How can a private company sell securities in Ontario?


  • There are two ways for a private company to sell securities in Ontario: with or without a prospectus.
  • A prospectus is always required unless the company meets specific exemption conditions.
  • With these exemptions, the company has multiple potential sources of capital.
  • With a prospectus, the company can raise capital from any investor, either through a stock exchange or the over-the-counter market. This is the IPO (Initial Public Offering).

This article (supported by a one-page slide) is intended to enable discussion and action planning among owners/shareholders, boards of directors, CEOs, and advisory boards. The approach and action plan will be unique to the specific situation of each corporation.  There is no one-size-fits-all answer.

This article does not provide legal advice. If you decide to further explore selling securities, you must speak with a securities lawyer who understands the law, the regulations, and the process for selling securities.

There are two ways for a private company to sell securities in Ontario: with or without a prospectus.

A private company can raise capital via many sources, including:  the founders’ funds, bank financing, leasing, government loans, grants and tax credits, selling accounts receivable, selling securities.

All corporate securities sales in Ontario are regulated by the OSC (“Ontario Securities Commission”).

A private company going public via an IPO must have a prospectus and be compliant with securities laws and OSC regulations.  Typically, an investment bank is used to sell the securities to a broad range of individual and corporate investors.  There are no legal restrictions regarding who can buy, the amount that can be bought, and future sale of the securities.  The securities are liquid.

A prospectus is always required unless the company meets specific exemption conditions.

 The following provides a high-level overview of the 7 general exemption situations if a company is selling securities directly to investors.  You must consult a securities lawyer for advice, as the laws and regulations are far more detailed than this overview.

  • Private issuer: your corporation has fewer than 50 people holding securities. A company starting out with a handful of founding shareholders actually takes advantage of this exemption, often without being aware of it.
  • Employee, officer, or board director of the corporation, or consultant to the corporation.
  • Accredited investor: These are investors with assets and income which meet the OSC’s definition of a “accredited investor”. The OSC views these as sophisticated investors who do not require the detail contained in a prospectus in order to make an investment decision.
  • Minimum amount of $150,000: As long as the investor (who cannot be an individual) purchases at least $150,000 of securities.
  • Family, friends and business associates.
  • Offering memorandum: an offering memorandum is a simplified prospectus, which must follow OSC regulations and be filed with the OSC.
  • Crowdfunding: your corporation can sell simple securities (e.g. common shares and non-convertible debt) through a registered online funding portal.

If you are taking advantage of one of these exemptions, you must file a report with the OSC, unless you are utilizing the Private Issuer or Employee, Officer, Board Director, Consultant exemptions.

 By utilizing these exemptions, the corporation has multiple potential securities buyers.

Potential securities buyers may include:

  • Friends and family;
  • Angel investors;1
  • Individual investors;
  • Incubators2 or accelerators;3
  • Private equity;
  • Strategic investors;4 and
  • Institutions.

In addition to the above, the corporation may utilize an exempt market dealer, who is an intermediary between the corporation and accredited investors.

Any buyer of securities issued without a prospectus, must fall within the conditions of one or more exemptions.

The securities are not liquid, due to the many restrictions on an investor being able to sell the securities to another investor.

With a prospectus, the company can raise capital from any investor, either through a stock exchange or the over-the-counter market.  This is the IPO .

A registered IIROC5 dealer (e.g. investment bank) is needed to sell securities to the general public and corporations.  The dealer may sell stock directly to investors.  The stock may be listed for trading on one or more stock exchanges (each of which will have its own regulations) or be traded in the over-the-counter marketplace.

What do you do if you are a SME (Small Medium Enterprise)?6

Many small private companies raise small amounts of money.  In 2016, approximately 1,400 Canadian companies raised less than $1 million each, in Ontario, without a prospectus.  The median size of debt sold was $2.8 million and the median size of equity sold was $600,000. 7,8


  • The decision to sell securities must be done in the context of the strategy and strategic plan.
  • Your company needs a variety of legal and financial skills in order to analyze options for raising funds and make the decision as to whether or not selling securities is appropriate.

Your next steps

To enable discussion with your shareholders, board of directors, CEO, and advisory board download the following one-page slide:

How can a private company sell securities?

Your shareholders, board of directors, CEO, advisory board, and C-Suite need to assemble facts and talk through what is driving the need for capital, the various options, and the implications associated with selling securities (especially selling equity).

  • Assemble the facts regarding your current situation: your corporation’s strategy, strategic plan, and financial forecast. The financial forecast will detail the future capital requirements.
  • Founders and major shareholders must also consider their personal and family financial plans.
  • What is driving the need to raise capital at this point? (e.g. Funding growth?) What are the options for raising capital?
  • Why is the best option to sell securities? g. other financing options not available.  There are various costs associated with selling securities, depending upon the approach you take.
  • What stage is your corporation at? g. Seeking angel investors/seed capital or A,B,C series funding?  An established corporation that has been in business for many years? Founders seeking to sell their interest or sell the company?

Does your corporate leadership9 have the necessary legal and financial knowledge to layout a plan for raising capital, including selling of securities?

Does your advisory board or advisory network have the experience and skills to help your corporate leadership think through the decision and action plan?  (e.g. someone who has raised capital, someone who has successfully sold securities, someone who has sold their company, securities lawyer, potential securities buyers, etc.)

If you are a SME wishing to sell your company and have less than $3 million/year EBITDA, consider how to grow the company to the range of $3 million per year, at which point your sale will be easier and your multiple will be higher.

Your final decision and action plan may result in an update to your strategy and strategic plan.


1 Angel investor: an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.

2 Incubator: an incubator helps take a start-up to the point where there is a MVP (Minimum Viable Product).

The characteristics of an incubator are: Co-located office space with other start-ups; Links to investors; Access to lawyers; Provides coaching and mentoring, via successful start-up executives and consultants.

3 Accelerator: an Accelerator is a company or organization that puts a start-up company (which already has a Minimum Viable Product) through a very structured 3-4 month process.  This process has the goal of quickly growing the size and value of the start-up to enable future funding. The accelerator puts company’s through a vetting process so that higher likelihood of success companies are made available to investors.  This reduces investors’ due diligence time and costs. The Accelerator may take a small financial interest in the company in return for its assistance. Mentorship is provided by experienced start-up executives and investors.

4 Strategic investor: an investor (typically a company) that invests primarily for strategic rather than financial (return) purposes. e.g. in order to gain future access to a key new technology or product. (By contrast, financial investors make investment decisions primarily based on the prospect of a strong financial return.)

5 IIROC: Investment Industry Regulatory Organization of Canada

6 SME: Industry Canada definitions: Small business: < $5 million in revenue, < 100 employees; Medium business: between $5 million and $20 million in revenue, 100 to 499 employees.

7 2017 Ontario Exempt Market Report, Ontario Securities Commission Notice 45-715

8 This understates the number of SMEs raising capital.  For example, if a company has fewer than 50 investors (excluding current and former employees), there is no requirement to file a report to the OSC regarding securities sales.

9 Corporate leadership: board of directors, CEO, advisory board, C-Suite.

Further reading

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