Nick Wright, BA JD MBA LLM (Tax)

Wright Business Law

Canadian issuers raising capital from U.S. investors must structure the offering to comply with both Canadian and U.S. securities law. In practice, cross-border private placements commonly rely on the Accredited Investor exemption under section 2.3 of NI 45-106 ‘Prospectus Exemptions’ in Canada together with Regulation D under the U.S. Securities Act of 1933 in the U.S.

Accessing U.S. investors requires careful coordination between the two regimes. Issuers must consider whether their marketing activities could constitute general solicitation in the United States, how U.S. accredited investor status will be confirmed, how investor eligibility and disclosure requirements will be addressed across jurisdictions, and how regulatory filings such as U.S. Form D and Canadian Form 45-106F1 will be made. Offering materials, subscription documentation, and resale-restriction legends must also be structured to reflect the requirements of both regimes.

If the offering is not structured so that the applicable exemptions are satisfied in each jurisdiction, the issuer may lose the benefit of the exemption and face investor rescission rights and regulatory enforcement risk.

Regulatory Framework & Sources of Law

In the U.S., Regulation D (17 C.F.R. §230.500 – 230.508) provides exemptive relief from registration under the U.S. Securities Act of 1933 for private placements. Rules 506(b) and 506(c) are particularly relevant. Rule 506(b) prohibits general solicitation but allows up to 35 non-accredited but sophisticated investors (rarely used for funds) and unlimited accredited investors. Rule 506(c) permits general solicitation but requires the issuer to take “reasonable steps” to verify accredited-investor status. On the Canadian side, issuers must ensure they rely on a valid Canadian prospectus exemption, for example under NI 45-106, and applicable provincial laws such as the Securities Act (Ontario). Additionally, the interaction between U.S. federal securities law and Canadian provincial securities law must be considered.

Definitions & Thresholds

Key terms must be precisely understood. An “accredited investor” under U.S. law is defined in Rule 501(a) of Regulation D and includes entities or individuals meeting income or net-worth tests. Canadian issuers must verify U.S. investors when required under Regulation D, Rule 506(c). General solicitation or general advertising under U.S. law is broadly construed and can include publicly accessible websites, public seminars, press releases, and other broadly disseminated marketing activities. Participation in such solicitation channels without meeting 506(c) verification can invalidate the exemption. 

The concept of “restricted securities” arises because securities issued under Regulation D often carry Rule 144 resale restrictions and legend requirements. Canadian issuers must anticipate secondary-market limitations. 

Also important is the concept of “bad actor” disqualifications under Rule 506(d), which could disqualify an issuer if certain persons associated with the offering are disqualified. 

On the Canadian side, abiding by the selected prospectus exemption’s rules and filing the Form 45-106F1 Report of Exempt Distribution for each jurisdiction where distribution occurs must be planned for.

Application in Practice

A Canadian fund or issuer seeking to raise from U.S. investors under Regulation D might take the following steps:

1. Determine the target investor base. Identify the target investors and the marketing approach. If the offering will be conducted through pre-existing substantive relationships without general solicitation, the issuer may rely on Rule 506(b). If the issuer intends to use general solicitation or public marketing in the United States, it must rely on Rule 506(c), in which case all purchasers must be accredited investors and the issuer must take reasonable steps to verify that status.
2. Coordinate the offering documentation. The Canadian issuer should include a U.S. wrap or addendum to the private placement memorandum (PPM) or offering memorandum (OM) explaining the U.S. offering terms, investor eligibility, legend and resale restrictions, and references to U.S. federal and state law. Legal counsel should ensure the offering document references U.S. requirements and issues of U.S. investor eligibility.
3. Comply with marketing restrictions. In Canada, investor outreach and promotional activity must comply with the applicable provincial Securities Act (or equivalent) and the prospectus exemption relied upon. Promotional communications may be characterized as an act in furtherance of a trade. Marketing directed to Canadian investors must therefore remain consistent with the applicable exemption and any relevant registration requirements under NI 31-103 ‘Registration Requirements, Exemptions and Ongoing Registrant Obligations’.
   In the United States, marketing must also align with the exemption relied upon under the U.S. Securities Act of 1933. If the offering relies on Regulation D Rule 506(b), general solicitation is prohibited. If the issuer relies on Rule 506(c), general solicitation may occur provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify that status. Public websites, social media promotion, and broadly distributed materials may be characterized as general solicitation. Issuers frequently address this risk by restricting access to offering materials through gated investor portals, investor qualification screens, or jurisdictional access controls such as geofencing.
4. Mandatory Filings. After investor subscription documents are executed, the issuer must file Form D with the U.S. Securities and Exchange Commission (SEC) within 15 days of first sale in the U.S. pursuant to 17 C.F.R. §230.503.  In Canada, the issuer must file a Report of Exempt Distribution (Form 45-106F1) in each Canadian province involved within 10 days of distribution.
5. Verification and Recordkeeping. U.S. investor accreditation verification must be addressed, along with the investor’s jurisdiction of residence (Canada or the United States). Tax residence and any related withholding implications should also be reviewed. Resale and legend requirements must be tracked carefully. This includes U.S. restricted security legends and any applicable resale hold periods. From an administrative perspective, the issuer should maintain investor records organized by jurisdiction and monitor ongoing regulatory and reporting obligations that arise from those distributions.

Grey Areas & Regulator Focus

Several grey areas merit attention. One recurring regulatory issue involves online offering materials or investor portals that are accessible from the United States. If those materials are publicly available, regulators may characterize the communication as general solicitation for purposes of Regulation D.

Another area is finding and compensation. If U.S. introducers are used to bring U.S. investors into a Canadian offering, compensation and solicitation mechanisms must be considered in both Canadian and U.S. law (U.S. broker-dealer registration risk, Canadian dealing/registration risk). 

