Raising Capital in BC: A Practical Guide to Securities Laws and Exemptions

The word security can be confusing. In everyday life, we often hear it in the context of loans—like a mortgage, where your home serves as security for the bank. But in business law, it has a different meaning. A security is a type of financial product—like a share or bond—that can be bought, sold, or traded to help fund a business. For early-stage companies in British Columbia, selling securities is one of the most common ways to raise capital, outside of generating sales revenue. Understanding how to navigate this process—and the rules that make it possible—is essential for any business considering raising funds in BC. This article walks you through the ins and outs, so you can make informed decisions for your company’s growth.

What Are Securities, Anyway?

Securities are investment products like stocks, bonds, or options that can be bought or sold. Generally, when you want to sell any of these in BC, the Securities Act [RSBC 1996 Ch. 418] (the “Act”) requires you to file a document called a prospectus with the British Columbia Securities Commission (the “BCSC”). A prospectus is a detailed document that provides potential buyers of your securities (investors) with all the important information they need to evaluate your company and the investment opportunity, including the company’s operations, financial health, and the risks involved.

When Is a Prospectus Required?

Prospectus Exemptions: Simplifying the Process

Preparing and filing a prospectus is no small task. It’s a formal document that opens the door to public investment—but getting there takes time, expertise, and money. Among other things, a prospectus requires audited financial statements, a clear analysis of business risks, details about your corporate history, and transparency around governance and ownership. For many early-stage companies, that level of disclosure simply isn’t feasible yet.

Fortunately, BC’s securities framework includes several prospectus exemptions—rules that let companies bring in investors without having to go through the full prospectus process. These are especially helpful for startups and early-stage businesses looking for faster, more flexible ways to access capital.

Private Issuer Exemption: Flexible, But Easy to Misuse

What is the Exemption and Who Qualifies as a Private Issuer?

This exemption is widely relied upon, but often misunderstood. It draws from the language of other exemption categories without adopting their full frameworks. Under the Private Issuer Exemption, investors are grouped into defined categories—each functioning as a kind of eligibility bucket. If a prospective investor fits into one of these categories, the company can issue securities to them without triggering the broader disclosure and filing requirements that typically apply to public offerings. But it’s not just the investor who must qualify—the issuing company must also meet strict conditions.

In particular, the Private Issuer Exemption applies to companies with fewer than 50 shareholders and allows them to issue securities without a prospectus, provided they are sold to specific categories of investors, such as:

• Directors, officers, employees, and control persons of the issuer.
• Family members, close friends, and close business associates of directors, officers, or control persons.
• Accredited investors.

While these investor categories may sound familiar—echoing terms used in other exemptions like the Family, Friends, and Business Associates Exemption or the Accredited Investor Exemption—the way they function under the Private Issuer Exemption is distinct. That distinction often causes confusion. Many business owners assume they can raise capital under this exemption without realizing the specific restrictions that apply.

Who Qualifies—and What Can Go Wrong

This is where many companies slip up:

The Private Issuer Exemption is only available if your company has remained a private issuer from the start. If you issue securities to someone who doesn’t qualify, or if your total number of security holders climbs above 50 (excluding employees), you lose that status—and the exemption goes with it. That’s why it’s critical to carefully track who you’re issuing securities to and maintain clear records along the way.

The investor categories under the Private Issuer Exemption may look similar to those used in other exemptions—but they aren’t interchangeable. Each exemption has its own definitions and requirements, and relying on one doesn’t automatically mean you qualify under another. For example, someone who qualifies as a “close business associate” under the Family, Friends, and Business Associates Exemption might not meet the same threshold under the Private Issuer Exemption. The standard under the private issuer rules is often interpreted more narrowly, focusing on a demonstrable, pre-existing relationship with the company or its principals. That’s why it’s essential to assess each investor against the correct criteria for the exemption you’re relying on.

A Key Difference: No Need to File a Notice of Exempt Distribution

One of the key advantages of the Private Issuer Exemption is that it doesn’t trigger the filing requirement for a Notice of Exempt Distribution (Form 45-106F1) with the BCSC. In contrast, most other exemptions require this form to be submitted within 10 days of any security issuance. The notice includes details about the investors, the terms of the offering, and any compensation paid to finders or agents. Avoiding this filing obligation can significantly reduce the administrative burden—especially for early-stage companies managing limited resources.

With the Private Issuer Exemption, you avoid the requirement to file a Notice of Exempt Distribution; however, that doesn’t mean compliance obligations disappear. Companies must still maintain clear records of their security holders, ensure each investor qualifies under the exemption, and be prepared to demonstrate compliance if reviewed by the B.C. Securities Commission—for example, in response to a complaint, during an investigation of related parties, or as part of a broader compliance sweep.

Accredited Investor Exemption: Wealth-Based Eligibility

The Accredited Investor Exemption allows companies to raise capital from individuals or entities that meet certain financial thresholds—typically based on income, net assets, or financial sophistication. These might include high-net-worth individuals, large corporations, trusts with substantial assets, or institutional investors like pension funds and banks.

