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Ontario’s private-capital market runs on an unspoken rule: no prospectus, no problem—so long as National Instrument 45-106 (NI 45-106) is respected. Issuers rely on NI 45-106 to raise billions without the cost or delay of a full prospectus. Investors, meanwhile, gain access to venture deals, real-estate syndications, private debt funds, and alternative assets long before they reach public markets. But the same rulebook that unlocks opportunity also imposes specific duties—and ignorance can be expensive.
This article demystifies NI 45-106, explains its core exemptions, and shows private investors how to navigate compliance, documentation, and risk.
NI 45-106 in a Nutshell
National Instrument 45-106 – Prospectus Exemptions is a harmonised rule adopted by all Canadian securities regulators. Its purpose is simple: outline situations where companies can distribute securities without filing a prospectus, while still protecting investors through eligibility criteria, disclosure, and post-closing filings.
In Ontario, the regulator enforcing NI 45-106 is the Ontario Securities Commission (OSC). If an issuer or investor misuses an exemption—intentionally or not—the OSC can levy fines, impose trading bans, or force rescission. For investors, that means a sloppy paperwork trail can trap capital in illiquid shares or expose you to enforcement proceedings.
Why Private Investors Should Care
- Access and Eligibility
Your ability to participate in most private placements hinges on fitting within at least one NI 45-106 category—“accredited investor,” “friends, family and business associates,” or other exemptions.
– - Risk Acknowledgement Obligations
Many exemptions require you to sign specific forms (45-106F9, F12, or F4) confirming you understand the high-risk, illiquid nature of the investment. Missing or incorrect forms can jeopardise your legal protections.
– - Rescission and Hold Periods
Securities issued under NI 45-106 typically carry a four-month resale restriction. If the exemption was misapplied, you might be forced to unwind the trade or find yourself holding securities you can’t legally transfer.
– - Due Diligence Signal
An issuer that treats NI 45-106 casually may be equally lax with financial controls and governance—an invaluable red flag.
Key Prospectus Exemptions Investors Will Encounter
Accredited Investor Exemption
The workhorse of private placements. You qualify if you meet certain income or asset thresholds (e.g., $200,000 individual income, $300,000 combined with a spouse, or $1 million in financial assets excluding your home). No dollar limit exists, but investors must sign Form 45-106F9 to acknowledge risk.
Investor takeaway: Verify your Accredited Investor status with current income statements or portfolio statements; misrepresentation can invalidate the trade.
Private Issuer Exemption
Ideal for closely held start-ups with ≤ 50 shareholders. Investors must be directors, officers, employees, close family, close friends, or close business associates of a control person. No filing fees apply until the issuer breaks “private issuer” status.
Investor takeaway: If you don’t have a genuine, pre-existing relationship with management, you probably don’t qualify.
Friends, Family, and Business Associates (FFBA) Exemption
Allows non-private issuers to raise capital from tight relationship circles. Each investor signs Form 45-106F12, confirming the nature and length of the relationship.
Investor takeaway: OSC enforcement staff routinely test the relationship—LinkedIn contacts and pitch-event acquaintances rarely pass.
Offering Memorandum (OM) Exemption
Permits broader fundraising if the issuer provides a detailed disclosure document (the OM) and investors sign Form 45-106F4. Non-accredited individuals face annual investment caps:
- $30,000 per calendar year, or
– - $100,000 with a registered adviser’s suitability sign-off.–
Investor takeaway: Review the OM like a prospectus; it sets the legal basis for misrepresentation claims.
Crowdfunding Exemption (NI 45-110)
Sister rule to NI 45-106 (referenced here for completeness). Investors buy through a registered portal and are capped at small investment limits unless accredited.
Investor takeaway: Verify the portal’s registration; unregistered sites void the exemption.
Documentation You Must See (and Keep)
- Subscription Agreement – Sets purchase price, representations, and risk-factor acknowledgements.
– - Risk Acknowledgement Form (F9, F12, or F4) – Your signed confirmation of eligibility and risk.
– - Issuer Representation Letter – Confirms reliance on a specific NI 45-106 exemption.
