For Canadian businesses at the launch or growth stage, securing appropriate capital is a critical strategic decision. Private placements represent a significant and well-established segment of the Canadian capital markets, offering a structured, regulatory-compliant alternative to both traditional bank financing and public equity offerings – one that can be tailored to the issuer’s stage of development, investor base, and financing objectives.

A private placement – also known as an exempt offering – enables a company to raise capital by issuing securities to a select group of investors without making a public offering. This structure is particularly common among emerging and growth-stage companies.

Ultimately, the success of any private placement depends on the underlying merits and the growth opportunities of the business. Those merits are best presented through a solid pitch deck with supporting research and models, and backed by a clean capital structure, organized financial statements, and legal documentation that is ready to withstand investor due diligence.

Exempt offerings may involve debt securities (such as promissory notes), equity securities (including common or preferred shares), or hybrid instruments (such as convertible notes or SAFEs). Notably, SAFEs (Simple Agreements for Future Equity) carry jurisdiction-specific regulatory considerations in Canada – securities regulators in British Columbia and Ontario have issued guidance clarifying that SAFEs are securities subject to prospectus requirements, meaning a valid exemption must be identified and relied upon at the time of issuance. Issuers should confirm the current guidance published by the BCSC and OSC before proceeding with a SAFE financing. These instruments are sold directly by the issuer to a limited group of investors.

Beyond regulatory compliance, issuers must carefully evaluate key strategic dimensions: how capital will be deployed and over what timeline, the dilutive or debt-service impact on the business, the degree of investor involvement or governance rights being granted, and whether the proposed financing structure is compatible with existing shareholder agreements or future capital plans.

Getting both the legal and strategic dimensions right is essential to a well-structured financing that supports the company’s long-term objectives and preserves its existing investor relationships.

This guide provides a practical overview of the private placement process under Canadian securities law, addressing the key prospectus exemptions commonly relied upon, structuring and documentation considerations, and ongoing compliance obligations issuers should anticipate.

Advantages of Private Placements and Exempt Offerings

Prospectus exemptions provide issuers with access to the exempt capital market for a range of debt and equity securities, primarily from sophisticated or relationship-based private investors. Compared to a public offering, an exempt offering can reduce time to closing, lower transaction costs, and allow for more customized terms – while still enabling a meaningful capital raise proportionate to the issuer’s stage of development.

Participation in a private placement is limited to investors who qualify under one or more applicable prospectus exemptions – and the rationale underlying each exemption matters. These exemptions operate on distinct rationales: the accredited investor exemption is premised on financial sophistication and the investor’s ability to withstand financial loss, while the family, friends and business associates exemption is grounded in the nature of the pre-existing relationship between the investor and a director, officer, founder, or control person of the issuer – not the investor’s level of financial knowledge or net worth.

Common Prospectus Exemptions in Canada

Canadian securities laws apply to both private and public companies. Issuers seeking to raise capital without filing a prospectus must rely on a statutory exemption, some of which have been touched on above. Commonly used prospectus exemptions include:

• Accredited Investor Exemption (s. 2.3 of NI 45-106) — the most widely used exemption in the Canadian exempt market; permits distributions to investors meeting prescribed financial or professional criteria, including individuals with net financial assets exceeding $1 million (net of liabilities) or net assets exceeding $5 million, or entities meeting defined asset or revenue thresholds; no offering document is required
• Family, Friends and Business Associates Exemption (s. 2.5 of NI 45-106) — available in most Canadian jurisdictions; grounded in the pre-existing personal relationship between the investor and a director, executive officer, founder, or control person of the issuer; note that this exemption is not available in Ontario, where issuers should rely on the equivalent exemption under s. 73.5 of the Securities Act (Ontario) or other available exemptions
• Minimum Amount Exemption (s. 2.10 of NI 45-106) — requires a minimum investment of $150,000 per investor (subject to change; confirm current NI 45-106 text and provincial availability); unavailable to investment funds and cannot be used to distribute securities to individuals in certain provinces; Québec has distinct filing and fee requirements for exempt distributions; issuers should confirm availability and applicable requirements in each jurisdiction before relying on this exemption
• Private Issuer Exemption (s. 2.4 of NI 45-106) — available to qualifying private issuers distributing to a defined category of permitted persons, including security holders, directors, officers, employees, founders, close family members, and accredited investors; subject to a maximum of 50 security holders (excluding current and former employees) and requires transfer restrictions in the issuer’s constating documents; no report of exempt distribution is required in most circumstances
• Employee, Officer, Director and Consultant Exemption (ss. 2.24–2.25 of NI 45-106) — permits distributions to employees, officers, directors, and consultants of the issuer or a related entity in connection with compensation arrangements; no offering memorandum is required; available to both reporting and non-reporting issuers
• Offering Memorandum Exemption (s. 2.9 of NI 45-106) — permits distributions to a broader investor base, including non-accredited investors, using a prescribed form of offering memorandum; provides purchasers with statutory rights of rescission and damages for misrepresentation in certain jurisdictions; investment limits apply to non-eligible investors in some provinces

