Nick Wright, BA JD MBA LLM (Tax)

Wright Business Law

Many Canadian issuers and fund sponsors seeking capital consider private placements either under Canadian exemptions (such as National Instrument 45-106 ‘Prospectus Exemptions’ (“NI 45-106”)) or U.S. counterparts (such as Regulation D under the U.S. Securities Act). Understanding the differences, such as investor eligibility criteria, solicitation rules, filing and reporting obligations, is vital for structuring a compliant raise. Canadian law allows a range of prospectus exemptions based largely on investor qualification rather than general solicitation constraints, while U.S. rules under Regulation D impose stricter criteria for general solicitation and accredited investor verification. Cross-border sponsors must navigate both regimes, aligning documentation, subscription framework and investor eligibility accordingly.

Regulatory Framework & Sources of Law

In Canada, prospectus requirements and distribution restrictions are governed provincially (for example, under the Securities Act (Ontario)) and by national instruments such as NI 45-106, which consolidates available prospectus exemptions. 

On the U.S. side, the primary federal exemption for private placements is found in Regulation D (17 C.F.R. §§ 230.501–230.508), promulgated under the U.S. Securities Act of 1933.  The U.S. Securities and Exchange Commission (SEC) enforces Regulation D and associated investor-protection rules, including verification of “accredited investors” and restrictions on general solicitation for some offerings. The regulatory rationale in both jurisdictions is investor protection, while enabling capital-raising activity in non-public markets.

Definitions & Thresholds

Under NI 45-106, s. 1.1, an “accredited investor” is defined by specific criteria (e.g., income or financial-asset thresholds) for use under the accredited investor exemption in s. 2.3. Other Canadian exemptions include family/friends/business associates (s. 2.5), offering-memorandum exemptions (s. 2.9) and minimum-amount investment exemptions (s. 2.10) among others.  In the U.S., Regulation D defines accredited investors in Rule 501(a) and includes Rule 506(b) (no general solicitation) and Rule 506(c) (general solicitation permitted, but verification required).  Thresholds such as number of non-accredited investors (max 35 in 506(b)) or general solicitation rules differentiate U.S. from Canadian regimes. Also, Canadian exemptions often do not impose the same general-solicitation prohibition (depending on the specific exemption) but do require investor qualification and sometimes risk acknowledgements.

Application in Practice

For a Canadian issuer raising private capital, if relying on NI 45-106, one must select the appropriate exemption. For example, accredited investor (s. 2.3), offering memorandum (s. 2.9) or minimum amount investment (s. 2.10). The issuer must verify investor eligibility and deliver any required risk acknowledgement. The issuer must file a Report of Exempt Distribution (Form 45-106F1) in each province where the distribution occurs. 

In contrast, if the issuer conducts a U.S. private placement under Regulation D, the process includes selecting 506(b) or 506(c). Under 506(b), general solicitation is prohibited; under 506(c), general solicitation is permitted only if the issuer takes “reasonable steps” to verify accredited investor status. The issuer must file Form D with the SEC within 15 days of first sale (17 C.F.R. § 230.503). Canadian sponsors engaging U.S. investors must align their Canadian offering materials with the U.S. side, ensuring subscription agreements address U.S. accreditation, legend and resale restrictions, and coordinate compliance across both jurisdictions. 

For example, a Canadian private investment fund might use NI 45-106 for Canadian investors while offering under U.S. Regulation D for U.S. accredited investors, but must ensure investor-type segregation, and compliance with market-solicitation rules (especially in the U.S.), subscription documentation and cross-jurisdiction tax/withholding requirements.

Grey Areas & Regulator Focus

Certain interpretive issues draw regulatory focus. In Canada, using an offering-memorandum exemption (s. 2.9) still triggers requirements such as delivery of the Offering Memorandum and signed risk-acknowledgement, where required. In the U.S., the verification of accreditation under 506(c) remains a point of frequent regulatory inquiry. Also, the boundary of general solicitation (e-mail blasts, public websites, social-media reach) requires careful structuring. Further, crossover issues, such as Canadian issuers inviting U.S. investors or U.S. issuers inviting Canadians, lead to dual-regime risk. The “number of offerees” test under Canadian private issuer exemptions (s. 2.4) can raise questions when marketing expands. Moreover, the resale restrictions and hold-periods differ. While U.S. restricted securities may carry legend and resales restrictions, Canadian exempt distributions also carry hold-periods under provincial resale rules (for example under NI 45-102). Regulators may examine whether investor eligibility, solicitation, record-keeping and filing obligations are met.

