Nick Wright, BA JD MBA LLM (Tax)

Wright Business Law

Launching a private investment fund in Ontario involves more than selecting a vehicle or drafting marketing materials. At its core, the process requires navigating a securities regulatory framework designed primarily to protect investors and ensure that capital is raised in a fair, transparent, and compliant manner. 

A new fund manager needs to determine the appropriate structure, whether a limited partnership, mutual fund trust, real estate investment trust, or mortgage investment corporation, then layer in the applicable prospectus exemptions, registrant obligations, governance features, and ongoing compliance requirements that together form the regulatory perimeter of a private fund in Canada.

For sophisticated sponsors, the primary challenge lies not in technical formation mechanics but in understanding how Ontario securities regulation views private investment funds: typically as continuous issuers that rely heavily on exemptions under National Instrument 45-106 Prospectus Exemptions, and whose managers may be required to register under National Instrument 31-103 ‘Registration Requirements, Exemptions and Ongoing Registrant Obligations’. A successful launch therefore requires careful planning around the fund’s structure, the manager’s regulatory status, the offering’s exemption mix, and the procedural demands of ongoing closings and Form 45-106F1 filings.

Regulatory Framework & Sources of Law

The foundation for forming and operating a private investment fund in Ontario is the Securities Act (Ontario) and the suite of National Instruments, Companion Policies and OSC and CSA Staff Notices that interpret it. The key instruments for fund sponsors include NI 45-106, NI 31-103, and, where the fund is a mutual fund within the meaning of the Act, applicable provisions of NI 81-106 ‘Investment Fund Continuous Disclosure’. Notably, NI 81-102 ‘Investment Funds’ regulates investment funds that distribute securities under a prospectus and become reporting issuers and generally does not apply to private pooled funds that raise capital solely in reliance on prospectus exemptions.

Most private funds rely on exemptions under NI 45-106, especially the Accredited Investor (s. 2.3), Offering Memorandum (s. 2.9), Minimum Amount (s. 2.10, noting its restriction to non-individual investors), Friends-Family-Business Associates (s. 2.5), and Private Issuer (s. 2.4) categories. Each exemption carries its own eligibility criteria, disclosure obligations, and filing requirements.

NI 31-103 determines whether the general partner (GP), manager, or advisory entity must register as an investment fund manager (IFM), adviser, or exempt market dealer (EMD). Its companion policies and OSC/CSA guidance, including staff notices and annual reports, clarify expectations around compliance systems, suitability, know-your-client, know-your-product, and marketing practices.

Depending on the structure chosen, additional laws may apply. For example, the Limited Partnerships Act for limited partnerships (LPs); the Income Tax Act for mortgage investment corporation (MIC), mutual fund trust (MFT) and for certain public real estate investment trusts REIT qualification; and corporate statutes governing the general partner and/or manager incorporation.

Definitions

A “private investment fund” is not defined explicitly in the Securities Act (Ontario) but is generally understood as a collective investment vehicle that is not offered under a prospectus and is distributed only under exemptions. Private funds that are not reporting issuers are not subject to NI 51-102, but if they are “investment funds” under securities legislation, NI 81-106 may impose ongoing financial reporting and related disclosure obligations, even if the fund is privately placed.

Common investment fund structures include the following:

Limited Partnership (LP)

The dominant form for private equity, venture capital, credit, and real estate funds. Investors subscribe for LP units; the GP controls management; and a separate management company or adviser provides services. LPs are treated as flow-through vehicles for tax purposes.

Mutual Fund Trust (MFT)

A trust that qualifies under s. 132 of the Income Tax Act (Canada). Common where periodic redemptions, distribution policies, or trust-based investor expectations make a trust more suitable.

Real Estate Investment Trust (REIT)

A trust that invests primarily in real property and that (when the term is used technically and not merely commercially) satisfies specific tax tests that are meaningful for public funds under s. 122.1(1) of the Income Tax Act (Canada). A REIT is often used for income-oriented strategies or roll-up transactions.

Mortgage Investment Corporation (MIC)

A corporation governed by s. 130.1 of the Income Tax Act (Canada) permitting flow-through treatment for mortgage income. It is widely used for mortgage credit and private lending strategies.

The “Accredited Investor” exemption is commonly used as the prospectus exemption for private funds. Its investor thresholds (NI 45-106, s. 1.1) include financial tests such as annual income of $200,000 ($300,000 with spouse) or net financial assets exceeding $1 million (exclusive of real property). 

