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Ontario’s private-capital market hinges on prospectus exemptions—legal carve-outs that let companies raise money faster and cheaper than a public offering. Two of the most common pathways in early-stage deals are the Private Issuer Exemption and the Accredited Investor Exemption under National Instrument 45-106. At first glance they look interchangeable: both sidestep a prospectus, both allow friends-and-family cheques, and both still require a risk-acknowledgement form. Dig deeper, however, and each exemption carries distinct eligibility rules, dollar limits, and compliance duties. Choosing the wrong one can force a costly rescission or OSC enforcement action—outcomes no founder or investor wants.
Below, we unpack how each exemption works, the documentation it demands, and the decision points that determine which route best fits a particular raise.
What Is the Private Issuer Exemption?
A private issuer is a corporation that:
- Has never distributed securities under another exemption (such as Accredited Investor or Offering Memorandum) and has never filed a prospectus;
– - Restricts share transfers in its articles or shareholder agreement;
– - Limits shareholders to 50 non-employee security holders (excluding employees and certain insiders); and
– - Sells only to a prescribed list of investors, including directors, officers, employees, close family members, close friends, close business associates, or accredited investors.
Because a private issuer is, by definition, a closely held company, no Form 45-106F1 report or OSC filing fee is required until it sells to someone outside that tight circle or exceeds the 50-holder cap. Cash flows in, paperwork stays minimal—but the issuer’s “private” status ends the moment an ineligible investor appears.
What Is the Accredited Investor Exemption?
The Accredited Investor Exemption applies to any issuer—private or public—selling securities to purchasers who cross specific income or asset thresholds. Individuals qualify if they have:
- Net financial assets ≥ $1 million (excluding principal residence); or
– - Net assets ≥ $5 million; or
– - Annual income ≥ $200 000 individually ($300 000 with a spouse) for the past two years and a reasonable expectation of repeating it.
There is no limit on how much an accredited investor may purchase, and there is no cap on the number of Accredited Investor purchasers in a deal. However, every Accredited Investor must sign Form 45-106F9 acknowledging high risk and illiquidity, and the issuer must file Form 45-106F1 with the OSC (plus a modest fee) within 10 days of closing.
Key Differences at a Glance
| Feature | Private Issuer Exemption | Accredited Investor Exemption |
| Shareholder cap | ≤ 50 non-employee security holders | No cap |
| Eligible investors | Tight list—directors, close family, close friends, etc. | Anyone meeting Accredited Investor income/asset tests |
| Filing requirement | None until you lose private status | Form 45-106F1 within 10 days |
| Risk acknowledgement | Form 45-106F12 for FFBA investors | Form 45-106F9 for all Accredited Investors |
| Dollar limits | Unlimited for listed categories | Unlimited |
| Losing status | One sale to an ineligible person = private status lost forever | Always available if investor qualifies |
Deciding Which Exemption Fits Your Raise
Who Are the Investors?
If the raise will only involve founders, long-standing friends, and close family—and you can stay below the 50-holder cap—the Private Issuer Exemption is simpler and cheaper. The moment you contemplate taking money from a high-net-worth stranger or angel group with no prior relationship, the Accredited Investor Exemption is safer.
How Long Will “Private” Status Last?
Many start-ups outgrow the 50-holder limit or need external Accredited Investor capital by Series A. Once a company ceases to be a private issuer, every future exempt distribution (even to insiders) triggers the F1 filing burden. Some founders opt to start under the Accredited Investor Exemption from day one to avoid switching compliance gears mid-growth.
Investor Sophistication and Ticket Size
Accredited investors often write larger cheques and expect sharper governance. Using the Accredited Investor Exemption signals professionalism and transparency—qualities that help when courting future institutional money.
Administrative Capacity
Early founders wear many hats. If legal budgets are thin, remaining a private issuer delays OSC filing obligations—saving time and a few hundred dollars per round. Just be sure the relationship criteria are documented; “friend of a friend” likely fails the OSC’s sniff test.
Exit and Financing Strategy
Venture capital funds require clean exemption records. Mixing careless FFBA subscriptions with later Accredited Investor rounds can complicate diligence. Align your exemption strategy with your long-term capital roadmap, not just immediate convenience.
Compliance Must-Haves for Each Path
Private Issuer Exemption
- Board resolution confirming private-issuer status before each distribution.
– - Signed subscription agreement reciting the purchaser’s category (director, close friend, etc.).
– - For friends, family, or business associates: completed Form 45-106F12 risk acknowledgement.
– - Updated shareholder register to monitor the 50-holder cap.
Accredited Investor Exemption
- Investor questionnaire proving income or asset thresholds.
– - Executed Form 45-106F9 risk acknowledgement (retain originals).
