Resources for businesses

A business raises capital from selling its shares (or other types of securities) to investors. Security is defined broadly in the Securities Act (Ontario) and includes, among others, common and preferred shares, options, warrants and other convertible instruments, limited partnership units, bonds, notes or, more generally, investment contracts. Each type of security has its own features, benefits, risks and considerations that should be carefully assessed with both the short- and long-term goals of the business in mind. 

A business that has issued, issues or plans to issue securities is an issuer. Ontario securities laws apply to any issuer of securities, which include both public companies (i.e., a company that has shares traded on a stock exchange) and private companies. Many businesses are issuers right from the time they are formed if they issue securities to the business’ founders and early investors.

Generally, when a business sells its securities to investors it must comply with the prospectus requirement or rely on a prospectus exemption. In certain circumstances a business selling its securities either on its own, or with a dealer, may also be subject to the dealer registration requirement or rely on a dealer registration exemption. 

When a business issues securities that have not been previously issued, this is referred to as a distribution under securities laws. A distribution may sometimes be referred to as sale of securities, an offering, or a capital raise. 

Generally, a business that distributes securities must first file a prospectus with the OSC. This is referred to as the prospectus requirement and it is a core requirement of securities laws. A prospectus is a detailed disclosure document that contains full, true and plain disclosure of all material facts relating to the securities to be issued. The prospectus requirement is intended to protect investors by providing them with the necessary information with which to make an informed investment decision. Generally, a prospectus is more likely to be used by businesses that want to raise capital from the public. 

The OSC has adopted exemptions from the prospectus requirement which allow a business to raise capital without the time and expense of preparing a prospectus. These are referred to as prospectus exemptions. Each prospectus exemption has different requirements and conditions, which may include restrictions on the type of investor (in many cases to those investors that satisfy prescribed financial criteria, or that have a pre-existing relationship with the business/business owner) or the amount that can be raised or invested. The following are some of the prospectus exemptions that may be available to raise capital for your business:

The following are some of the prospectus exemptions that may be available to you to raise capital for your business: 

The section of Ontario capital markets where capital can be raised from investors using one or more prospectus exemptions is often referred to as the exempt market. More information about the exempt market can be found here: 

Generally, any business that is “in the business of trading” in securities in Ontario must be registered as a dealer with the OSC or rely on an exemption from registration. The requirement to be registered is referred to as the dealer registration requirement. Under Ontario securities laws, there are exemptions from the dealer registration requirement. These are referred to as dealer registration exemptions. If an entity is exempt from registration, the individuals acting on its behalf are also exempt from registration.

Typically, individuals, firms, and online portals that help businesses raise capital from investors need to be registered as dealers. Some firms, such as crowdfunding portals under National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions or angel investor groups under Ontario Instrument 32-508 Not-For-Profit Angel Investor Group Registration Exemption (Interim Class Order), rely on dealer registration exemptions. We refer to both firms that are registered as dealers, and firms that are relying on dealer registration exemption, as dealers. Many businesses will use a dealer to help with capital-raising activities. 

Under Ontario securities laws, a business that sells its own securities with regularity and without the involvement of a dealer may be considered “in the business of trading” in securities. There is no bright-line test to determine whether a business is “in the business of trading” securities, rather the analysis must be fact specific having regard for court decisions and regulatory decisions that have interpreted the business purpose test for securities matters. Guidance on factors to determine whether a business is “in the business of trading” securities is included in Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations.  If the business is “in the business of trading”, it will require registration or it will need to rely on a dealer registration exemption.

To reduce the burden on early-stage businesses in assessing whether they are “in the business of trading” in securities during their capital-raising efforts, the OSC has provided a time-limited dealer registration exemption, set out in Ontario Instrument 32-509 Early-Stage Business Registration Exemption (Interim Class Order), for eligible businesses to engage in permitted activities to advertise their sale of securities, subject to restrictions and conditions.  

The Early-Stage Business Registration Exemption (the Exemption) is the dealer registration exemption set out in Ontario Instrument 32-509 Early-Stage Business Registration Exemption (Interim Class Order).  

