Can I raise money from friends and family in Ontario?

Why do I need an exemption to take money from my mom?

Because selling shares or SAFEs is a distribution of securities under Ontario’s Securities Act, whoever the buyer is. A distribution needs a prospectus or a prospectus exemption. The exemptions for family and friends are designed for exactly this.

A gift or a loan is different, but a “loan” that converts into shares is a security too. Paper it properly either way.

Who qualifies under the family, friends and business associates exemption?

Section 2.5 of National Instrument 45-106 covers people buying as principal who are:

• a director, executive officer, control person or founder of the company;
• a spouse, parent, grandparent, sibling, child or grandchild of one of those people, or of their spouse;
• a close personal friend or close business associate of one of those people.

“Founder” means someone who took the initiative in founding the business and is still actively involved. A close personal friend has to know the person well enough, and long enough, to assess their capabilities and trustworthiness. Being a social media connection, or a member of the same club, isn’t enough on its own (sections 2.7 and 2.8 of Companion Policy 45-106CP).

What does Ontario add?

Section 2.6.1 sets extra conditions in Ontario. The company must get a risk acknowledgement on Form 45-106F12, signed by:

• the investor;
• an executive officer of the company other than the investor; and
• the director, executive officer, control person or founder whose relationship qualifies the investor.

The company keeps the signed form for eight years. It must also file a report of exempt distribution with the OSC within 10 days after the distribution, under section 6.1, with the applicable fee.

Is the private issuer exemption easier?

Often, for a small company. The private issuer exemption covers a similar group of family, friends and close business associates, plus accredited investors and others who aren’t “the public”, and doesn’t require a report of exempt distribution. It only works while the company’s shares are subject to transfer restrictions and held by no more than 50 people, not counting employees.

	Family, friends and business associates	Private issuer
Ontario source	NI 45-106 ss. 2.5 and 2.6.1	Securities Act s. 73.4
Risk acknowledgement	Form 45-106F12	Not required
OSC report within 10 days	Yes	No
Company size limit	None	Shares held by no more than 50 people, excluding employees
Transfer restrictions required	No	Yes

What else should we paper?

Friends and family deserve the same documents as any investor: a SAFE or subscription agreement, the cap table impact explained, and a frank conversation about risk. Commissions or finder’s fees generally can’t be paid to the company’s own directors, officers, founders or control persons for these sales. See how do SAFEs work in Canada?

If an investor lives outside Ontario, that province’s rules apply too.

Our SAFE round work, starting at $2,600, includes the exemption review and securities filing. See fees.

This guide is general information about Ontario securities law, not legal advice for your situation. To set up a friends and family round, book a free 15-minute consult.