The Confusion
Companies conducting crowdfunding distributions in reliance on the prospectus exemption in subsection 5(1) of National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions lose private issuer status under applicable Canadian securities laws. There has always been confusion about the consequences of losing private issuer status.
What is a Private Issuer?
Essentially, a private issuer is a company that: (a) has fewer than 50 shareholders not including employees and former employees; (b) has transfer restrictions in constating documents (e.g. directors must approve transfers); and (c) has only ever distributed securities to classes of people enumerated in the private issuer exemption. A company does not become a reporting issuer or listed issuer (i.e. a public company) by virtue of losing private issuer status.
A reporting issuer is an issuer that (most typically) has been receipted for a prospectus by a securities regulatory authority (i.e. securities commission) in one or more jurisdictions of Canada. A listed issuer is an issuer who has one or more classes of securities trading on a stock exchange in Canada (e.g. TSX, TSXV, CSE). Further confusing the issue, some corporate legislation defines "public company" to include reporting issuers and/or issuers with securities trading on a stock exchange.
The Upshot
A company can still be a private company (nonreporting/unlisted) and have lost private issuer status. Companies that have lost private issuer status by completing a crowdfunding distribution, having more than 50 shareholders (not including employees) or otherwise are required to file a report of exempt distribution in accordance with Form 45-106F1 Report of Exempt Distribution of National Instrument 45-106 Prospectus Exemptions and, in the case of crowdfunding distributions, the issuer’s completed Form 45-110F1 Offering Document. They do not, however, become reporting issuers and are not required to list on a stock exchange.
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