The exemption allows an eligible business to engage in capital-raising activities, including permitted activities to advertise the sale of securities, subject to conditions. An eligible business may post the terms of its offering on its website, announce that the business is raising capital on social media, and present at “demo days”, without having to be registered as a dealer.

A businesses relying on the Exemption can raise capital directly from investors without using a dealer. Eligible businesses together with affiliated companies as part of the issuer group may raise up to $3,000,000 directly from investors under the accredited investor prospectus exemption or the self-certified investor prospectus exemption. 

A business that is using a dealer to help with raising capital may rely on other available prospectus exemptions and is not subject to limits on the amount of capital that can be raised, other than any limits that are included in the prospectus exemption being relied on. 

To be able to rely on the Exemption, your business must be an eligible business that is able to comply with all the requirements. If a business is not eligible or decides not to rely on the Exemption, it should take steps to ensure its activities do not result in the business carrying on activities that require registration under securities laws.

Eligible business

The Exemption allows an early-stage business to raise capital without registering as a dealer or, if it chooses, without using a dealer.  

An eligible business means a business that:  

1. has its head office and business operations located in the province of Ontario,
2. is in the early or development stages of its business and is seeking capital to start, grow or scale,
3. has fewer than 100 employees, 
4. has a primary business purpose that is not investing in real estate, mortgages, other businesses, or other assets,
5. has a business purpose other than to identify and evaluate assets or a business with a view to completing a merger with, amalgamation with, or purchase of the securities of an issuer, or the acquisition of a business, 
6. is not engaged, directly or indirectly, in any of the following activities: 
1. holding, investing in or trading crypto assets, on the business’ own behalf or on behalf of its clients; 
2. the operation of a gaming or betting business.
7. is not a reporting issuer, or the subsidiary of a reporting issuer, in any jurisdiction of Canada or in any foreign jurisdiction,
8. is not registered under securities legislation in any jurisdiction of Canada or in any foreign jurisdiction, and
9. is not an investment fund.

Business operations in Ontario

To rely on the Exemption, businesses must have both their head office and business operations in Ontario. A business may have operations in other jurisdictions; however, it is expected that there are activities and business operations that take place in Ontario that contribute, or will contribute, to economic growth, competition and innovation in Ontario. 

If your business is interested in relying on the Exemption but you are unsure about whether your business satisfies this eligibility criteria, we would like to hear from you. Please contact us at testlab@osc.gov.on.ca. 

Business is in the early or development stages 

The exemption was created specifically to assist early-stage businesses to raise capital. An eligible business is one that is in the early or development stages and is seeking capital to start, grow or scale. 

The exemption does not include a bright-line test for what would be considered a business in the early or development stages. Early or development stage may look different for different businesses. This could include a new business that is just starting up, a business that is in the research and development phase of creating its product or service, or a business that is small and is seeking to grow its existing operations.  

A business that has already raised some capital from investors may still be considered to be in the early or development stage. 

If your business is interested in relying on the exemption but you are unsure about whether your business is in the early or development stages, we would like to hear from you. Please contact us at testlab@osc.gov.on.ca. 

Excluded businesses 

The definition of eligible business is intended to capture start-ups that are developing new and improved products and services and creative solutions that have the potential to create jobs and contribute to innovation in Ontario. 

A business is excluded from the definition of eligible business if its business model is passive and primarily involves investing in, or acquiring, other assets or businesses.

A business that is engaged, directly or indirectly in (i) holding, investing in, or trading crypto assets on the business’ own behalf or on behalf of its clients or (ii) the operation of a gaming or betting businesses is also excluded for this time-limited test as staff have identified these businesses as presenting potentially high risks for Ontario investors.

A business may not relying on the Exemption if the business, or any of its principals, has been subject to any proceedings, order, judgement, decree, sanction or administrative penalty or a settlement agreement related to a claim based in whole or in part on fraud, theft, deceit, misrepresentation, conspiracy, breach of trust, breach of fiduciary duty, insider trading, unregistered trading, illegal distributions, failure to disclose material facts or changes, or allegations of similar conduct. 

If your business is interested in relying on the Early-Stage Business Registration Exemption but you are unsure about whether your business meets the eligibility criteria, we would like to hear from you. Please contact us at testlab@osc.gov.on.ca. 

