Marketing Private Placements: NI 45-106 Advertising Rules

Nick Wright, BA JD MBA LLM (Tax)
Wright Business Law

Private placements are the primary method by which many Ontario businesses, real estate issuers, mortgage investment entities and private investment funds raise capital. Rather than filing a prospectus, issuers generally rely on one or more prospectus exemptions contained in National Instrument 45-106 Prospectus Exemptions (NI 45-106).

A common misconception is that securities distributed under NI 45-106 cannot be advertised. However, neither NI 45-106 nor the Securities Act (Ontario) contains a blanket prohibition on advertising an exempt offering. Instead, the regulatory analysis focuses on whether the distribution complies with the applicable prospectus exemption, whether the communications are accurate and not misleading, and whether the persons marketing the offering are complying with the dealer registration requirements under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

This distinction is significant because NI 45-106 deals only with exemptions from the prospectus requirement. It does not exempt issuers, promoters or intermediaries from the dealer registration regime. Companion Policy 45-106CP expressly states that issuers relying on prospectus exemptions, and any selling agents they engage, may still be required to register, with the registration business trigger determined under NI 31-103 and elaborated on in Companion Policy 31-103CP.

In practice, many exempt offerings are distributed through a registered exempt market dealer (EMD). Once an EMD is engaged, the marketing analysis changes. The offering is no longer governed solely by NI 45-106. The dealer must also comply with the conduct obligations imposed by NI 31-103, including its know your client (KYC), know your product (KYP), suitability, conflicts of interest and misleading communications obligations. These obligations apply regardless of whether the securities are distributed under a prospectus or under a prospectus exemption.

This means that an issuer cannot assume that the availability of a prospectus exemption automatically determines how an offering may be marketed. Where an exempt market dealer participates in the distribution, marketing materials should be integrated with the dealer’s compliance processes and used consistently with the dealer’s conduct of the offering.

Accordingly, every issuer should first determine how its securities will be distributed before developing a marketing strategy.

If the issuer is conducting its own exempt distribution, the primary compliance considerations are the availability of the applicable prospectus exemption, the anti-fraud provisions of securities legislation, and whether its activities trigger dealer registration.

If the issuer is distributing through an exempt market dealer, the dealer will often request to review and approve the issuer’s marketing materials before they are disseminated. Websites, pitch decks, investor presentations, webinars, email campaigns and social media posts should all be consistent with the dealer’s due diligence, the issuer’s disclosure documents and the dealer’s regulatory obligations under NI 31-103.

From a practical perspective, issuers should view advertising as one component of the overall exempt distribution process. Effective marketing may generate investor interest, but it does not replace the legal analysis required before securities can be sold. Every purchaser must still qualify under an available prospectus exemption, and where a registered dealer participates in the offering, the dealer must independently satisfy its registration obligations before recommending or completing the trade.

Marketing by an Issuer Without a Registered Dealer

Some issuers conduct exempt distributions without retaining an exempt market dealer. This is most common where the issuer raises capital from founders, existing business contacts, family members, close personal friends, existing shareholders, or accredited investors with whom management has established relationships.

In these circumstances, the issuer remains responsible for ensuring that every distribution complies with the requirements of the applicable prospectus exemption. Companion Policy 45-106CP makes clear that the person relying on a prospectus exemption bears the responsibility for determining whether the exemption is available and should retain sufficient documentation to demonstrate compliance. Marketing materials therefore form part of the issuer’s overall compliance process.

Issuers should also remember that advertising itself may constitute an act in furtherance of a trade. Securities legislation defines “trade” broadly to include advertisements, solicitations and other conduct undertaken in connection with a securities distribution. Marketing activities should be planned with the same level of care as the preparation of subscription agreements or offering memoranda.

The scope of an issuer’s marketing campaign should also be consistent with the prospectus exemption being relied upon.

Accredited Investor Exemption

The accredited investor exemption generally provides the greatest flexibility from a marketing perspective.

Unlike exemptions that depend upon a pre-existing relationship, eligibility is determined by objective financial or institutional criteria. An issuer may therefore advertise broadly, provided it ultimately sells securities only to purchasers who satisfy the accredited investor definition.

That does not mean the issuer may simply rely on representations contained in the subscription agreement.

Companion Policy 45-106CP states that it is generally insufficient for a seller merely to accept standard representations or have a purchaser initial the applicable accredited investor category. The seller is expected to take reasonable steps to verify that the purchaser satisfies the conditions of the exemption. What constitutes reasonable steps depends upon the particular facts, including how the purchaser was identified, the category of accredited investor relied upon, and the circumstances of the offering.

