Raising Capital in Nova Scotia for Small & Mid-Size Businesses

*Note* 

This webpage reflects a summary of Nova Scotia securities laws in effect when it was published. This guide provides general information about raising capital for small and mid-size businesses through prospectus exemptions available in Nova Scotia and is not a substitute for legal advice. Nova Scotia securities laws are detailed, complex and frequently amended. 

It is important to note that businesses seeking to raise capital through prospectus exemptions from investors who reside outside of Nova Scotia will have to ensure that there is an applicable prospectus exemption available in the Provinces and Territories where each investor resides. This webpage only addresses raising capital from Nova Scotia residents and Nova Scotia securities law requirements.

You should consult with a lawyer before proceeding to rely on a prospectus exemption.

Nova Scotia Securities Commission 

The Nova Scotia Securities Commission (NSSC) is the provincial regulator of the Nova Scotia capital markets. The NSSC’s principal mandate is to provide protection to investors in Nova Scotia.

The NSSC is also required to ensure that entities in Nova Scotia can raise capital efficiently.

The NSSC fulfills its mandate through development of policy and rules, reviews of disclosure documents, registration and compliance examinations of investment firms and representatives, and when required, enforcement of securities laws through investigations and administrative law hearings.

Raising Capital in Nova Scotia

When businesses, public or private, raise money in Nova Scotia through the issuance of securities, they are subject to securities laws in Nova Scotia. Securities laws includes the Securities Act (Nova Scotia), rules, regulations, policies, and instruments established under the Securities Act. Rules include National and Multilateral Instruments adopted by the NSSC.

Under securities laws, a security has a broad legal meaning and includes:

  • Common and preferred shares,

  • Options, warrants and other convertible instruments,

  • Debentures, notes and other instruments of indebtedness,

  • Limited partnership units,

  • Investment contracts, and

  • Memberships in, share or units of co-operative associations.

Securities laws generally require a legal disclosure document known as a prospectus to be filed with the NSSC prior to issuing a security. Securities laws also require that a prospectus be provided to investors so they can make an informed investment decision. The prospectus requires detailed information about the business, management and directors of the business, financial statements, and a description of the securities being sold. A company that has distributed securities under a prospectus is a “reporting issuer” and is required to provide ongoing continuous disclosure to the public.

Private placement markets or “exempt” markets are exactly that, a way for businesses to be exempt from the prospectus requirements in order to raise the funds they need to start-up or grow, without being subject to the more exacting legal requirements of a reporting issuer.

The legal requirements for many of the prospectus exemptions, including those described below, are set out in National Instrument 45-106 Prospectus Exemptions (NI 45-106), National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions (NI 45-110), Multilateral Instrument 45-108 Crowdfunding (MI 45-108), and the rule relating to Community Economic-Development Corporations under the Securities Act.

Most National and Multilateral Instruments are published with Companion Policies which provide useful guidance and commentary for interpreting and applying the provisions in the National and Multilateral Instruments.

Securities may be offered to investors by a company, a limited partnership, or some other form of legal entity (hereinafter referred to as “Issuers”).

It is important to remember that securities issued under any of the prospectus exemptions are, in most cases, subject to resale restrictions under securities laws. An investor may therefore not be able to resell a security purchased under a prospectus exemption and such securities may not be a suitable investment for an investor who needs liquidity. For further information about the resale of securities sold under a prospectus exemption, please refer to National Instrument 45-102 Resale of Securities. 

Some of the prospectus exemptions require filing certain documents and forms with the Canadian securities regulators through SEDAR+. SEDAR+ is the national electronic filing system used by the Canadian securities regulators. For example, Issuers that rely on the offering memorandum exemption in NI 45-106 must file the offering memorandum (Form 45-106F2 or Form 45-106F3, as applicable) on SEDAR+ within 10 days of the date of distribution. In addition, the sale of securities under certain prospectus exemptions must be reported to the applicable Provincial or Territorial securities regulators via SEDAR+ within 10 days of the date of distribution. The report of exempt distribution must be made on the prescribed form (Form 45-106F1). For information about filing forms required under Part 6 of NI 45-106, please refer to CSA Staff Notice 45-308. For more information on exempt market offerings filings in SEDAR+ please visit their FAQ page.

Raising capital in the exempt market may not be for every Issuer but if you are a start-up, small or medium-sized business looking to raise capital, it might be an option for you. The following are some of the commonly used prospectus exemptions available in Nova Scotia.

Accredited Investor Exemption

An Issuer can sell its securities to “Accredited Investors” (as defined in NI 45-106) without complying with the prospectus requirements. However, a person needs to meet certain financial conditions to be considered an Accredited Investor.

Some of the financial conditions required to be considered an Accredited Investor includes:

  • An individual who has alone or with a spouse, at least $1 million in financial assets (cash and marketable securities) before taxes, net of any debts (financial assets exclude an investor’s home or any other real estate they own), or 
  • An individual who has net income before taxes of more than $200,000 per year for the past two years ($300,000 per year when combined with a spouse’s net income), or 
  • An individual who has alone or with a spouse, net assets of at least $5 million, or 
  • Corporations, limited partnerships or other entities with net assets of at least $5 million.