The Exemption is time-limited and remains in effect until October 25, 2025. 

An eligible business along with any affiliated companies or issuers that are part of the issuer group can raise up to $3,000,000 between May 9, 2024, and October 25, 2025, if they are raising capital without using a dealer. 

Example:

• John and Jack are business partners that have an idea to start a new business. Each of them forms their own corporation, Corporation John, and Corporation Jack. Under the Exemption, even though Corporation John and Corporation Jack are separate legal entities, since they are engaged in a common enterprise (a new business project), they are considered to be an issuer group and therefore, the total amount that Corporation John and Corporation Jack can raise collectively under the Exemption is $3,000,000 if they are not using a dealer.  
• Similarly, a founder cannot create and use multiple associated businesses/corporations working on the same project to raise more than $3,000,000 collectively under the Exemption.   

A business relying on the Exemption that decides to use a dealer to help with raising capital is not subject to limits on the amount that can be raised, other than the limits that are included in the prospectus exemption being relied on. 

The Exemption permits eligible businesses to raise capital from accredited investors and self-certified investors that are resident in Ontario, if they are raising capital on their own without a dealer. If an eligible business is using a dealer, it may be able to raise capital from other types of investors under other available prospectus exemptions. 

Accredited Investor

Section 73.3 of the Securities Act (Ontario) and section 2.3 of National Instrument 45-106 Prospectus Exemptions provide a prospectus exemption that allows businesses to sell securities to investors that satisfy financial criteria. This is referred to as the accredited investor exemption. 

An individual investor is an accredited investor if the individual meets at least one of the criteria outlined below:

• Net income before taxes of more than $200,000 in each of the two most recent calendar years and expected net income of more than $200,000 in the current calendar year.
• Net income before taxes combined with a spouse of more than $300,000 in each of the two most recent calendar years and expected combined net income of more than $300,000 in the current calendar year.
• Financial assets, alone or with a spouse, of at least $1,000,000 before taxes but net of related liabilities. Financial assets include cash and bank deposits but not the value of a house.
• Net assets, alone or with a spouse, of at least $5,000,000. Net assets generally include all of your assets after subtracting your debt.

A business relying on the accredited investor exemption is expected to take reasonable steps to verify that an investor meets the accredited investor criteria.

A business relying on the accredited investor exemption must satisfy the conditions of the exemption, including the requirement to obtain from certain investors a signed risk acknowledgement form, Form 45-106F9 Form for Individual Accredited Investors.

Self-Certified Investor

The term self-certified investor is defined in Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order), which provides a prospectus exemption that allows businesses to sell securities to individuals who possess the necessary business knowledge, through their education or experience, to make an informed investment decision, but may not meet the financial thresholds or other criteria to qualify as an accredited investor. This prospectus exemption is referred to as the self-certified investor prospectus exemption.

A self-certified investor must meet at least one of the qualifying criteria outlined below:

