 in financial assets net of taxes (less any loans in connection with those assets);
  • individuals whose net income before taxes exceeds $200,000.00 ($300,000.00 with spouse’s income) in each of the two most recent years and who reasonably expects to exceed that net income in the current year; and,
  • individuals who have at least $5,000,000.00 in net assets.
  1. Family, friends and business associates

A company can sell any amount of its securities in reliance on this exemption if the purchaser is one of the following:

(a) a director, senior officer, or control person of the issuer;

(b)  a spouse, parent, grandparent, brother, sister or child of any of the persons in (a); or

(c) a close personal friend or close business associate of any of the persons in (a).

  1. Offering Memorandum

A company can sell its securities to anyone in reliance on this prospectus exemption, if the company first prepares and delivers an offering memorandum to the purchaser and obtains a signed risk acknowledgment from same, both in the form established by the BC Securities Commission.

  1. Minimum Amount Investment

A company can sell securities in reliance on this prospectus exemption if the securities are not sold to individual investors and each investor invests at least $150,000.00, paid in cash at the time of distribution of the securities.

  1. Start-up Crowdfunding

The Start-up Crowdfunding is a newly introduced exemption, in 2015. This exemption allows an issuer to sell securities to any person without limits on the person’s relationship to the issuer, the person’s income or the number of securities purchased, provided the issuer prepares and files certain disclosure documents.

The Start-up Crowdfunding exemption will be discussed by us in further detail in a separate article.


Depending on the prospectus exemption relied on, certain documents must be prepared by issuers, and in some cases filed with securities regulators, such as subscription agreements, risk acknowledgment forms and reports of exempt distribution.

If you would like additional information, or have any questions regarding your company’s ability to issue securities in reliance on any of the above exemptions, or would like to pursue one of the above described exempt market transactions, please contact our firm at (604) 688-4900, or email Paul Barbeau at or Morgan Best at