In addition to the financial requirements, Issuers who sell securities to Accredited Investors are required to:

  • Verify the legitimacy of an Accredited Investor’s status and keep records for 8 years. 
  • Have certain individuals who qualify as Accredited Investors complete and sign a risk acknowledgement form (NI 45-106F4 Risk Acknowledgement). 
  • File a Form 45-106F1 on SEDAR+.

For more information about the Accredited Investor exemption, please refer to sections 1.1, 2.3, 6.1 and 6.5 of NI 45-106 and sections 1.9, 3.5 and 5.5 of the companion policy to NI 45-106.

See the section below titled Informed Investing for a link to NI 45-106 and the related companion policy.

Private Issuer Exemption

An Issuer is considered a “Private Issuer” (as defined in NI 45-106) if its securities are subject to restrictions on transfer and are owned by fewer than 50 qualified security holders, other than employees. 

The qualified security holders in the definition include a close personal friend, close family member or close business associate of a person in a senior role with the Issuer, such as a director or a senior officer of the company, or an Accredited Investor.  To use this exemption, an Issuer cannot advertise to the public that it is raising capital.

While securities can be issued to these same qualified security holders under other exemptions, the Private Issuer exemption has specific restrictions on the nature of the Issuer with respect to the limited number of security holders, the transferability of securities and the manner of soliciting purchasers.

If a Private Issuer relies on another prospectus exemption, it may no longer rely on the Private Issuer exemption.

There is no requirement to file with the NSSC a report of exempt distribution under this exemption.

For more information about the Private Issuer exemption, please refer to section 2.4 of NI 45-106 and sections 1.9(3), 2.7, 2.8, 3.1(1), 3.4 and 3.6 of the companion policy to NI 45-106.

See the section titled Informed Investing for a link to NI 45-106 and the related companion policy.

Offering Memorandum Exemption

An Issuer can sell its securities to anyone using the Offering Memorandum (OM) exemption. An OM is a prescribed disclosure document that contains a description of the Issuer’s business and annual financial statements, lists the relevant risks, and describes how the money raised will be used. Issuers will  have to provide an OM and ongoing (continuous) disclosure to investors. The prescribed form of an OM is Form 45-106F2 or Form 45-106F3, as applicable.

The conditions of the OM exemption differ across Canadian jurisdictions. Please refer to section 2.9 of NI 45-106 for the details of the OM requirements that apply in each Canadian jurisdiction where investors reside.

Under the OM exemption in Nova Scotia:

  • Investors can invest up to $10,000 per year. 
  • “Eligible investors” (as defined in NI 45-106) can invest up to $30,000 per year (like Accredited Investors, these investors must meet certain financial conditions to be an Eligible Investor). 
  • Eligible investors that receive advice from an investment dealer can invest up to $100,000 per year.

Issuers who sell securities to investors under the OM exemption are required to have the investors complete a risk acknowledgement form (Form 45-106F4 Risk Acknowledgment) and the Issuers must retain the signed risk acknowledgment forms for 8 years.

Issuers are also required to file the following with the NSSC on SEDAR+:

  • The OM (Form 45-106F2 or Form 45-106F3, as applicable) 
  • A report of exempt distribution (Form 45-106F1).

If the Issuer is a foreign issuer, then the OM and Form 45-106F1 must be filed directly with the NSSC. For information about filing directly with the NSSC, please contact NSSC Corporate Finance staff at NSSC_Corp_Finance@novascotia.ca 

As noted above, the conditions of the OM exemption differ across Canadian jurisdictions. Please refer to section 2.9 of NI 45-106 for the details of the OM requirements if securities are sold to residents in other Canadian Provinces and Territories.

For more information about the OM exemption, please refer to sections 2.9, 6.1, 6.4 and 6.5 of NI 45-106 and sections 1.9, 3.3.1, 3.8, 5.2, and 5.3 of the companion policy to NI 45-106.

See the section titled Informed Investing for a link to NI 45-106 and the related companion policy. 

Family, Friends and Business Associates Exemption

An Issuer can sell securities to individuals that share a close relationship with a director, executive officer or control person of the Issuer.

These individuals include:

  • Family members, being a spouse, parent, grandparent, brother, sister, child or grandchild.
  • Close personal friends.
  • Close business associates.

This exemption can be relied on for issuing securities to the above-noted investors if the Issuer doesn’t qualify as a Private Issuer.

Issuers relying on the Family, Friends and Business Associates exemption must file a report of exempt distribution (Form 45-106F1) on SEDAR+.

The conditions of the Family, Friends and Business Associates exemption differ across Canadian jurisdictions. Please refer to section 2.5 of NI 45-106 for the details of the requirements.

For more information about the Family, Friends and Business Associates’ exemption, please refer to sections 2.5 and 6.1 of NI 45-106 and sections 1.9, 2.7, 2.8, 3.1, 3.4 and 3.7 of the companion policy of NI 45-106.

