Verifying accredited investor status for private placements and exempt-market financings under National Instrument 45-106 — for Canadian issuers raising capital and investors confirming their eligibility.
When a company raises capital privately in Canada without a prospectus, it usually relies on a prospectus exemption — most commonly the accredited investor exemption under National Instrument 45-106. To rely on it safely, the issuer has to take reasonable steps to confirm that each investor actually qualifies. Getting that verification right is what keeps a financing onside; getting it wrong can put the whole raise at risk.
The categories are set out in NI 45-106. For individuals, the most common tests are financial assets (cash and securities, net of related liabilities) of more than $1 million; net income before taxes over $200,000 (or $300,000 combined with a spouse) in each of the last two years, with a reasonable expectation of the same; or net assets of at least $5 million. Various corporations, trusts, and other entities also qualify. The precise category matters, because it drives what paperwork is required.
Individuals qualifying under certain categories must sign the prescribed risk acknowledgement form (Form 45-106F9). Missing or incorrect forms are one of the most common exempt-market compliance gaps — we make sure the right form is used and completed for each investor.
Beyond the exemption, a clean financing needs a proper subscription agreement, an investor questionnaire that actually establishes the exemption relied on, and the representations and closing deliverables that support it. We prepare and review the full package.
After closing, most exempt distributions require a report of exempt distribution (Form 45-106F1) filed in each jurisdiction where investors reside, within the required deadline. We handle the filing and the multi-province variations.
Where US investors take part in a Canadian financing — or the reverse — the Canadian-side exemption analysis has to line up with the US position. We handle the Canadian side and coordinate with US counsel on Regulation D or Regulation S where needed.
The accredited investor exemption is simple in theory and unforgiving in practice. The value is in verifying eligibility properly, using the right forms, and filing on time — so the exemption actually holds if it is ever questioned.
National Instrument 45-106 defines “accredited investor” in section 1.1, in a list that runs from paragraph (a) to (w). Four of those paragraphs cover individuals and do most of the work in a private company financing. The letters matter, because the paperwork depends on which one you rely on.
Paragraph (j) — financial assets, alone or with a spouse, exceeding $1,000,000 before tax but net of related liabilities. Financial assets means cash, securities, and deposits or insurance contracts. It does not include real estate, so your house and your rental property do not count here.
Paragraph (j.1) — financial assets exceeding $5,000,000, on the same definition. This is the one individual category that does not require the risk acknowledgement form.
Paragraph (k) — net income before taxes exceeding $200,000 in each of the two most recent calendar years, or $300,000 combined with a spouse, with a reasonable expectation of exceeding that level in the current year. Both years have to clear the bar; one very good year does not.
Paragraph (l) — net assets, alone or with a spouse, of at least $5,000,000. Net assets means everything, including real estate, minus all liabilities. This is where a house-rich investor usually qualifies.
Paragraph (m) covers a person other than an individual or investment fund with net assets of at least $5,000,000 on its most recent financial statements. Paragraph (t) covers an entity in which every owner of interests is itself an accredited investor — the usual route for a family holding company or a small investment club. The rest of the list is institutional: banks, registered dealers and advisers, governments, pension funds, and investment funds that themselves distribute only to accredited investors.
A professional with a high salary but one strong year, a founder whose net worth is entirely private-company shares that are hard to value, and a spouse who qualifies only if the couple's assets are combined but is subscribing alone: each of these turns up regularly on subscription lists as an “accredited investor” and each needs a closer look before the issuer closes on them.
The Companion Policy to NI 45-106 says an issuer should not rely on an investor simply initialling a category on a form. The issuer, or the dealer acting for it, should understand the basis on which the investor says it qualifies, ask questions where the answer is not obvious, and be able to show afterward why it was reasonable to believe the exemption was available. In practice that means a questionnaire that asks the right questions for the category, a conversation where the answers are thin, and a file that records both.
An individual relying on paragraph (j), (k) or (l) must complete and sign Form 45-106F9 at the same time as the subscription agreement. The form is two pages, in plain language, and the investor has to identify the specific category they meet. The issuer keeps the signed form for eight years. An individual relying on paragraph (j.1) — the $5 million financial-assets test — does not need one, and neither does an entity. A missing F9 is the single most common gap regulators find in exempt-market compliance reviews, and it is a defect in the exemption itself, not a filing formality.
Subscription agreement, accredited investor certificate or questionnaire, the F9 where required, anti-money-laundering identification where a dealer is involved, and the issuer's closing resolutions. For a private company the package also has to address the shareholder agreement the investor is joining and any pre-emptive rights that were triggered by the raise.
