Who can Invest in my Company?
Depending on who you wish to have invest in your company, raising capital through the sale of securities can range from being a relatively complex process, to being a relatively simple one.
By going public or by preparing an Offering Memorandum, private companies in BC can sell securities to almost anyone. This involves complying with extensive regulations. You must disclose enough information about the company to allow any member of the public to make informed investment decisions. These options are typically expensive, time consuming and unsuitable for early-stage growth.
However, as one cheaper and very common alternative, private companies are also able to sell securities to certain types of investors without going through an extensive regulatory process. The following are some examples of these types of investors:
1. Accredited Investors
In BC, an “Accredited Investor” includes, but is not limited to:
an individual who owns, either alone or with a spouse, financial assets which exceed $1,000,000 before taxes and net of liabilities;
an individual who owns financial assets which exceed $5,000,000 before taxes and net of liabilities;
an individual whose net income before taxes exceeded $200,000 in each of the 2 most recent calendar years, and who reasonably expects to exceed that net income level in the current calendar year;
an individual whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the 2 most recent calendar years, and who reasonably expects to exceed that net income level in the current calendar year;
an individual who, either alone or with a spouse, has net assets of at least $5,000,000; and
a company or other entity (other than an investment fund) having net assets of at least $5,000,000 as shown on its most recently prepared financial statements.
Basically – these are high net worth individuals.
2. Persons within the “Private Issuer” Exemption
Generally, when your company has less than 50 shareholders and has transfer restrictions for securities, your company is a “Private Issuer” in BC. This status offers further types of investors to whom your company can sell securities, including, but not limited to:
Key Persons: a director, officer, employee, founder or control person of the company.
Family: (a) a spouse, parent, grandparent, brother, sister, child or grandchild of a director, executive officer, founder or control person of the company; or (b) a parent, grandparent, brother, sister, child or grandchild of the spouse of a director, executive officer, founder or control person of the company.
Close Personal Friends: a close personal friend of a director, executive officer, founder or control person of the company.
Close Business Associates: a close business associate of a director, executive officer, founder or control person of the company.
Existing Shareholders: an existing shareholder in the company.
Accredited Investors: persons that are “Accredited Investors”.
Note that even if your company is not a “Private Issuer”, you can still sell securities to most of the investors set out above. However, in doing so your company will have reporting obligations with the BC Securities Commission that aren’t required for Private Issuers.
The categories of permitted investors set out above are not a complete list. Talk to your lawyer and they can provide you with advice and paperwork to facilitate the investments in your company.
Ink LLP is a business law firm that acts as strategic counsel to ambitious entrepreneurs, investors, and high-growth companies. Contact one of our lawyers to discuss your business and how our team might be able to help you tackle the challenges of your business and the opportunities for growth.
This information is provided for informational purposes only and is not legal advice.