Every private Canadian raise runs through a specific prospectus exemption, not a general private-placement permission. Picking the wrong one, or missing a province-specific variant, is a compliance problem discovered at the worst possible time.
Key takeaways
STEP 01 OF 10
NI 45-106 is not one exemption; it is a menu, and each one has its own conditions. Before drafting subscription documents, name the specific section — accredited investor (s. 1.1's definitions, discussed below), private issuer (s. 2.4), family/friends/business associates (s. 2.5), minimum amount investment (s. 2.10), or asset acquisition (s. 2.12) — because the paperwork and the ongoing obligations differ by exemption, not just by investor.
STEP 02 OF 10
The individual tests that matter most for a private raise: financial assets exceeding $1,000,000 net of related liabilities (alone or with a spouse), or $5,000,000 alone; net income before taxes “exceeded $200,000 in each of the 2 most recent calendar years, or combined with a spouse exceeded $300,000… and who, in either case, reasonably expects to exceed that net income level in the current calendar year”; or net assets of at least $5,000,000 alone. A family trust established by an accredited investor also qualifies where a majority of trustees are accredited and beneficiaries are within a defined family relationship.
STEP 03 OF 10
NI 45-106 itself records that several accredited investor categories “except in Ontario” come instead from subsection 73.3(1) of the Securities Act (Ontario). Never present the accredited investor list as uniformly national — an Ontario investor may need to qualify under the provincial Act's own language rather than the Instrument's.
STEP 04 OF 10
A private issuer under s. 2.4 must not be a reporting issuer or an investment fund, must have securities subject to transfer restrictions and beneficially owned by not more than 50 persons, not counting employees and former employees, and must have distributed only to a defined list of permitted purchasers — directors, officers, employees, founders, control persons and their affiliates, listed family members, close personal friends or close business associates of specified insiders, existing security holders, accredited investors, and certain majority-owned entities. Track the 50-holder count continuously, not just at the moment of the raise — see reporting to investors after the deal closes for why this matters on an ongoing basis, not just at closing.
STEP 05 OF 10
Section 2.5 permits distributions to directors, officers, control persons and their listed family, “close personal friends,” and “close business associates” of an issuer or its founders — but s. 2.5(2) is explicit: “no commission or finder's fee may be paid to any director, officer, founder, or control person of an issuer or an affiliate… in connection with a distribution under subsection (1)”. In Ontario, s. 2.6.1 layers on a signed risk acknowledgement requirement, retained for 8 years, and Saskatchewan's s. 2.6 imposes a similar requirement — most other provinces do not, so confirm the investor's home jurisdiction before assuming the same paperwork applies everywhere.
STEP 06 OF 10
Section 2.10 is available only to a purchaser that is not an individual, purchasing as principal, for a security with an acquisition cost of not less than $150,000 paid in cash at the time of distribution, of a single issuer — s. 2.10(2) blocks an entity created or used solely to rely on it. This exemption fits an institutional or corporate investor writing one large cheque, not a syndicate of individuals each contributing a smaller amount.
The corporate-purchaser and single-issuer conditions both matter in practice. A holding company set up the week before closing, funded only to make this one investment, is exactly the structure s. 2.10(2) is written to catch — the exemption is meant for an entity with an independent existence, not a shell created solely to clear the $150,000 threshold on an individual's behalf.
STEP 07 OF 10
These two exemptions are routinely mixed up because they share the same $150,000 figure, but they solve different problems. Section 2.12's asset acquisition exemption applies where an issuer distributes its own securities as consideration for the acquisition of another person's assets, where those assets have a fair value of not less than $150,000 — this is the share-for-assets exemption used in a rollover-style structure, not a cash investment. Section 2.11 is the parallel exemption for an amalgamation, merger, reorganization or arrangement. Confirm which one actually fits before citing either.
STEP 08 OF 10
A private issuer that crosses 50 beneficial owners (excluding employees) no longer fits s. 2.4's own definition — this is a real operational risk for a company doing multiple small rounds through the family/friends exemption over time, since each new investor from that exemption also counts toward the private issuer cap if the issuer is relying on both simultaneously. Track both counts together, not separately.
STEP 09 OF 10
A single financing round can legitimately rely on different exemptions for different investors — one qualifying as accredited, another as a close business associate, another writing a $150,000 cheque under the minimum amount exemption. Keep a record naming the specific exemption relied on for each investor and the facts supporting it (the income test, the relationship, the cheque size) — this record is exactly what a later diligence process or regulatory inquiry will ask for.
This record matters most at exactly the moment nobody wants to be assembling it: when a later financing round, a sale of the company, or a regulatory inquiry requires proof that every prior distribution was properly exempt. A company that cannot show which exemption applied to a given investor five years after the fact has created a gap that is expensive and sometimes impossible to close retroactively.
STEP 10 OF 10
A prospectus exemption under NI 45-106 answers whether a prospectus is required — it does not by itself answer whether the person selling the securities needs to be a registered dealer under NI 31-103. These are two separate questions in Canadian securities law, and this guide does not state NI 31-103's registration-category rules in detail; confirm registration status with securities counsel before assuming an exempt distribution can be sold without one.
Take an individual with net income before taxes of $215,000 in the year two years ago and $208,000 last year — both above the $200,000 threshold in each of the two most recent calendar years. If they also reasonably expect to exceed $200,000 in the current year, they meet the individual income test in paragraph (k), independent of any asset test.
Now take a different individual at $195,000 and $230,000 across the same two years. The test requires the threshold to be met “in each of the 2 most recent calendar years,” so the $195,000 year fails the test on its own — this individual does not qualify under paragraph (k) by income alone, however strong the second year was, and would need to qualify instead under an asset-based category (financial assets over $1,000,000, or net assets of $5,000,000) if available.
These two exemptions solve opposite problems. The private issuer exemption (s. 2.4) is about who the issuer is and how many holders it has — a 50-holder cap, transfer restrictions, and a defined list of permitted purchasers, with no minimum cheque size required of any single investor. The minimum amount exemption (s. 2.10) is about the size of one specific investment — $150,000 minimum, paid in cash, by a non-individual purchasing as principal — with no cap at all on how many such investors an issuer can have.
A closely held company raising small amounts from friends and family is relying on the private-issuer structure; an operating company raising one large institutional cheque is relying on the minimum-amount structure. The two can be used together in the same company at different points, but confusing which condition applies to which exemption is how compliance gaps happen.
Yes — different investors in the same round can qualify under different exemptions, provided each investor genuinely meets the conditions of the exemption relied on for them. Document which exemption applied to which investor.
No — s. 2.4(b) counts beneficial owners "not including employees and former employees" of the issuer or its affiliates toward the 50-person limit.
No — Ontario (s. 2.6.1) and Saskatchewan (s. 2.6) require a signed risk acknowledgement in the required form; most other provinces do not impose the same requirement under this exemption.
Not necessarily — the prospectus exemption and the fund's or company's own contractual reporting obligations to its investors are separate questions. See reporting to investors after the deal closes for what typically governs the latter.
The exemption is tested at the time of the distribution, but an issuer relying on an ongoing-eligibility exemption — such as the private issuer exemption's 50-holder cap — needs to keep monitoring that condition afterward, since a later distribution that pushes the count over the cap can jeopardize the exemption for that new distribution even if earlier ones were properly exempt.
This is a securities-law determination that should be made with counsel for each raise and each investor, not assumed by analogy to a prior round — the facts supporting each exemption (income, relationship, cheque size, holder count) can change between rounds even for the same issuer.
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