Companies wanting to expedite their growth and increase their value often look to raise and deploy capital into their business, beyond the resources available through earned revenues. There are several different means for companies to raise additional capital. One of these is the sale of securities or equity in the company to investors. Historically, this avenue for raising capital was one of the key motivating reasons to initially take a company “public” with an offering of securities through a publicly traded exchange.
In order to become a publicly traded company, the company would be compelled to file, among other disclosures, a full prospectus on their operations, as well as maintain a scheduled set of ongoing disclosures and reporting, in order to be in compliance with the Securities Commission for their jurisdiction. For some companies, this can be a time consuming and costly proposition.
Companies with their base of operations in Canada, looking to raise capital through the sale of securities can avoid this burden of cost and regulated disclosure associated with becoming a publicly traded company, and remain privately held by offering their securities in compliance with the exempt market, as defined by National Instrument 45-106 (NI 45-106).
Initially, all incorporated companies are considered “Private Issuers”. As a private issuer, a company can remain a non-publicly traded entity and sell securities in any amount and without any disclosure to up to 50 individuals outside of employees, officers, or directors of the company.
Having once met this threshold of 50 individuals holding securities in the company, the business can continue to raise capital, exempt from full prospectus filing and disclosure requirements, by ensuring that each prospective investor qualifies under a specific exemption contained within the instrument. Common exemptions include:
While a national, harmonized instrument has been proposed for N.I. 45-106, currently issuers must ensure compliance under each provincial jurisdiction in which their securities are offered.
In addition to allowing companies to remain privately held and still raise capital through the marketing of securities, the NI 45-106 exemption allows qualified investors to invest in privately held companies {see posts on Equifaira blog, “What is Private Investing?” and “Public vs. Private Investing – What you should know”} as part of their investment portfolio and strategy.
