The private issuer exemption
Allows you to raise funds from up to 50 investors, if you qualify as a private issuer and you do not offer securities to the public
If you qualify, you can use the private issuer exemption to raise funds from up to 50 investors. You can raise any amount through any number of financings.
Do you qualify as a private issuer?
- To qualify as a private issuer, either your board of directors or your shareholders must be required to approve all share transfers. This restriction on share transfer must be set out in your constating documents or shareholders' agreement.
- To qualify as a private issuer, you cannot have more than 50 beneficial security holders (excluding holders of non-convertible debt)
- Private issuers cannot be mutual funds or investment funds.
Who is the public?
While securities laws do not define who the public is, they do describe individuals and organizations that are not considered to be the public:
- a director, officer, employee, founder or control person of the issuer; or
- a spouse, parent, grandparent, brother, sister or child of a director, executive officer, founder or control person of the issuer; or
- a parent, grandparent, brother, sister or child of the spouse of a director, executive officer, founder or control person of the issuer; or
- a close personal friend or a close business associate of a director, executive officer, founder or control person of the issuer; or
- a spouse, parent, grandparent, brother, sister or child of the selling security holder or of the selling security holder’s spouse; or
- someone who is already a security holder of the issuer; or
- a company of which a majority of the voting securities are owned by, or a majority of the directors are, persons described above or a trust or estate of which all of the beneficiaries or a majority of the trustees or executors are persons described above;
A “control person” means an individual or company or a group of persons and/or companies which owns a sufficient number of securities to affect the control of an issuer. In most cases, if you own 20% or more of an issuer, you are considered a “control person”.
Can you actively promote the sale of securities under this exemption?
No. If you want to rely on the private issuer exemption, you cannot pay any selling or promotional expenses in connection with the trade, except for services performed by a registered dealer.