Small Business Council Success Series - Capital raising for your business in the Private Placement Market

Small businesses create jobs and make a significant contribution to B.C.'s economy. They need money to start, maintain, and grow their operations. A large portion of small business funding comes from entrepreneurs themselves and traditional funding sources such as bank loans. At some point, however, many businesses will turn to private investors.

As the government agency responsible for regulating capital raising, securities trading, and investor protection in B.C., the BC Securities Commission (BCSC) expects small businesses using the private placement market to conduct their financings in a way that respects and promotes market integrity. At the same time, the BCSC want to help businesses find legitimate ways to raise money in a timely and efficient way and avoid delays that can stem from not understanding how the rules work.

This was what almost 100 entrepreneurs, business owners and professionals that attended the Nov. 25 Small Business Council Success Series learned, as BCSC presenters Peter Brady and Larissa Streu used a case study to explained how  raising money from private investors differs from raising money in public markets.

Brady, the BCSC's director of Corporate Finance, and Streu, a senior legal counsel, explained that the definition of a security is quite broad, saying it is any document that allows the holder to profit from the efforts of others and that shows the holder's interest in an entity. While small business owners looking to raise money from investors need to be aware that securities laws may apply to their capital raising activities, they explained that for many businesses, there are exemptions from the prospectus and continuous disclosure requirements when raising money privately.

They explained how one of the most common exemptions – the private issuer exemption – allows business owners to raise money from certain groups, as long as the business has less than 50 security holders (excluding employees), without having to report to the BCSC.

They then discussed what happens when businesses are no longer a private issuer, for example when they exceed 50 security holders, outlining how common exemptions such as the $150,000 investment and offering memorandum exemptions work. A key difference from being a private issuer is the requirement to report the sale of securities to the BCSC.

The session ended with a question and answer period with Brady and Streu staying behind to speak with individuals in attendance.

If you are interested in more details about how securities laws apply to your capital raising activities, please refer to the BCSC's Capital Raising for Small Business Guide, which can be found at bcsc.bc.ca.