The “Minimum Amount” prospectus exemption (NI 45-106, s. 2.10) requires a $150,000 subscription by a non-individual. These thresholds determine who is eligible to invest and shape the fund’s exemption strategy.

Application in Practice

Launching a private investment fund in Ontario typically begins with identifying the fund structure best aligned with the strategy and investor profile. Most private funds use an LP with a corporation as general partner and sometimes a separate management company entering into a management agreement. Trust vehicles, by contrast, require declarations of trust, trustee arrangements, and compliance with tax qualification rules.

Once the structure is selected, the sponsor develops offering materials. For funds raising only from Accredited Investors, this may consist of a private placement memorandum (PPM) or, for more limited audiences, a detailed term sheet paired with a subscription agreement. Funds relying on the Offering Memorandum (OM) exemption must prepare a compliant offering memorandum containing Form 45-106F2 disclosure tailored to the issuer, fund strategy, and risk factors.

The manager must assess whether registration is required under NI 31-103. Investment fund manager registration may be triggered where the fund is primarily directed or administered in a jurisdiction. Adviser registration may be required if discretionary portfolio management is exercised. Dealer registration, most commonly as an exempt market dealer, must also be considered where the sponsor is in the business of trading or actively distributing fund securities. Some sponsors structure distributions through registered dealers in reliance on the section 8.5 ‘trades through a registered dealer’ exemption. Others rely on adviser exemptions such as the International Adviser Exemption or Sub-Adviser Exemption, depending on the fund’s investor base and operational footprint.

Continuous offerings introduce additional procedural steps. Each closing requires collecting subscription packages, performing know-your-client (KYC) and suitability assessments (if an exempt market dealer is involved), confirming exemption eligibility, and preparing Form 45-106F1 filings within 10 days of each distribution. The shift to SEDAR+ has changed filing processes but not the deadline under NI 45-106.

Grey Areas & Regulator Focus

Interpretive challenges arise where securities law intersects with fund structuring. A recurring issue is whether a fund meets the statutory definition of an “investment fund” for purposes of NI 81-106. If so, financial reporting obligations under that Instrument may apply, including annual audited financial statements and, for reporting issuers, management reports of fund performance. Many limited partnership funds seek to avoid characterization as an investment fund by limiting redemption rights and, more importantly, by structuring their activities around acquiring control positions and actively managing portfolio companies, consistent with a private equity model rather than a passive portfolio investment strategy.

Another area of regulatory focus concerns the marketing practices of private funds. Ontario Securities Commission (OSC) guidance stresses the need for balanced, risk-appropriate disclosure and proper supervision under NI 31-103. Exaggerated performance claims or unsubstantiated forward-looking statements have been the subject of enforcement actions (for example, see: CSA Staff Notice 31-325 – Marketing Practices of Portfolio Managers).

The OSC also monitors use of the “Dealer Registration Exemption.” Funds that actively market their units or pay transaction-based compensation to individuals risk being found to be in the business of trading, triggering dealer registration requirements. Similarly, managers relying on self-certification of Accredited Investor status should ensure reasonable steps (e.g., questionnaires, investor attestations, and supporting documentation where appropriate) to mitigate misrepresentation risk.

Interactions with Adjacent Regimes

Launching a private fund requires integrating multiple regulatory regimes. NI 45-106 governs the exemption strategy, dictating who may invest and on what terms. NI 31-103 determines the regulatory status of the manager and any promotional or advisory activities. Tax rules shape whether an LP, MFT, REIT, or MIC is appropriate; certain strategies require alignment with flow-through treatment or revenue tests.

Cross-border elements introduce U.S. securities considerations under Regulation D and Regulation S, particularly where U.S. investors participate. A Canadian fund with U.S. marketing activity must consider broker-dealer rules, Investment Company Act exemptions, and Advisers Act registration thresholds.

Certain fund strategies, particularly in crypto, derivatives, or lending, may also engage derivative rules under OSC Rule 91-507 or anti-money laundering obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Illustrative Scenarios

Scenario 1: First-Time Real Estate LP

A group of experienced developers forms a limited partnership to raise $40 million from high-net-worth investors for a series of real estate development projects. The offering is conducted solely under the Accredited Investor exemption, with enhanced disclosure provided through supplemental due-diligence materials rather than an offering memorandum. The LP is structured as a closed-end, actively managed real estate development vehicle. Its primary purpose is to carry on an active development business, including control and direct management of its project entities. Accordingly, it is not a ‘mutual fund’ or ‘non-redeemable investment fund’ within the meaning of the Securities Act (Ontario), and therefore is not an ‘investment fund’ for purposes of NI 31-103 or NI 81-106. Accordingly, investment fund manager registration is not required. Subscriptions are accepted quarterly, and a Form 45-106F1 is filed within ten days of each closing.

