Raising Investment for a Business in Canada

Usually, the first source of funds for a new business is the owner himself. However, entrepreneurs often look for investors to raise capital and start the business with adequate funding. Anyone raising funds should be aware of the laws that regulate how investors may be approached under Canadian law.

First, it is important to note that Canadian securities law is regulated at the provincial level. Each province has its own statute and regulator. Nevertheless, regulators from all provinces have come together to form the Canadian Securities Administrators (CSA), which issues uniform rules applicable to provinces that expressly adopt them. These rules are known as National Instruments. It is important to keep in mind that not all securities legislation comes from the Canadian Securities Administrators.

Securities law governs this activity. In general, there are significant regulatory requirements that a business must comply with to raise funds from the public. These requirements often involve high costs and the obligation to provide extensive information to regulators before approaching potential investors. This is known as the “prospectus requirement” and involves broad disclosure and public filing of information.

On the other hand, certain forms of investor solicitation are permitted without the need to file a prospectus with securities regulators. There are several rules on this subject. By way of example, a privately held company with a limited number of shareholders may solicit investments from certain categories of investors, such as family members, close friends, high net-worth individuals (need to reach certain financial thresholds), or institutional investors, without going through the full prospectus process. There are also specific rules governing crowdfunding, which allow capital raising without a prospectus, provided that the applicable securities law requirements for crowd funding are met.

Securities law is complex. If you intend to solicit investment from third parties, it is strongly advisable to consult a securities lawyer to ensure compliance with applicable legislation, as non-compliance may result in civil liability and, in some cases, criminal prosecution.

Legal disclaimer: This text is for informational purposes only and does not constitute legal advice. You should consult a licensed lawyer regarding your specific situation.