Raising money for your business sounds simple. You find people who believe in what you are building, they give you capital, and you give them a stake. What most business owners do not realize is that the moment you offer shares, units, or any other financial interest in your company to another person, Canadian securities law kicks in.
Getting this wrong is not a small mistake. Selling securities without following the rules can result in regulators ordering you to return investor money, paying fines, and in serious cases, facing personal liability. At Cloudhaus Law, we work with founders, startups, and growing businesses across Canada, and securities compliance questions come up constantly, often after the fact.
This guide explains the Canadian securities framework in plain language so you can understand what applies to your business before you make a move.
Why Canadian Securities Law Is Different From Most Countries
The first thing to understand is that Canada has no national securities regulator. Every other major economy, including the United States, has a single federal authority overseeing securities. Canada does not. Each province and territory runs its own system.
That means Ontario has the Ontario Securities Commission (OSC). British Columbia has the BCSC. Alberta has the ASC. Quebec has the AMF. Each one operates under its own legislation and issues its own rules.
The Canadian Securities Administrators (CSA) is an umbrella body that coordinates the provincial regulators and works toward consistent national rules. Most provinces, except Ontario, participate in a passport system that lets a business deal with its home regulator and have that accepted across most other provinces. Ontario runs its own process separately, which matters a lot given that Toronto is Canada’s financial centre.
For practical purposes, if your business is based in Ontario or has Ontario investors, you are primarily dealing with the OSC. If you are raising from investors across multiple provinces, you need to think about the rules in each one.
What Counts as Security?
Before getting into rules and exemptions, it helps to understand what actually triggers securities law.
A security includes shares, bonds, debentures, notes, and units in a partnership or fund. It also includes investment contracts, which is a broader category that catches things that do not look like traditional securities on the surface.
The investment contract test asks whether someone is investing money in a common enterprise and expecting to earn a profit primarily through the efforts of others. This matters for startups that structure their fundraising creatively, for real estate syndications, and for Web3 projects where tokens might meet this definition.
If what you are offering fits that description, you are selling a security and Canadian securities law applies.
The Prospectus Requirement and Why Most Private Companies Never File One
In Canada, any distribution of securities to the public technically requires a prospectus, a detailed disclosure document reviewed and cleared by the relevant securities regulator before you can accept investor money.
For most private companies, filing a full prospectus is not realistic. It is expensive, time-consuming, and designed for public companies doing large offerings on stock exchanges. The good news is that most private capital raises rely on exemptions from the prospectus requirement instead.
These exemptions allow you to raise money without filing a prospectus, provided you meet specific conditions. They exist because regulators recognize that not every investor needs the same level of protection, and that requiring a full prospectus for every private raise would shut down startup financing entirely.
The Most Common Prospectus Exemptions for Business Owners
The Accredited Investor Exemption
This is the most widely used exemption in Canada. It allows you to sell securities to accredited investors without filing a prospectus.
Accredited investors include individuals with a net worth of at least $1 million (excluding their primary residence), individuals earning over $200,000 per year (or $300,000 combined with a spouse) in each of the last two years, banks and financial institutions, registered dealers, and certain government bodies.
The logic is that sophisticated, high-net-worth investors can assess risk themselves and do not need the same regulatory protection as retail investors.
The key obligation when using this exemption is proper documentation. You need to collect signed Accredited Investor Eligibility Forms from each investor confirming they qualify. You also need to file a Form 45-106F1 report with the relevant securities regulator after the distribution closes.
The Offering Memorandum Exemption
If you want to raise from investors who do not meet the accredited investor threshold, the offering memorandum (OM) exemption is an option in most provinces, including Ontario.
An offering memorandum is a disclosure document you prepare and deliver to investors before they invest. It is not as formal as a prospectus but it must contain specific information about your business, the risks, and the use of proceeds. Investors must sign a risk acknowledgement form confirming they have read and understood the document.
There are investment caps for non-eligible investors under this exemption. Eligible investors, generally those with higher income or net worth, have higher limits. The rules differ slightly by province, so it is worth getting legal advice before you rely on this exemption.
The Family, Friends and Business Associates Exemption
This exemption lets you raise from people you have a close personal relationship with, including family members, close personal friends, and close business associates. It does not require accredited investor status, and no offering memorandum is needed.