Interactions with Adjacent Regimes

Private placements engage other regulatory regimes. Tax-law implications for U.S. vs Canadian investors (residency, withholding, FATCA) must be addressed. Fund structuring (e.g., Canadian LPs, U.S. vehicles) must align with investor eligibility and documentation. AML/KYC regimes apply to both Canadian and U.S. investors, and cross-border raising adds complexity around investor verification. Privacy and data-security regimes must manage investor-information flows across jurisdictions. Also, if the issuer uses a dealer or intermediary, registrant obligations under Canadian law (such as under NI 31-103) or U.S. broker-dealer rules may apply. The choice of capital-raising exemption determines the structure of the offering, the content of subscription agreements, investor onboarding requirements, and the applicable secondary-market restrictions.

Illustrative Scenarios

Scenario 1: A Canadian technology fund offers equity for the first time to Canadian accredited investors under NI 45-106, s. 2.3. The fund obtains investor accreditation documentation, delivers risk acknowledgements where required, collects subscription agreements and files Form 45-106F1 in the jurisdiction where each distribution occurs. The marketing is limited to existing contacts and avoids broad solicitation. Consequently, the offering aligns with Canadian rules.

Scenario 2: The same fund also seeks U.S. institutional accredited investors. It registers a U.S. offering under Regulation D Rule 506(c), uses a U.S. broker-dealer, conducts a public webinar open to U.S. investors (permitted under 506(c)), and takes reasonable steps to verify investor accreditation. It files Form D with the SEC within 15 days of first sale and ensures Canadian investors are excluded from the U.S. tranche or handled under Canadian rules. Consequently, the offering aligns with U.S. rules.

Scenario 3: A Canadian issuer tries to raise funds publicly in the U.S. by posting a publicly accessible website and relying on 506(b) (which prohibits general solicitation). U.S. regulators find the website constitutes general solicitation, invalidating the exemption and triggering liability. Canadian authorities determine that the marketing directed at U.S. investors triggered Canadian registration requirements or additional filing obligations. This outcome highlights the cross-border compliance risk that arises where the differences between the regimes are not properly managed.

Compliance Checklist

• Identify investor base (Canada, U.S., both) and segment by jurisdiction
• Select applicable exemptions (e.g., NI 45-106; Regulation D)
• Confirm solicitation strategy (general vs private) and compliance
• Verify investor eligibility (accredited status, residency, category)
• Prepare offering materials aligned with both regimes
• Implement subscription agreements (representations, legends, resale, tax)
• Establish onboarding and accreditation verification processes
• Complete required filings (e.g., Form 45-106F1; Form D)
• Maintain investor tracking and supporting records
• Apply AML/KYC procedures, as applicable
• Segregate investor tranches where required
• Implement and monitor resale restrictions and hold periods
• Conduct cross-border legal review and align internal controls

What’s Changing

The Canadian capital-raising landscape continues to evolve. For example, the Canadian Securities Administrators (CSA) introduced the Listed Issuer Financing Exemption (LIFE Exemption) under Part 5A of NI 45-106, which applies to non-investment fund reporting issuers and reflects a broader trend toward streamlined capital-raising mechanisms. In the United States, general solicitation under Rule 506(c) is used more frequently, and regulators continue to focus on verification of accredited investors and cross-border investor flows. Canadian fund sponsors raising U.S. capital must also monitor state-level registration requirements, FINRA and SEC oversight, and cross-border data and privacy obligations. These developments require ongoing updates to offering structures, subscription documentation, and investor onboarding processes.

Conclusion & Next Steps

For Canadian issuers and fund sponsors, choosing between or combining Canadian and U.S. private-placement regimes requires a nuanced understanding of both legal frameworks. While Canadian exemptions offer flexibility in marketing and investor categories, U.S. rules under Regulation D impose stricter solicitation and verification standards but provide access to a deeper investor market. The next steps are to map your investor-target jurisdictions, engage legal counsel experienced in both Canadian and U.S. securities law, choose the appropriate exemption(s), align your offering and subscription documents, implement investor-verification and investor-tracking systems, and build your compliance and filing workflows. By doing so you position your capital raise to proceed with fewer regulatory surprises and greater scalability.

Book a Consultation

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