Unlike the Private Issuer Exemption, which is grounded in personal or professional relationships with the issuer, the Accredited Investor Exemption is based purely on financial capacity. If a person or entity meets the defined wealth or income criteria, they qualify—regardless of any prior connection to the company. This makes it a valuable option for companies that have outgrown the Private Issuer Exemption (for example, by exceeding the 50-investor limit) or that are raising capital from a broader network of investors.

While the exemption reduces the burden of disclosure and filing compared to a prospectus, it does come with its own compliance obligations—including the need to file a Notice of Exempt Distribution within 10 days of any issuance. Companies must also obtain a properly completed risk acknowledgment form from individual accredited investors (unless they are already registered advisors or dealers).

Used strategically, this exemption can help companies tap into deeper capital pools—often with less friction than a traditional financing round.

Family, Friends, and Business Associates Exemption

The Family, Friends, and Business Associates Exemption allows companies to finance company growth from individuals who have a close personal or business connection to the company or its principals. This includes directors, officers, employees, close family members, and long-standing friends or business associates with a genuine, pre-existing relationship.

What sets this exemption apart is that it’s available even to non-private issuers—companies that have exceeded the 50-investor limit and no longer qualify for the Private Issuer Exemption. That makes it a useful tool for early-stage companies that are growing their investor base but still raising funds through trusted personal or professional networks.

That said, the relationship must be real and verifiable—not merely casual or newly formed for the sake of an investment. Regulators expect companies relying on this exemption to be able to demonstrate the nature and depth of the relationship if asked. And, as with most other exemptions, a Notice of Exempt Distribution must be filed with the BCSC within 10 days of issuing securities under this category.

Used appropriately, this exemption provides a flexible pathway to attract funding through trusted circles—while avoiding the heavier burdens of a public offering.

Two More Tools: Offering Memorandum and Crowdfunding Exemptions

Other exemptions may apply depending on your company’s stage and funding goals. Two of the most useful are:

• Offering Memorandum (OM) Exemption

This exemption allows companies to raise funds from the public without a prospectus, provided they deliver an offering memorandum that meets regulatory disclosure requirements. The offering memorandum provides details about the company and the investment and contains strict risk acknowledgment terms, meaning the investor acknowledges that because of inherent risks they may lose the investment.

• Crowdfunding Exemption

This exemption allows companies to raise smaller amounts of capital from a larger number of investors—often through an online funding portal registered with Canadian securities regulators. It’s designed to make early-stage fundraising more accessible and public-facing, without requiring a prospectus.

There are, however, strict limits:

• Companies can raise up to $250,000 per campaign, to a maximum of $500,000 per year.
• Individual investors are typically limited to $1,500 per campaign, or $5,000 if they receive suitability advice from a dealer.
• Funds must be raised through an approved crowdfunding portal, which manages the required disclosures and transactions.

Crowdfunding can be a powerful tool for startups, but it’s not a free-for-all. The exemption has detailed conditions around timing, documentation, and portal use. It’s well-suited to companies looking to engage their broader community—especially those with a strong public story or early product-market traction.

Why Compliance Matters

Adhering to British Columbia’s securities laws is crucial. Non-compliance can lead to severe consequences, including fines, enforcement actions, and damage to your company’s reputation. It’s essential to ensure that all necessary conditions are met when relying on exemptions, including proper documentation, verifying investor qualifications, and fulfilling regulatory filings.

How We Can Help You Navigate Securities Law

Navigating these regulations can be challenging, but you don’t have to do it alone. At Bell Alliance LLP, we’re here to assist you in:

• Determining Applicable Exemptions: We’ll help identify which exemptions align best with your fundraising activities.
• Clarifying Overlapping Exemptions: We can help you distinguish between the Private Issuer, Accredited Investor, and Family, Friends, and Business Associates Exemptions, ensuring you comply with the correct rules.
• Preparing Necessary Documents: Our team can draft all required legal agreements and disclosure documents.
• Ensuring Compliance: We’ll guide you through regulatory filings and reporting requirements to keep you compliant.
• Providing Strategic Advice: We’ll offer insights on investor relations and strategies to mitigate risks.

Let’s Talk About Your Fundraising Strategy

Understanding and complying with British Columbia’s securities laws is vital for any business seeking to raise capital in the province. While exemptions offer valuable pathways to attract investors, maintaining compliance is key to avoiding legal pitfalls.

If you’re raising investment for your company—or even thinking about it—it’s worth understanding which exemption fits your situation. Each path comes with its own paperwork, limits, and regulatory expectations. At Bell Alliance, we help businesses across BC navigate these rules, avoid common mistakes, and structure offerings with confidence—so you can focus on building your company with peace of mind.

*Note: This article is for informational purposes only and does not constitute legal advice.