The word “close” is important here. The OSC looks at the actual relationship, not just what you call it. Selling to an acquaintance you met twice does not qualify. This exemption is for people who genuinely know you and can assess the investment based on personal knowledge.
The Minimum Amount Exemption
You can sell securities to a purchaser who buys at least $150,000 worth in a single transaction, provided the purchaser is not an individual. This exemption is typically used for sales to corporations or other entities.
Registration: When Do You Need to Be Registered?
Separate from the prospectus rules, Canadian securities law also requires registration for certain activities. This is often where business owners get caught out.
If you are in the business of trading securities, advising others on securities, or managing investment portfolios, you may need to register as a dealer or adviser with the relevant securities regulator.
The tricky question is what counts as being “in the business” of trading. Regulators look at several factors including frequency, solicitation, whether you are receiving compensation related to the trades, and whether securities activity is central to how your business operates.
A founder who sells shares in their own company once to a small group of investors is generally not considered to be “in the business” of trading. Someone who regularly connects investors with opportunities for a fee almost certainly is.
If you are ever in doubt about whether your activity requires registration, get legal advice before proceeding. Registration violations carry the same serious consequences as prospectus violations.
Continuous Disclosure: Obligations After You Raise
If your company becomes a reporting issuer, meaning you did a public offering or listed on a stock exchange, you take on ongoing disclosure obligations.
Reporting issuers must file annual and interim financial statements, a management discussion and analysis (MD&A), and annual information forms through SEDAR+, which is Canada’s electronic filing system for public companies.
They must also disclose material changes promptly. A material change is any change in the business, operations, or capital of the company that would reasonably be expected to significantly affect the value of its securities or an investor’s decision to buy or sell. Sitting on material information is one of the most common ways public company insiders get into trouble.
Most small businesses and startups will not become reporting issuers, but if your growth path includes going public or listing on the TSX Venture Exchange, understanding these obligations early helps you build the right governance structures from the start.
Insider Trading Rules
Insider trading rules apply to anyone who has access to material, non-public information about a company whose securities trade publicly. Trading on that information, or passing it to someone else who trades on it, is a serious offence under Canadian securities law.
This does not only apply to senior executives. It applies to lawyers, accountants, consultants, and anyone else who obtains confidential information through their work for a public company.
The OSC takes insider trading enforcement seriously. Penalties include disgorgement of profits, fines up to three times the benefit received, and imprisonment.
What Cloudhaus Law Sees Most Often
Irbaz Wahab, the founder of Cloudhaus Law, is a dual-licensed lawyer in both Canada and the United States. Before founding the firm, he worked as a solicitor with the City of Toronto in technology law. Since then, he has helped over 100 businesses get started, closed series round funding, and worked across more than 10 industries.
In that work, the securities issues that come up most often for small and mid-size businesses are:
- Founders who raised early money from friends and family without documenting it properly, creating ambiguity about whether exemptions were properly relied on.
- Startups that structured convertible notes or SAFEs without confirming they qualify for the right exemptions in each province where their investors are located.
- Business owners who paid finders fees to people who introduced them to investors, without realizing that the finder may have needed to be registered.
These are fixable problems when caught early. They become much harder to deal with once regulators are involved.
Cloudhaus Law offers flat-fee, fixed-cost legal services with no retainers. If you are planning a capital raise, structuring a shareholder agreement, or just trying to understand where your business stands from a securities perspective, book a consultation and get a clear answer before you proceed.
Call (647) 965-0516 or email irbazwahab@cloudhauslaw.com.
Frequently Asked Questions
Do I need a lawyer to raise money from investors in Canada?
Not legally required, but practically speaking, yes. Securities law is technical and the consequences of getting it wrong are serious. Most founders who try to handle it on their own miss something.
Can I raise money from American investors?
Yes, but you need to comply with both Canadian and US securities rules. Irbaz holds credentials in both jurisdictions, so cross-border raises are something Cloudhaus handles regularly.
What happens if I sold shares without following the rules?
Investors may have the right to rescind the purchase and get their money back. Regulators can also impose fines and issue cease trade orders. The sooner you get legal advice after discovering a problem, the more options you have.
What is SEDAR+?
It is the electronic filing system where Canadian public companies submit their regulatory documents. Private companies generally do not file on SEDAR+ unless they are reporting issuers.
