Private issuer exemption

An owner meets this exemption when raising equity from outside investors, such as a partner or a family friend, in a private company. National Instrument 45-106, Prospectus Exemptions, sets out distributions of securities to which the prospectus requirement does not apply.

What the regulators say

• NI 45-106 s.2.4 says the prospectus requirement does not apply to a distribution of a security of a private issuer to a person who buys as principal and falls in the listed categories. Section 2.4(5) says that subsection does not apply in Ontario, where s.73.4(2) of the Securities Act (Ontario) provides a similar exemption.
• “Private issuer” is a defined term in the Instrument.
• The Alberta Securities Commission lists it as an exemption for non-reporting issuers only and says the issuer’s founding documents must state that its securities are subject to restrictions on transfer.

What to check

Confirm that the company is a private issuer and that each investor is in a listed category. Confirm which province’s securities law applies; in Ontario, the exemption is in the Securities Act (Ontario). The Alberta Securities Commission says an issuer that ceases to be a private issuer can still sell to many of the same people under the accredited investor or family, friends and business associates exemption, so ask which applies. For the business side, see bringing in a partner or investor instead of selling and share class.