See the section titled Informed Investing for a link to NI 45-106 and the related companion policy.

Crowdfunding Exemptions

Securities crowdfunding, that results in the issuance of securities, is regulated under securities laws. Securities laws may not apply to reward or donation-based crowdfunding. You should consult with a lawyer about the type of crowdfunding you plan to undertake. 

There are two exemptions for securities crowdfunding in Nova Scotia.

1.       Start-Up Crowdfunding Exemption – Regulated by National Instrument 45-110 Start-up         Crowdfunding Registration and Prospectus Exemptions (NI 45-110).

Startup crowdfunding Issuers sell securities through on-line funding portals. There are limits to the amounts that Issuers can raise and amounts that individuals can invest:

  • Individual investors can invest up to $2,500 per investment,
  • Investors who receive advice from a registered investment advisor that the investment is suitable may invest up to $10,000 each, and
  • Issuers can raise up to $1,500,000.  

The Issuer must prepare an offering document based on Form 45-110F1 to be distributed to potential investors through the portal.  The Form 45-110F1 includes prescribed information, including information about the directors and officers of the Issuer, the Issuer’s business, business plans, planned use of funds, and risks of the investment.

Portals must send the offering document (Form 45-110F1 and a risk acknowledgement form (Form 45-110F2) to potential purchasers and receive and hold the purchase price in escrow. Issuers must raise the minimum stated funds within a 90-day distribution period. If the stated minimum amount is raised, the portal releases the funds to the Issuer; otherwise the portal must return the funds to the purchasers within 5 days of the end of the 90-day distribution period.

An Issuer can raise funds from some investors under the Start-Up Crowdfunding exemption and from other investors under other prospectus exemptions, such as the Accredited Investor exemption. However, an Issuer that uses a Crowdfunding exemption will not be a Private Issuer and therefore is not able to rely on the Private Issuer exemption.

Further guidance can be found in the Start-up Crowdfunding Guide for Businesses on the NSSC’s website.

2.       Crowdfunding Exemption – Regulated by Multilateral Instrument 45-108 Crowdfunding (MI 45-108).

The second crowdfunding exemption was adopted by the NSSC in 2016 and has to a large degree been supplanted by the more recent NI 45-110.  Under MI 45-108, Issuers can raise similar amounts to what can be raised under NI 45-110. However, the requirements under MI 45-108 are more rigid; MI 45-108 requires the portals to be registered by the NSSC, marketing is restricted, and MI 45-108 has more disclosure requirements.

Filing requirements for both crowdfunding exemptions:

Both crowdfunding prospectus exemptions require the Issuer to file a report of exempt distribution in the form prescribed by Form 45-106F1 through SEDAR+. The report of exempt distribution must be filed within 30 days under NI 45-110 and within 10 days under MI 45-108 after the closing of a crowdfunding distribution.

See the section titled Informed Investing for links to NI 45-110 and MI 45-108 and the related companion policies.

Community Economic Development Corporations Exemption

A Community Economic Development Corporation (CEDC) is a pool of capital raised from individuals within Nova Scotia by corporations or associations. Associations, while commonly referred to as co-operatives, have the same meaning as defined in the Co-operative Associations Act (Nova Scotia). Some CEDCs are informally known as Community Economic Development Investment Funds (CEDIFs). Whether a CEDC or CEDIF, the capital raised must be used in an active business(es). The CEDC or the active business must be a for-profit corporation or association and be within a defined community in Nova Scotia.

The rule relating to Community Economic Development Corporations under the Securities Act provides an exemption for CEDCs.  Some of the requirements of the CEDC exemption include but are not limited to:

  • Issuers must receive a non-objection letter from the NSSC prior to selling CEDC securities.
  • Only NS residents 19 years or older may invest.
  • Up to $3 million can be raised per offering.
  • The offering document and continuous disclosure are public documents and must be provided to the NSSC and investors.
  • A non-refundable tax credit against Nova Scotia income tax is available to investors under the Equity Tax Credit Act if a certificate of eligibility is issued by the Minister of Finance and Treasury Board prior to investment.

A CEDC must file a report of trade with the NSSC within 30 days after the closing of the distribution. The report of trade must be made on the prescribed form: Form 2A – Report of Trade.

For more information, please visit the NSSC’s CEDC webpage and Province of Nova Scotia’s Department of Finance and Treasury Board’s webpage for equity tax credits.

Informed Investing

This section contains a summary of commonly used prospectus exemptions available to small and medium-sized businesses to raise capital in Nova Scotia. Other prospectus exemptions may be available under the Securities Act and the rules noted below. Businesses interested in raising money in the exempt market should consult with a lawyer familiar with securities laws as well as review:

To help facilitate the capital raising process in the exempt marketplace, firms may want to seek assistance from exempt market dealers.

If you are considering raising capital in the exempt market in Nova Scotia under prospectus exemptions, please feel free to contact the Corporate Finance Branch at the NSSC: NSSC_Corp_Finance@novascotia.ca.

Last updated April 27, 2022