Accredited investor is not always the right exemption, and it is often not the only one relied on in a single closing.
Private issuer (section 2.4). For a company with no more than 50 security holders (excluding employees) whose securities are subject to transfer restrictions, sales to directors, officers, founders, their family and close friends and business associates, and accredited investors need no report of exempt distribution at all. Most early-stage companies live here and should stay here as long as they can.
Family, friends and business associates (section 2.5). Available in Ontario since 2016 and requires its own risk acknowledgement, Form 45-106F12, for Ontario and Saskatchewan purchasers.
Minimum amount (section 2.10). A purchase of at least $150,000 paid in cash at closing, available only to purchasers that are not individuals.
Offering memorandum (section 2.9). Open to anyone, subject to investment limits for individuals, in exchange for a prescribed disclosure document and ongoing reporting.
Listed issuer financing exemption (Part 5A). For reporting issuers listed on a Canadian exchange: the greater of $5 million and 10 per cent of market capitalization, to a $10 million ceiling, in a twelve-month period, with a short offering document and shares that are free-trading on issue.
Unless the private issuer exemption applies, the issuer files a report of exempt distribution within 10 days of the distribution, through SEDAR+, in every jurisdiction where a purchaser resides, with the fee each regulator charges. Schedule 1 to the form lists each purchaser and the exemption relied on; it is filed but not made public. Late filings attract late fees and, for a reporting issuer, a mark on its record that surfaces the next time it needs a receipt or an exchange approval.
Securities bought under the accredited investor exemption from a reporting issuer carry a restricted period of four months and a day under National Instrument 45-102, and the certificate or DRS statement carries a legend to that effect. Securities of a non-reporting issuer are subject to an indefinite hold: they can be resold only under another exemption, or once the issuer has been a reporting issuer for four months. Investors in private companies are sometimes surprised by that second rule after the fact; it belongs in the subscription agreement's risk factors, in plain terms, before they sign.
Two longer pieces cover the ground from each side: how to raise money from accredited investors, written for the company, and what an accredited investor is, written for the investor.
An accredited investor is a person or entity that meets one of the categories in National Instrument 45-106 — for individuals, typically financial assets over $1 million, net income over $200,000 (or $300,000 with a spouse) in each of the last two years, or net assets of at least $5 million. Various corporations, trusts, and institutions also qualify.
The issuer relying on the exemption is responsible for taking reasonable steps to confirm each investor qualifies. In practice that is done through an investor questionnaire and supporting representations. The investor certifies their status, but the issuer needs to be able to show it verified eligibility.
Individuals qualifying under certain accredited investor categories must sign the prescribed risk acknowledgement form (Form 45-106F9). Whether it is required depends on the specific category relied on, which is one of the things we confirm for each investor.
Yes, with the right structure. The Canadian-side exemption still has to be satisfied, and the US-side position (for example Regulation D or Regulation S) has to line up. We handle the Canadian compliance and coordinate with US counsel where needed.
Not under the financial-assets tests. Financial assets (paragraphs (j) and (j.1) of NI 45-106) means cash, securities, and deposits or insurance contracts, net of related liabilities — real estate is excluded. Your home and other real property do count under the net-assets test in paragraph (l), which requires net assets of at least $5 million alone or with a spouse.
No. The risk acknowledgement form is required for individuals relying on paragraph (j) ($1 million financial assets), (k) ($200,000 or $300,000 net income) or (l) ($5 million net assets). An individual relying on paragraph (j.1), financial assets over $5 million, does not need to sign one, and entities never do.
Within 10 days of the distribution, on Form 45-106F1 through SEDAR+, in each Canadian jurisdiction where a purchaser resides. Each regulator charges its own filing fee. A private issuer relying on the private issuer exemption in section 2.4 does not file a report.
If the issuer is a reporting issuer, four months and a day from the date of the distribution, under National Instrument 45-102. If the issuer is not a reporting issuer, the hold is indefinite: the shares can be resold only under another prospectus exemption, or once the issuer has been a reporting issuer for four months.
Often, yes. A company with 50 or fewer security holders (not counting employees) and transfer restrictions in its articles or shareholder agreement can sell to accredited investors, founders, directors, family and close business associates under section 2.4 of NI 45-106 without filing a report of exempt distribution. The company can rely on both exemptions in the same closing; the private issuer exemption simply removes the filing.
Get the exemption and the verification right the first time. Initial consultations are short and no-cost.
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