Security Regulations Startups Need to Know with Alex Morsink of Equivesto

Speaker 0: are the most important security regulations that canadian start ups should be aware of when raising capital? yeah. so regarding the securities regulatory environment, just as a quick definition for everybody, security means investment, essentially, very simply stated. and shares in your private company, ownership of your private company and does qualify as an investment as a security. so if you're selling shares in your company, that's you selling those securities to people. essentially, there's, a number of different rules that private companies have to follow. so when you're raising capital, whether you're a private company or a public company, you do have to follow canadian securities law. so the regulations apply to everybody. even if you're a private company, you're not exempt from regulations. the easy thing to keep in mind, a good sort of rule of thumb is if you're raising money from immediate friends and family or if you're raising money from accredited investors, so called angel investors, those two types of individuals can invest into your company without having to do any sort of big paperwork or filings with the regulators. so going out pitching angel groups, all that sort of stuff that you've been doing, going to pitch competitions, that's all totally fine. and, you know, there's a reason why that's what the industry does. that's all totally acceptable. the only time you'll need to start thinking about, you know, a greater regulatory burden is when you start having more than fifty shareholders. now, one misconception is having more than fifty shareholders makes you a public company or what some people call a reporting issuer. that is not correct. so it's not, oh, now that i have fifty shareholders, i'm suddenly a public company. i have to do audit and financial statements and all this stuff. that is not the case. without getting to in the weeds, essentially, every time a company raises money, that's a private company, it uses a legal doorway, which is called a prospectus exemption. and there's a full list, of prospectus exemptions on the acrovista website in the learning center if you really wanna, you know, fall asleep while reading something. but essentially, a prospectus exemption is a legal doorway that allows you to raise money. the doorway that lets you raise from friends and family and accredited investors without doing any reporting is called the private issuer exemption. and you can use that as long as you have less than fifty shareholders. if you have more than fifty shareholders, that doesn't make you a public company. it just means you can't use the private issuer exemption anymore. there is still a standalone friends and family exemption. you can keep using that. and there's a standalone accredited investor exemption. you can keep using that. there's a new exemption called equity crowdfunding. you can use that. there's a bunch of other doorways that exist that allow you to raise capital without going public or being a public company or requiring audited financial statements. it just means the one set of rules that lets you raise money without having to tell the government or do any filings called the private issuer exemption, you can no longer use after you have more than fifty shareholders. i think that's the main misconception for capital raising in the canadian space. people think, oh, i have fifty one. i'm a public company now, which is not true.