Accordingly, a successful advertising campaign does not reduce the issuer’s verification obligations. If anything, broad marketing often increases the importance of maintaining a documented investor qualification process.

Private Issuer Exemption

The analysis differs considerably where the issuer intends to rely on the private issuer exemption.

A private issuer may distribute securities only to the categories of purchasers specified in section 2.4 of NI 45-106. Those categories include directors, officers, employees, founders, certain family members, close personal friends, close business associates and existing security holders, together with a limited number of other prescribed purchasers.

Although NI 45-106 does not expressly prohibit advertising by a private issuer, widespread public solicitation may be difficult to reconcile with exemptions that depend upon existing personal or business relationships.

For example, an issuer that advertises extensively through paid social media campaigns while simultaneously asserting that purchasers qualify as close personal friends or close business associates should expect to demonstrate how those relationships existed independently of the advertising campaign.

The marketing strategy should therefore be tailored to the exemption being relied upon rather than adopted first and justified later.

Family, Friends and Business Associates Exemption

The same considerations apply to the family, friends and business associates exemption.

Eligibility depends upon the existence of a genuine relationship between the purchaser and a director, executive officer, founder or control person of the issuer. Public advertising cannot establish that relationship.

Companion Policy 45-106CP emphasizes that these relationship-based exemptions require more than casual acquaintance or professional familiarity. If purchasers are sourced primarily through broad advertising campaigns, online lead generation or general public solicitation, regulators may question whether the exemption is genuinely available.

Issuers relying upon this exemption should maintain contemporaneous records documenting the nature and duration of each qualifying relationship.

Marketing Through an Exempt Market Dealer

The analysis changes where a registered dealer is engaged to distribute the securities.

Where an issuer distributes securities through a third-party exempt market dealer, the issuer may be able to rely on the dealer registration exemption in section 8.5 of NI 31-103. However, the exemption is unavailable if the issuer directly solicits or contacts purchasers or prospective purchasers in relation to the trade. Issuers intending to rely on section 8.5 should therefore ensure that their marketing activities are structured consistently with the conditions of the exemption.

The issuer may prepare the initial marketing materials, but participating dealers will typically review those materials as part of their compliance processes before they are used in connection with the offering. Dealers commonly seek to ensure that investor presentations, pitch decks, websites, advertisements and social media content are consistent with their due diligence and the issuer’s disclosure documents and do not contain statements that could expose either the issuer or the dealer to regulatory risk.

Issuers should therefore engage the participating dealer before commencing any significant marketing campaign. Marketing materials prepared independently of the dealer’s compliance processes often require substantial revision before they can be used in connection with the offering.

Digital Marketing Considerations

The principles discussed above apply regardless of the communication medium. Whether an issuer uses a corporate website, social media, email campaigns, webinars or investor presentations, the legal analysis remains the same: the marketing must be consistent with the applicable prospectus exemption, must not contain misleading statements, and, where an exempt market dealer is involved, must support the dealer’s compliance with its obligations under NI 31-103.

Corporate Websites

A corporate website is often the first point of contact for prospective investors. It may describe the issuer’s business, management team, investment strategy, portfolio, completed projects or future objectives.

Website content should be reviewed with the same level of care as an offering memorandum or investor presentation.

Statements regarding anticipated returns, asset values, development timelines, occupancy rates, distributions or exit strategies should be supported by reasonable assumptions and presented in an appropriately balanced manner. Material risks should not be omitted simply because the communication is promotional.

Issuers should also establish procedures for reviewing and updating website content. Information that was accurate when published may become misleading if material developments subsequently occur.

Social Media

LinkedIn, X, Facebook and other social media platforms have become increasingly important marketing tools for private issuers and investment funds.

While these platforms encourage concise and informal communications, securities law does not distinguish between a formal investor presentation and a short social media post. Each communication forms part of the issuer’s overall marketing record.

Accordingly, issuers should avoid statements that:

• guarantee returns;
• imply that an investment is risk-free;
• selectively highlight successful investments without appropriate context;
• present unsupported valuations;
• omit material assumptions underlying projected returns; or
• contradict information contained in the offering documents.

Where an exempt market dealer is participating in the offering, social media content should generally be reviewed through the dealer’s compliance process before publication.

Webinars and Investor Presentations

Virtual presentations have become a standard component of exempt market offerings.

These sessions allow management to explain the business, discuss market opportunities and respond to investor questions. They also present compliance risks because responses given during question-and-answer sessions may inadvertently expand upon or contradict the issuer’s written disclosure.

Management should therefore ensure that presentations remain consistent with the offering memorandum, subscription documents and other approved marketing materials. Significant new information disclosed during a webinar should be evaluated to determine whether corresponding updates to the issuer’s disclosure documents are appropriate.