• Holds a CFA or Chartered Financial Analyst Charter from the CFA Institute or any predecessor or successor organization.
• Holds the CIM or Chartered Investment Manager designation from the Canadian Securities Institute, a Division of Moody’s Analytics Global Education (Canada) Inc. or any predecessor or successor organization.  
• Holds the CBV or Chartered Business Valuator designation from the CBV Institute or any predecessor or successor organization. 
• Holds a CPA or Chartered Professional Accountant designation from CPA Canada.
• Holds a CIWM or Certified International Wealth Manager Designation from the Canadian Securities Institute, a Division of Moody’s Analytics Global Education (Canada) Inc. or any predecessor or successor organization. 
• Was admitted to practice law in a jurisdiction of Canada and at least 1/3 of the individual’s practice has involved providing advice in respect of financings involving private or public distributions of securities or mergers and acquisition transactions.
• Holds a Master of Business Administration degree, focused on finance, from a university in Canada or from an accredited university in a foreign jurisdiction. 
• Holds an undergraduate degree in Finance or holds an undergraduate degree in Business or Commerce with a major or specialization in finance or investment, from a university in Canada or from an accredited university in a foreign jurisdiction. 
• Has passed the Canadian Securities Course Exam administered by the Canadian Securities Institute, a Division of Moody’s Analytics Global Education (Canada) Inc., or any predecessor or successor organization. 
• Has passed the Exempt Market Products Exam administered by the IFSE Institute, Canada, or any predecessor or successor organization. 
• Has passed the Canadian Investment Funds Course Exam administered by the IFSE Institute, Canada, or any predecessor or successor organization.
• Has passed the Investment Funds in Canada Course Exam administered by the Canadian Securities Institute, a Division of Moody’s Analytics Global Education (Canada) Inc. or any predecessor or successor organization. 
• Has passed both the Series 7 Exam administered by the Financial Industry Regulatory Authority in the United States of America, or any predecessor or successor organization, and the New Entrants Course Exam administered by the Canadian Securities Institute, a Division of Moody’s Analytics Global Education (Canada) Inc., or any predecessor or successor organization. 
• Holds the CFP or Certified Financial Planner designation from FP Canada or any predecessor or successor organization. 
• Holds a Financial Planner or Financial Advisor credential, in good standing, from a credentialling body approved by the Financial Services Regulatory Authority of Ontario under the Financial Professionals Title Protection Act, 2019 that permits the individual to use the Financial Planner or Financial Advisor title. 
• Has management, policy-making, engineering, product or other relevant operational experience at a business that operates in the same industry or sector as the issuer and who, as a result of this experience, is able to adequately assess and understand the risk of investment in the issuer.

A business relying on the self-certified investors prospectus exemption must obtain from each investor a signed Confirmation of Qualifying Criteria form and an Acknowledgement of Risks form.  

Self-certified investors can only invest up to $30,000 during the calendar year in all exempt market securities. For example, if today is September 1st, and Joan is a self-certified investor who invested $25,000 in a business relying on the self-certified investor prospectus exemption earlier in the calendar year, she can only invest up to $5,000 in your business under the self-certified investor prospectus exemption until January 1st of the next year. 

A business relying on the self-certified investor prospectus exemption must obtain a representation in the subscription agreement from the self-certified investor that, after giving effect to the sale of securities, the aggregate acquisition cost of all securities of all issuers acquired by the investor under the self-certified investor prospectus exemption for the calendar year does not exceed $30,000. 

If a business knows or would reasonably expected to know that the statements made by the self-certified investor in the Confirmation of Qualifying Criteria, the Acknowledgement of Risks or in the subscription agreement representation noted above, are false they cannot rely on self-certified prospectus exemption.

The types of securities that are more commonly used by early-stage businesses are permitted under the Exemption: 

1. a common share; 
2. a non-convertible preference share;
3. a security convertible into a security referred to in (a) or (b); 
4. a non-convertible debt security linked to a fixed or floating interest rate;
5. a unit of a limited partnership; and
6. a share in the capital of cooperative, as defined in subsection 2(1) of the Canada Cooperatives Act (Canada) or a co-operative incorporated under the Co-operative Corporations Act (Ontario).

Each type of security has its own features, benefits, risks and considerations that should be carefully assessed with both the short- and long-term goals of the business in mind. 

The most common form of security is a common share, which represents equity ownership in a business and provides voting and other rights. An early-stage business may want to issue other types of equity securities such as preferred shares which puts their holders first in line for profits or in the event of a liquidation, or “simple agreements for future equity (SAFEs)” which convert to common shares or preferred shares once a specific event occurs such as a financing round, acquisition, etc. A business may determine that it is preferable to pursue debt financing through issuing a debt security, which is an instrument that includes an agreement to repay with interest over a set timeframe with some form of collateral pledged to secure the loan. 

Resale restrictions

Unlike securities sold under a prospectus which can be immediately sold in the secondary market (e.g., on a stock exchange), securities sold under a prospectus exemption are generally subject to resale restrictions that continue indefinitely. Unless the issuer becomes a public company (i.e., a company with shares traded on a stock exchange and referred to as a reporting issuer under Ontario securities laws) the securities may only be resold under another prospectus exemption. There are very few prospectus exemptions available to investors to resell their securities. Investors are often limited to reselling to accredited investors or to directors or officers of the business.  These resale conditions are designed to ensure that there is sufficient disclosure available in the marketplace to allow a subsequent investor to make an informed investment decision. For more information on resale restrictions, see National Instrument 45-102 Resale of Securities.  