– - Form 45-106F1 OSC filing within 10 days (late filings attract penalties).
– - Four-month resale legend on share certificates to satisfy hold-period rules.
Pitfalls to Avoid
- Assuming LinkedIn Equals “Close Friend.” OSC guidance demands a long-standing, trust-based relationship. Casual networking contacts do not qualify.
– - Counting Employees in the 50-Holder Cap. Employees are excluded from the cap only if they received shares or options as compensation, not as outside investors.
– - Skipping F1 Filings for Accredited Investor Rounds because “we’re still private.” Once you use any exemption other than the private-issuer route, F1 filings become mandatory.
– - Mismatched Risk Forms. Using F9 for an FFBA subscriber—or vice versa—voids the exemption. Double-check before closing.
– - Incomplete Investor Records. If the OSC audits, lack of supporting documentation (income statements, bank letters) can lead to enforcement even years later.
Practical Scenario: A Growing Start-Up
Year 1
Founders raise $250 000 from parents, siblings, and two university roommates—cleanly within the Private Issuer Exemption. No F1 filing required.
Year 2
They need $1 million to scale. An angel group shows interest; members qualify as accredited investors but lack prior relationships. The company must now rely on the Accredited Investor Exemption. It files Form 45-106F1 within 10 days, and because it has exited “private issuer” status, future rounds—including employee stock-option exercises—will all require filings.
Had the founders documented early subscriptions poorly, the angel group’s diligence would stall, delaying the raise. Early compliance pays dividends.
How AMAR-VR LAW Can Support
Our securities team helps Ontario issuers and investors chart the right exemption strategy from seed to exit. We:
- Assess eligibility for Private Issuer vs. Accredited Investor status and document relationships to withstand OSC review.
– - Prepare subscription packages—risk forms, questionnaires, and board resolutions—that align with the chosen exemption.
– - File Form 45-106F1 accurately and on time, avoiding late-fee penalties and red flags in future diligence.
– - Audit cap tables and shareholder registers to monitor the 50-holder threshold and identify purification steps before it is breached.
– - Train founders and investor groups on record-keeping best practices to keep compliance friction low as capital needs grow.–
With AMAR-VR LAW, your exemption path becomes an asset, not a liability.
Conclusion
The Private Issuer and Accredited Investor exemptions both unlock capital without a prospectus, but they serve different stages and investor profiles. Staying “private” suits tight, relationship-based raises and keeps paperwork minimal—until growth demands outside money. The Accredited Investor route works whenever cheque size, investor sophistication, or headcount pushes beyond the private-issuer limits, but it brings mandatory filings and risk acknowledgements.
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Contact us today for a consultation. Choose wisely, document rigorously, and monitor compliance as your shareholder base evolves. We’ll guide you to the right exemption, draft bulletproof documentation, and keep your path clear for the funding rounds ahead.
Frequently Asked Questions (FAQs)
- What is the Private Issuer Exemption under National Instrument 45-106?
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The Private Issuer Exemption allows closely held companies with no more than fifty non-employee shareholders to sell securities to a narrow group of permitted investors, including directors, officers, employees, close family members, close friends, close business associates, or accredited investors, without filing a prospectus or submitting filings to the Ontario Securities Commission until private status is lost.
– - What is the Accredited Investor Exemption?
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The Accredited Investor Exemption permits companies to sell securities to individuals or entities that meet specific income or asset thresholds, with no shareholder cap. Investors must meet eligibility standards and sign detailed risk acknowledgements, while issuers must file Form 45-106F1 with the Ontario Securities Commission within ten days of closing.
– - When should an issuer use the Private Issuer Exemption versus the Accredited Investor Exemption?
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The Private Issuer Exemption suits early-stage, relationship-driven raises where investors are primarily family, friends, or close business associates, and the shareholder count remains below fifty non-employee holders. The Accredited Investor Exemption is appropriate when seeking capital from high-net-worth individuals, angel groups, or institutional investors with whom no pre-existing relationship exists, or when scaling beyond the private-issuer limits.
– - What documentation is required for each exemption?
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Private Issuer Exemption deals require subscription agreements referencing the purchaser’s category, risk acknowledgement forms for friends, family, or business associates, and careful monitoring of the shareholder register. Accredited Investor Exemption transactions require signed investor questionnaires, Form 45-106F9 risk acknowledgements, timely Form 45-106F1 regulatory filings, and compliance with resale restrictions.
– - What are the risks of improper exemption compliance?
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Improper application or documentation of exemptions can result in enforcement action by the Ontario Securities Commission, including fines, cease-trade orders, or rescission rights. Investors and issuers face reputational damage, delayed financings, and possible litigation if records are incomplete or misrepresentations occur.