Issuers should retain copies of presentation slides, webinar recordings and related materials as part of their compliance records.

Where an exempt market dealer is participating in the distribution, the dealer should ordinarily participate in webinars and investor presentations involving prospective investors. This helps ensure that investor communications remain consistent with the dealer’s compliance processes and reduces the risk that the issuer engages in direct solicitation in a manner that could affect the availability of the dealer registration exemption in section 8.5 of NI 31-103.

Email Campaigns

Email remains an effective method of communicating with existing business contacts and prospective investors.

Emails should accurately describe the offering without overstating its merits or minimizing its risks. They should direct interested investors toward the issuer’s formal subscription process rather than attempting to summarize all material information within the email itself.

As with all other marketing materials, email communications should remain consistent with the issuer’s offering documents and any materials reviewed by the participating exempt market dealer.

Third-Party Marketing Consultants and Referral Arrangements

Issuers frequently engage consultants to assist with investor outreach, public relations or capital raising initiatives. Care should be taken to distinguish between legitimate marketing services and activities that may constitute trading in securities requiring registration.

Simply describing a consultant as a “finder,” “capital raising adviser” or “marketing consultant” does not determine whether registration is required. Securities regulators examine the substance of the activities being performed.

Companion Policy 45-106CP reminds issuers that advertisements, solicitations and other conduct undertaken in furtherance of a trade remain subject to securities legislation. At the same time, Companion Policy 31-103CP explains that activities such as promoting securities, soliciting investors, intermediating trades and expecting compensation may indicate that a person is engaged in the business of trading.

Where an exempt market dealer is retained, investor solicitation should ordinarily occur through the dealer’s registered dealing representatives rather than through unregistered third parties.

Issuers should also distinguish referral arrangements from registrable dealing activities. NI 31-103 permits referral arrangements only where the prescribed requirements are satisfied, including written agreements, client disclosure and ongoing oversight by the registered firm. A referral arrangement does not permit an unregistered person to perform activities that otherwise require registration.

Recordkeeping

Comprehensive recordkeeping is an often-overlooked component of exempt market compliance.

Companion Policy 45-106CP emphasizes that the person relying upon a prospectus exemption should retain the documentation necessary to demonstrate that the exemption was properly available.

In practice, issuers should maintain records of:

• all versions of investor presentations and pitch decks;
• website content used during the offering;
• social media posts and advertising campaigns;
• webinar recordings;
• email communications with prospective investors;
• internal approvals for marketing materials;
• investor qualification documents; and
• correspondence with the exempt market dealer relating to the review and approval of marketing materials.

Well-maintained records may prove invaluable during an OSC compliance review or in responding to investor complaints or litigation.

Practical Compliance Checklist

Before commencing a marketing campaign for a private placement, issuers should consider the following:

• Identify the prospectus exemption that will be relied upon before preparing marketing materials.
• Determine whether an exempt market dealer will participate in the distribution.
• Ensure all marketing materials are consistent with the offering memorandum, subscription agreement and other disclosure documents.
• Avoid guarantees, exaggerated claims and unsupported performance projections.
• Implement reasonable procedures for verifying purchaser eligibility under the applicable exemption.
• Where an exempt market dealer is engaged, obtain the dealer’s review and approval of marketing materials before publication.
• Ensure investor qualification, KYC and suitability assessments are completed before accepting subscriptions.
• Carefully review any arrangements involving consultants, finders or referral sources.
• Maintain comprehensive records of all marketing materials and investor communications.

Conclusion

Ontario securities law does not prohibit the advertising of private placements. Rather, it regulates how securities may be distributed and who may participate in that process.

NI 45-106 provides exemptions from the prospectus requirement, but it does not eliminate dealer registration requirements or the broader obligations imposed by securities legislation. Advertising may generate interest in an offering, but it does not create an exemption, replace investor qualification procedures or relieve a registered dealer of its obligations under NI 31-103.

Where an issuer distributes securities directly, marketing should be carefully aligned with the prospectus exemption being relied upon and supported by reasonable procedures for verifying purchaser eligibility. Where an exempt market dealer participates in the offering, the marketing process should be integrated with the dealer’s compliance framework, including its KYC, know-your-product, suitability and supervisory obligations.

Issuers that treat marketing as part of their overall compliance program, rather than as a separate promotional exercise, are better positioned to conduct successful capital raises while meeting the expectations of securities regulators.

Book a Consultation

Wright Business Law advises issuers, investment fund managers and exempt market participants on private placements, prospectus exemptions, offering documents and exempt market compliance. To discuss your proposed offering or investment fund marketing strategy, contact us to schedule a consultation with Nick Wright.