– - Form 45-106F1 Report – Filed by the issuer within 10 days post-closing; includes anonymous investor data and exemption codes.
Best practice: Request the filed F1 to ensure your investment appears on the OSC’s radar correctly.
The Investor’s Due-Diligence Checklist
- Verify the Exemption – Which NI 45-106 clause is the issuer using? Get it in writing.
– - Match Personal Circumstances – Ensure your income or asset documentation aligns with the claimed exemption.
– - Inspect Disclosure – Review the OM or corporate deck; lack of detail is itself a risk signal.
– - Confirm Filings – Ask for the OSC filing receipt number for Form 45-106F1.
– - Understand Resale Restrictions – Note the four-month legend and any earlier “cliff” dates.
– - Store Documents Safely – Keep all subscriptions, forms, and confirmations for at least seven years.
Penalties for Non-Compliance
- Regulatory: OSC fines can reach millions; cease-trade orders freeze securities.
– - Civil: Investors may sue for rescission or damages within strict limitation periods if disclosure is misleading or exemptions misapplied.
– - Criminal: Knowing misrepresentation of Accredited Investor status can constitute securities fraud.
For investors, reputational harm and capital loss often dwarf regulatory penalties—another reason to treat paperwork seriously.
How AMAR-VR LAW Can Help
Navigating NI 45-106 is second nature to our securities team. We assist Ontario investors by:
- Validating eligibility – Preparing accredited-investor questionnaires and assessing FFBA relationships.
– - Reviewing subscription packages – Flagging missing or risky clauses before funds transfer.
– - Confirming issuer compliance – Tracking Form F1 filings and ensuring risk forms are executed correctly.
– - Structuring investments through holding companies – Maximising tax efficiency while preserving exemption eligibility.
– - Handling disputes – Pursuing rescission or damages when NI 45-106 errors surface.
With AMAR-VR LAW on your side, you invest privately with regulatory confidence.
Conclusion
National Instrument 45-106 is the legal backbone of Canada’s exempt market, opening doors to high-growth companies while imposing a clear compliance framework. For private investors, understanding which exemption applies, signing the correct risk forms, and confirming post-closing filings are non-negotiable steps. Skipping them risks regulatory action, civil liability, and frozen capital.
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Contact us today for a consultation before you commit to a private placement—or if you need to review past investments for NI 45-106 exposure. We’ll help you seize private-market upside while keeping compliance gaps firmly closed.
Frequently Asked Questions (FAQs)
- What is National Instrument 45-106 (NI 45-106)?
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National Instrument 45-106 is a Canadian securities regulation that governs when companies can sell securities without filing a prospectus. It defines the conditions, exemptions, and disclosure obligations for private placements in Ontario and across Canada.
– - Why does NI 45-106 matter to private investors in Ontario?
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Private investors rely on NI 45-106 to participate in private placements legally. It establishes who qualifies to invest, mandates risk acknowledgement forms, and imposes hold periods. Errors or omissions in compliance can result in regulatory penalties, loss of liquidity, or rescission of investments.
– - What are the primary exemptions under NI 45-106 that private investors use?
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The most common exemptions are the Accredited Investor exemption for individuals meeting income or asset thresholds, the Private Issuer exemption for closely held companies with limited shareholders, the Friends, Family and Business Associates exemption for individuals with close pre-existing relationships to management, and the Offering Memorandum exemption which allows broader participation with prescribed disclosure and investment caps.
– - What documentation must investors expect to receive and complete under NI 45-106?
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Investors must sign a subscription agreement, execute the appropriate risk acknowledgement form based on the exemption claimed, review the issuer’s representation of which exemption applies, and ensure that the issuer files Form 45-106F1 with the Ontario Securities Commission after closing.
– - What happens if NI 45-106 compliance fails?
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Non-compliance can result in Ontario Securities Commission enforcement including fines, cease-trade orders, or rescission demands. Civil lawsuits may arise for misrepresentation or improper disclosure. Investors risk capital loss, frozen securities, and reputational damage if documentation is incomplete or inaccurate.