Scenario 2: MIC Formation for Mortgage Lending

A sponsor forms a Mortgage Investment Corporation (MIC) to expand its private lending platform and plans to raise capital on a continuous, year-round basis. The MIC intends to accept subscriptions monthly and offer limited redemption features, making the distribution model more active than a typical one-time or episodic capital raise. Because the marketing strategy includes cross-provincial outreach, online campaigns, and regular investor presentations, the sponsor determines that they will likely be engaged in “in the business of” dealer activity under NI 31-103.

Rather than seeking its own EMD registration, the MIC chooses to distribute exclusively through one or more registered exempt market dealers (EMDs). These dealers handle all KYC, know-your-product (KYP), suitability assessments, onboarding, and relationship management, ensuring that securities are sold through entities properly registered to trade. The MIC provides the offering memorandum (OM), ongoing disclosure materials, and subscription documents to the dealers, while the dealers conduct all investor-facing advisory and distribution functions. The MIC continues to file Form 45-106F1 within ten days of each monthly close, but all distribution-related compliance obligations rest with the registered dealers.

Scenario 3: Cross-Border Venture Fund

A technology-focused private fund launches a Canadian LP alongside a parallel U.S. LP. Canadian investors subscribe under the Accredited Investor exemption, while U.S. investors subscribe under Rule 506(b) of Regulation D. The fund’s Canadian portfolio manager retains overall responsibility for investment advice and engages a U.S. SEC-registered investment adviser as a sub-adviser under the International Sub-Adviser Exemption. The U.S. adviser, already registered as a Registered Investment Advisor (RIA) and maintaining its Form ADV filings with the United States Securities and Exchange Commission (SEC), provides discretionary advice subject to the Canadian manager’s oversight. The Canadian portfolio manager (PM) ensures that the sub-advisory arrangement, disclosure documents, and compliance processes remain consistent across both regulatory regimes.

Compliance Checklist

Structure

• Confirm legal structure aligned with tax objectives, investor profile, and distribution strategy.
• Determine reporting issuer status and applicable prospectus exemptions.

Documentation

• Prepare LP agreement or declaration of trust, GP agreement if applicable, management agreement, subscription agreement, and offering documents under NI 45-106.
• Ensure risk disclosure, fee terms, liquidity, and conflicts are internally consistent across documents and marketing materials.

Registration

• Assess NI 31-103 registration requirements for the manager, GP, and affiliates.
• If required, identify third party registrant to contract with, or seek registration and implement compliance framework including policies and procedures, CCO designation, KYC and suitability processes, conflicts procedures, and recordkeeping systems.

Pre-Launch

• Set up banking, custody, administration, valuation policy, and financial reporting framework.
• Establish subscription intake procedures.
• Ensure that the registered dealer, if any, has implemented necessary KYC and AML processes.

Offering Period

• Confirm investor eligibility under relied upon exemptions prior to acceptance.
• Monitor marketing materials and sales practices for regulatory consistency.
• Maintain subscription records.

Closing and Ongoing

• Update entity records to reflect closings
• File Form 45-106F1 exempt distribution reports within prescribed timelines.
• Maintain NI 31-103 compliance, recordkeeping, and material change updates, as applicable.

What’s Changing

The CSA continues to review elements of NI 45-106 and NI 31-103, including updates to the OM exemption, enhanced investor protection rules, and potential amendments to registrant conduct obligations. SEDAR+ adoption has altered filing processes, and further refinements may occur. Regulatory focus on marketing practices and crypto-related funds remains elevated. OSC statements suggest increasing scrutiny of suitability processes, KYP obligations, and valuation practices for alternative assets. Fund sponsors should monitor new Staff Notices and consultation papers as reforms progress.

Conclusion & Next Steps

Launching a private investment fund in Ontario, Canada requires careful alignment of structure, exemption strategy, and regulatory obligations. A well-designed fund integrates tax, corporate, and securities considerations while maintaining a compliance framework that satisfies NI 31-103 and investor expectations. Understanding how Ontario regulators view private funds and anticipating grey areas such as marketing practices, exemption eligibility, and registration triggers can significantly reduce risk and streamline capital raising.

Sponsors seeking efficiency and regulatory certainty benefit from early legal guidance, proper documentation, and a disciplined approach to ongoing filings and investor communications.

Book a Consultation

If you are forming, restructuring, or operating a private investment fund in Canada, schedule a consultation with Nick Wright.