A further complexity concerns hold periods and resale restrictions. Securities sold in U.S. private placements under Regulation D are restricted securities and are typically resold only in compliance with an available exemption such as Rule 144, which for non-reporting issuers generally requires a one-year holding period. Canadian issuers must also consider the Canadian resale regime under NI 45-102 when investors hold Canadian-issued units distributed under prospectus exemptions.

Bad-actor disqualifications also exist under U.S. law. A Canadian issuer must ensure it has no person disqualified under Rule 506(d) (or similar) if relying on 506(b) or 506(c). 

Interactions with Adjacent Regimes

Raising from U.S. investors under Regulation D intersects with tax, corporate-governance, distribution and investor-rights regimes. For tax, U.S. investors investing in a Canadian issuer must have their tax-residence and withholding obligations addressed (e.g. FATCA, U.S. Controlled Foreign Corporation rules, Canadian tax withholding). 

From a fund-structuring perspective, Canadian fund vehicles must ensure operating agreements, side-letters, flow-through entities are structured to accommodate U.S. investors and their rights. 

If a Canadian issuer employs a U.S. intermediary or adviser to access U.S. investors, U.S. broker-dealer registration issues arise, as do Canadian dealing/introducer issues.

Illustrative Scenarios

Scenario 1: A Canadian fintech fund sponsor raises U.S. $30,000,000 from U.S. and Canadian accredited investors. They choose to rely on Regulation D Rule 506(b) for U.S. investors (no general solicitation) and the Accredited Investor exemption under NI 45-106, s. 2.3 for Canadian investors. They restrict marketing to pre-existing contacts for U.S. investors, obtain U.S. investor subscription agreements containing accredited-investor representations, file Form D within 15 days of first U.S. sale, include a U.S. investor wrap in the offering document and track legend restrictions. They concurrently file Canadian provincial filings including Form 45-106F1. This approach enables dual-jurisdiction access in a compliant manner.

Scenario 2: A Canadian real estate syndication sponsor markets an offering through LinkedIn, webinars accessible to U.S. participants, and a publicly accessible website. The sponsor intends to rely on Rule 506(c) of Regulation D, which permits general solicitation if all purchasers are accredited investors and the issuer takes reasonable steps to verify that status. The sponsor instead relies on investor self-certification and does not implement a formal verification process. U.S. regulators identify the deficiency and question whether the offering qualifies for the Rule 506(c) exemption. The issuer may face regulatory review and potential investor rescission exposure. It may also need to halt U.S. sales and restructure the U.S. portion of the offering to implement compliant accreditation verification procedures. Canadian regulators may review the cross-border distribution to determine whether Canadian prospectus exemptions were properly relied upon and whether the issuer’s solicitation activity raised dealer registration issues.

Scenario 3: A Canadian issuer raises capital from U.S. investors under Regulation D and from Canadian investors under the Accredited Investor exemption. Securities issued to U.S. investors carry U.S. restricted-security legends and cautionary language regarding resales into Canada. A U.S. investor later transfers units to a Canadian purchaser without confirming the availability of a Canadian prospectus exemption. The issuer’s compliance system did not segregate investors by jurisdiction and did not adequately monitor secondary transfers. The transaction raises potential resale violations under both U.S. and Canadian securities laws and creates exposure to rescission claims or regulatory review.

Compliance Checklist

• Engage U.S. and Canadian securities counsel.
• Prepare cross-border strategy memo (jurisdictions, 506(b)/506(c), NI 45-106 path, marketing approach, accreditation verification).
• Prepare PPM or OM with U.S. wrap/appendix, U.S. legends, resale restrictions, U.S. tax-residence reps, and investor acknowledgements.
• Prepare subscription documents capturing U.S. accreditation and Canadian exemption eligibility and segregate investor intake by jurisdiction.
• Implement marketing controls (geofencing or access limits for 506(b); verification procedures for 506(c)).
• File Form D within 15 days of first U.S. sale and file Form 45-106F1 in relevant Canadian provinces within 10 days of Canadian distributions.
• Track investors by jurisdiction, monitor resale restrictions and transfers, retain dual-jurisdiction books and records.
• Conduct post-closing review (investor mix, legend compliance, resale monitoring, future exemption strategy).

What’s Changing

Cross-border capital raising continues to evolve. One trend is the increasing use of Rule 506(c) in the U.S. Another is increased enforcement awareness by both Canadian and U.S. regulators of cross-border capital-raising arrangements and the interplay of national, state and provincial laws. Canadian commentary emphasises the need for U.S. counsel and dual-filing coordination. Finally, evolving investor-protection regimes (AML/KYC, data-privacy, digital-onboarding) and increased scrutiny of U.S. state law compliance mean Canadian issuers must anticipate more complex regulatory expectations moving forward.

Conclusion & Next Steps

Canadian issuers accessing U.S. accredited investors under Regulation D must coordinate solicitation practices, accreditation verification, regulatory filings and resale restrictions with the Canadian prospectus exemption relied upon. They also must map U.S. and Canadian exemption strategies, coordinate marketing and solicitation channels, verify U.S. accreditation, file U.S. and Canadian regulatory notices, track investor jurisdiction and resale restrictions, and maintain strong books & records. Issuers should engage U.S. and Canadian legal counsel early, design their offering document and process to meet both regimes, implement dual-jurisdiction subscription and legend frameworks, and monitor investor base and resale compliance. With proper preparation, you can access U.S. accredited investor capital with reduced regulatory risk.

Book a Consultation

If you are an issuer or private investment fund carrying out a cross-border raise, contact us to schedule an initial consultation with Nick Wright.