A business may raise capital using a registered dealer or a firm that is relying on an exemption from dealer registration as outlined in paragraph 18(1)(e) of the Early-Stage Business Registration Exemption. These are referred to as dealers.

A registered dealer is an individual or business that can help businesses raise capital and help buy, sell, or trade securities on behalf of its clients (i.e., investors). A registered dealer plays an important gatekeeper role in the capital markets and may also provide access to private investment opportunities to investors.

Registered dealers can help your business in the following ways:

• They are subject to securities regulatory requirements, including educational and experience proficiency requirements for its registered individuals and its chief compliance officer.
• They have expertise with the capital-raising process and can guide you through the necessary steps to conduct an offering, including how to structure the offering. 
• If you are uncertain about securities law requirements, they may be able to assist you with understanding the requirements.
• They may have access to an existing group of potential investors and deal directly with the investors.

A business relying on the Exemption may raise capital with the help of a dealer that is:

• registered as an exempt market dealer,
• relying on the exemption from dealer registration set out in Ontario Instrument 32-508 Not-For-Profit Angel Investor Group Registration Exemption (Interim Class Order).
• relying on the exemption from dealer registration set out in National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions (NI 45-110), or
• crowdfunding portal as defined in Multilateral Instrument 45-108 Crowdfunding (MI 45-108).

A business can raise capital under the Exemption, either (1) on its own without a dealer or (2) with the help of a dealer. At a high level, the key differences between raising capital with, or without, a dealer under the Early-Stage Business Registration Exemption are outlined in the chart below.

An eligible business relying on the exemption may raise capital through: a registered exempt market dealer (Exempt market dealer), an angel investor group relying on the dealer registration exemption set out in Ontario Instrument 32-508 Not-For-Profit Angel Investor Group Registration Exemption (Interim Class Order) (Angel investor group), or a crowdfunding portal relying on the exemption from dealer registration set out in National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions (NI 45-110) or as defined in Multilateral Instrument 45-108 Crowdfunding (MI 45-108).

The OSC cannot refer your business to or provide a recommendation for a dealer. Whether it is an exempt market dealer, an angel investor group or a crowdfunding portal, the type of dealer engaged should be based on your business’ needs, including its capital raising goals, target investor base, stage of development and the industry it operates in.  

To find an exempt market dealer or funding portal, or to confirm a dealer’s registration status as part of your due diligence process, you can consult the National Registration Search database. 

Yes, a business may conduct concurrent offerings; however, it is are responsible for ensuring compliance with the Early-Stage Business Registration Exemption and securities laws for both offerings.  

For example, if a business wanted to sell their securities on their own without a dealer (to accredited investors and self-certified investors) and also through crowdfunding portal operating under National Instrument 45-110 Start-Up Crowdfunding Registration and Prospectus Exemptions (NI 45-110), the business should consider the following: 

• The business may raise up to $3,000,000 in the sale of securities without a dealer and up to $1,500,000 through the crowdfunding platform. 
• The business will need to have two separate “terms of the offering”. The terms may be similar, but they should clearly indicate who may invest under each and who the investor will be dealing with. The terms of the offering that relates to the sale of securities through the crowdfunding platform must include the name of the crowdfunding platform and a link to its website. Any marketing materials and website content should also specify which offering it relates to. Practically, this means that on the business’ website there will need to be two separate sections/pages where each of the terms of the offering is located. 
• The business must comply with the requirements of the accredited investor exemption and the self-certified investor prospectus exemption in respect of the sale of securities without a dealer.
• The business must comply with the requirements of the prospectus exemption in NI 45-110 for the sale of securities through the crowdfunding portal, including preparing an offering document.
• The business must report to the OSC the sale of securities, without a dealer using Form 32-509F2 Alternative Report of Exempt Distribution, and for sales through the crowdfunding portal using Form 45-106F1 Report of Exempt Distribution.