Funding Growth: Raising Money for Your Private Company

Funding Growth: Raising Money for Your Private Company


There may come a time in the life of your business when you need to raise external capital to help fund the growth of your company. An infusion of capital may be required for a myriad of reasons. For instance, you may want to invest in new technologies, enter into new geographic markets, hire more employees, or expand your service offering or product line.

Once you have decided to raise new capital for your business, there are several steps that need to take place in order for your company to close on the financing.[1]

  1.  Investors

Your company can issue shares to investors by relying on specific prospectus exemptions as set out in Canadian securities legislation. Some of the prospectus exemptions which are commonly used include the following: (1) private issuer exemption, (2) accredited investor exemption, and (3) family, friends and business associates exemption.[2]

Once you have determined that a specific prospectus exemption applies for a prospective investor or group of potential investors, you will need to decide which investors you wish to bring on as shareholders of your company.

  1.  Financing Terms

Choosing which investors to bring on will largely be determined by how much money you wish to raise, the percentage of your company that you are willing to give up, the rights the potential investors will be seeking in your company, and what value, beyond capital, such investors can bring to the company.

You will need to determine the type of shares (common shares or preferred shares) you wish to offer to investors in exchange for their capital.

More sophisticated investors will likely ask for preferred shares in your company with certain rights attached to the shares. Some of these rights may include: (1) voting rights, (2) retraction rights, (3) fixed dividends, (4) conversion rights, (5) anti-dilution rights, and/or (6) liquidation preferences.

  1. Due Diligence

 Depending on the amount of capital being raised, some investors may wish to conduct business, financial and legal due diligence on your company in order to get comfortable before making an investment decision.

On the legal due diligence side, potential investors would ask to review the company’s constating documents, business contracts, corporate records and any other relevant legal documents. You would also be asked to complete a questionnaire with questions relating to, among other things, intellectual property, employees, taxes, environmental issues, and litigation. And, if any issues or concerns arise during this process, they would ask you to address such concerns.

  1. Subscription Agreement

 Once the financing terms have been agreed upon between you and the prospective investors, each of the proposed shareholders will then sign a subscription agreement which sets out all of the terms and conditions of the deal, including, among other things: (1) the type and number of shares being issued and price per share, (2) closing conditions, and (3) representations and warranties made by both the company and the investor.

Depending on the type of prospectus exemption being relied upon, the investor may need to complete an investor certificate. If the “family, friends and business associates” exemption is being relied upon or the “accredited investor” exemption is being used where the accredited investor is an individual, the proposed investor would also need to complete and sign a risk acknowledgement form.[3]

If the company has a shareholder agreement in place, the new investors would also need to sign on to this agreement. You may even have a situation where the new investors wish to amend the terms of the existing shareholder agreement as a condition of their investment.

  1. Issuance of Shares

Before issuing any shares in your company, you will need to ensure that the issuance of such shares complies with all applicable corporate and securities laws and also complies with your corporation’s constating documents (articles, by-laws and shareholder agreement). It may even be necessary to amend the company’s articles to create a new class of shares or to amend the existing share provisions.

It is important to note that, prior to the issuance of any new shares, the shares need to have been fully paid for by the investors and the company must have received money as consideration for such shares.[4]



This article is for informational purposes only and does not constitute legal advice.

If you are interested in learning more about the legal requirements of raising capital in your private company, contact David Kim of Crescendo Law at [email protected]. To learn more about Crescendo Law, visit our website at

[1]  This article is limited in scope to the issuance of shares by non-offering Ontario corporations that are issuing shares to Ontario residents in accordance with the prospectus exemptions set out in the Securities Act (Ontario) and National Instrument 45-106: Prospectus Exemptions.

[2]  If you are looking to raise money from investors, you should speak with legal counsel to ensure that your capital raising activities comply with Canadian securities laws.

[3]  A risk acknowledgement form must also be completed and signed by a prospective investor if the “offering memorandum” exemption is being relied upon.

[4]  Section 23(1) of the Business Corporations Act (Ontario).