Securities

How BC law treats it

Section 1 of the Securities Act, RSBC 1996, c 418 defines 'security' very broadly. It includes shares of private companies, debt obligations, options, warrants, subscription rights and any investment contract. An investment contract exists where a person invests money in a common enterprise with an expectation of profit derived significantly from the efforts of others (Pacific Coast Coin Exchange v Ontario Securities Commission, [1978] 2 SCR 112). This test can capture crypto tokens, profit sharing schemes and some real estate syndications. Every distribution of securities requires a prospectus unless an exemption applies. Most private companies rely on exemptions in National Instrument 45-106 Prospectus Exemptions, including the private issuer exemption (s. 2.4), the accredited investor exemption (s. 2.3), the family, friends and business associates exemption, the offering memorandum exemption and the employee exemption. Some exemptions require filing a report of exempt distribution with the British Columbia Securities Commission within 10 days and paying a fee. Securities of a private company issued under an exemption are subject to resale restrictions under National Instrument 45-102, so investors generally cannot freely resell them. Issuing securities without a valid exemption can lead to investor rescission claims, orders and penalties from the British Columbia Securities Commission, and personal liability for directors and officers involved.

What it means for your business

Founders often issue shares, SAFEs or convertible notes to early investors and employees without realizing they are distributing securities. Getting the exemption right protects the company from rescission claims that can surface years later, often in due diligence for a financing or sale. Clean records showing which exemption was used, and any required filings, make later rounds and exits faster and cheaper. Example: A Vancouver fintech startup raises $300,000 on SAFEs from 15 investors. It confirms each investor qualifies as an accredited investor, collects signed risk acknowledgements where required, and files the report of exempt distribution within 10 days.

Risks and common mistakes

Assuming securities law applies only to public companies or stock exchange listings. Accepting investment from members of the public through social media in reliance on the private issuer exemption. Treating crypto tokens or revenue sharing arrangements as outside securities law without applying the investment contract test. Missing the 10 day deadline for a required report of exempt distribution. Failing to keep records of which exemption each investor relied on, which slows due diligence.