Note: The above list is not exhaustive. The start-up crowdfunding exemption under National Instrument 45-110 is also available for early-stage companies raising capital through registered funding portals, subject to per-investor investment limits and aggregate offering caps. Exemption names, thresholds, and filing obligations vary by province and territory. In most jurisdictions, issuers relying on certain exemptions must file a report of exempt distribution (Form 45-106F1) within 10 days of the closing of the distribution — note that distributions under NI 45-110 have a 30-day filing deadline. Issuers should confirm the applicable deadline for each exemption relied upon.

How Private Placements Are Structured

The structure of an exempt offering depends on the type of securities issued, the prospectus exemption relied upon, the issuer’s constating documents, and applicable filing requirements.

Several factors influence how a private placement is structured in practice. The choice of security – equity, debt, or a hybrid instrument such as a convertible note or SAFE – determines the core documentation required and the rights being negotiated. The prospectus exemption relied upon dictates investor eligibility and the applicable disclosure and filing obligations. The issuer’s existing capital structure, including any outstanding convertible instruments, option pools, or shareholder agreements, must be reviewed for compatibility with the proposed financing. The size of the offering, the number of investors, and whether a lead investor is involved will affect the pace and complexity of negotiation. Where investors are resident across multiple provinces, exemption availability and filing requirements must be confirmed in each relevant jurisdiction.

Typical documentation and process steps include:

• Business plan and offering materials (information memorandum or offering memorandum where applicable). These often include a company presentation or pitch deck.
• Term sheet and subscription agreement
• Due diligence by investors and corresponding confidentiality agreements (NDAs)
• Negotiation of key transaction documents (shareholder agreements, security agreements, convertible instruments)
• Corporate housekeeping (resolutions, updating capitalization tables, board approvals)
• Compliance with applicable securities filing and resale restrictions
• Closing documentation – including executed subscription agreements, share certificates or electronic equivalents, closing resolutions, and updated share registers; legal opinions may also be required depending on the nature and complexity of the transaction

Issuers and their counsel should sequence these steps carefully – proper alignment and organization will help achieve a clean closing.

Practical Considerations

When planning a private placement, issuers should consider the following:

• Strategic considerations: When a company raises capital through a private placement, it typically issues equity (diluting existing shareholders) or debt (creating repayment obligations). The impact on ownership structure, control, and the strategic value of the financing must be carefully assessed.
• Financing terms: Consider pricing, conversion mechanics, anti-dilution provisions, and how terms interact with existing shareholder agreements and articles.
• Existing shareholder rights: Review pre-emptive, transfer, and other rights that may affect the timing or terms of a financing.
• Confidentiality and due diligence: Use non-disclosure agreements (NDAs) where appropriate and limit disclosure of sensitive information.
• Valuation: Determine whether an independent valuation is needed, how it will be prepared, and who will bear the cost. For early-stage companies without established revenue, valuation is often negotiated by reference to recent comparable financings, the nature and value of any intellectual property or proprietary technology, the experience and track record of the founding team, and the terms of the instrument used (e.g., a pre-money valuation cap on a SAFE or convertible note, or a priced round discount). Issuers should be prepared to justify their valuation methodology to investors and, where applicable, to regulators.
• Resale restrictions: Understand resale restrictions and legends that apply to securities sold under an exemption and plan for secondary sales. Under NI 45-102, two types of resale restrictions apply: a four-month restricted period for securities of reporting issuers (where the issuer has been a reporting issuer for the four months preceding the trade), and a seasoning period for securities of non-reporting issuers, which requires the issuer to have been a reporting issuer for four months before the securities become freely tradeable. Most early-stage private placement issuers will be non-reporting issuers, meaning investors should be advised that their securities may not be freely tradeable for an indefinite period. Issuers should review NI 45-102 and confirm the applicable resale restrictions for each jurisdiction.

Private placement financing is a well-established path to capital for Canadian businesses at every stage of growth. If you are considering an exempt offering, we encourage you to engage experienced securities counsel early – the decisions made at the outset of a financing have lasting implications for your capital structure, investor relationships, and future financing options.

Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. It should not be relied upon as a substitute for professional legal counsel. Laws and regulations may change over time, and the application of any legal principle will depend on the specific facts and circumstances of each matter. Readers are encouraged to consult with a qualified lawyer before acting on any information contained in this article.