What is an accredited investor in Canada?
Written by For Founders Law, a Toronto firm licensed by the Law Society of Ontario. About us
Short answer
An accredited investor is a person or entity that meets tests in National Instrument 45-106, such as an individual with more than $1,000,000 in financial assets net of related debts, net income over $200,000 in each of the last two years ($300,000 with a spouse), or net assets of at least $5,000,000. Startups can sell shares or SAFEs to them without a prospectus, but must file a report with the Ontario Securities Commission within 10 days.
Who counts as an accredited investor?
The definition is in section 1.1 of National Instrument 45-106, and in Ontario the exemption itself is in subsection 73.3(2) of the Securities Act. The individual tests most angels rely on are:
| Test | Threshold | Risk acknowledgement form needed? |
|---|---|---|
| Financial assets, alone or with a spouse (para. j) | More than $1,000,000, before taxes, net of related liabilities | Yes, Form 45-106F9 |
| Financial assets, alone (para. j.1) | More than $5,000,000, net of related liabilities | No |
| Net income (para. k) | Over $200,000 in each of the two most recent calendar years, or over $300,000 combined with a spouse, and expected to exceed it this year | Yes |
| Net assets, alone or with a spouse (para. l) | At least $5,000,000 | Yes |
“Financial assets” means cash, securities and similar, not a home. Companies and other non-individuals generally qualify with net assets of at least $5,000,000 on their most recent financial statements, and there are separate categories for institutions, registered dealers and advisers, and certain funds.
What does the startup have to do?
- Confirm the investor qualifies. The company relying on the exemption should take reasonable steps to confirm it, not just accept a ticked box. A short investor questionnaire is common.
- Get Form 45-106F9 signed by individual investors relying on paragraphs (j), (k) or (l), at or before the time they sign the subscription or SAFE, and keep it for eight years (subsections 2.3(6) and (7) of NI 45-106, which apply in Ontario too).
- File a report of exempt distribution (Form 45-106F1) with the Ontario Securities Commission within 10 days after the distribution, under section 6.1, and pay the OSC fee under Rule 13-502, currently $350. The OSC has proposed raising it to $500 from April 5, 2027, so check the fee before filing.
If investors live in other provinces, the rules of those provinces apply too, and filings may be needed there.
What if an investor isn’t accredited?
Other exemptions may fit. A founder’s family member, close personal friend or close business associate may qualify under the family, friends and business associates exemption. A small company may be able to use the private issuer exemption, which can also cover accredited investors and generally doesn’t require the F1 report. If no exemption fits, the company shouldn’t take the money.
What happens if we get it wrong?
Selling securities without a prospectus or a valid exemption is a breach of Ontario securities law. Investors may have rights against the company, and the problem will surface in due diligence at your next round. A late report can still be filed, with a late fee under Rule 13-502 (currently $100 a day, up to $5,000 a year), which is far easier than fixing an unexempted sale.
Does this apply to SAFEs too?
Yes. A SAFE is a security under Ontario’s Securities Act, so each one needs an exemption, just like shares. See how do SAFEs work in Canada?
Our SAFE round work, starting at $2,600, includes reviewing which exemption each investor relies on and making the securities filing. Regulator filing fees are charged at cost. See fees.
This guide is general information about Ontario securities law, not legal advice for your situation. To check your investors and filings, book a free 15-minute consult.