Canadian securities laws: What foreign companies and investors need to know 

Who this is for: CFOs, GCs, and capital markets advisors at foreign companies considering a Canadian listing, raising capital from Canadian investors, acquiring a Canadian public company, or sending executives into roles that create insider reporting obligations.  

The assumption that costs foreign companies the most: Foreign companies approaching the Canadian capital markets for the first time make two opposite mistakes. Some assume the Canadian system mirrors the US SEC regime and apply US frameworks to Canadian transactions, missing exemptions, triggering requirements they could have avoided, and misunderstanding the role of provincial regulators. Others dismiss the Canadian market as too small to matter and miss a capital-raising environment that is uniquely well-suited to junior issuers, mining and resource companies, and growth-stage businesses that would face prohibitive costs accessing US markets at the same stage. The right starting point is understanding what Canada’s securities system actually is, and what it is not. 

In this article:

1. Canadian securities regulatory regime 

The regulation of the sale and distribution of securities in Canada is a matter of provincial and territorial jurisdiction. In Canada (unlike in the U.S.), there is no national or federal securities legislation, although there have been long-term and unsuccessful efforts towards attempting to develop a federal system. Each of Canada’s 10 provinces and three territories is responsible for and has its own system of securities regulation, and its own securities regulatory authority (e.g., the Ontario Securities Commission).  

The absence of a federal securities regulator is the first structural difference that foreign companies must internalize. A securities offering in Canada is not filed with a single national regulator. It is filed with the securities regulatory authority of each province and territory in which securities are distributed. In practice, the passport system administered by the CSA (defined below) allows issuers to file in one principal jurisdiction and have that filing accepted by other CSA members, but Ontario does not participate in the passport system and requires its own filing. For any offering that includes Ontario investors, which includes virtually every significant Canadian offering, Ontario is a separate regulatory touchpoint. 

Even though securities regulation in Canada is not centrally governed, an umbrella organization of Canada’s provincial and territorial securities regulators called the Canadian Securities Administrators (CSA) has been created.  The objective of the CSA is to improve, coordinate and harmonize the regulation of the Canadian capital markets. The CSA has generally been successful in harmonizing most of Canada’s provincial and territorial securities regulations and the CSA has also created and adopted mutual reliance procedures amongst its members for filing and clearing prospectuses, reviewing other disclosure filings under SEDAR+ (the Canadian equivalent to EDGAR), managing the registrations of those persons and companies required to be registered, as well as cooperating with interprovincial and international enforcement investigations and tribunal hearings.  

In Canada, both the trading of securities and the persons and companies, such as dealers and advisors, who participate in the trading process, are governed by securities legislation. Any person who is in the business of trading in securities or is in the business of providing investment advice about securities, or acts as an investment fund manager in Canada, must be registered with the applicable CSA member and must meet and maintain certain proficiency requirements, unless there is an available registration exemption.  

Foreign securities brokers, dealers and advisors operating in Canada, including those providing services to Canadian-resident clients from outside Canada, must assess their registration obligations before any Canadian-facing activity begins. The “international dealer” and “international adviser” exemptions are available in some provinces for cross-border activity but are not uniform across jurisdictions and do not apply in all circumstances. 

Investment dealers in Canada are required to become members of the Canadian Investment Regulatory Organization (CIRO), which is similar to FINRA in the U.S. and has its own additional rules.   

Raising capital in Canada: the prospectus requirement and its exemptions 

When a distribution of securities occurs as a result of the issuance of new shares, bonds, or investment contracts, a detailed prospectus is required, unless an exemption applies. The prospectus is a fulsome disclosure document reviewed and cleared by the relevant securities regulator. Preparation, filing, and regulatory review typically takes three to six months for a full prospectus and involves significant legal, accounting, and filing costs. For most private placements and exempt offerings, the prospectus requirement is avoided entirely through one of the exemptions below. 

The most important prospectus exemptions for foreign companies raising capital in Canada

The accredited investor exemption is the most commonly used exemption for private placements in Canada. An investor who qualifies as an accredited investor under National Instrument 45-106 may purchase securities without a prospectus. The current thresholds for individual accredited investors are: 

• Income test: annual net income exceeding C$200,000 in each of the last two years (or C$300,000 combined with a spouse), with a reasonable expectation of maintaining that level in the current year 
• Financial asset test: financial assets (cash and securities, net of liabilities) exceeding C$1,000,000 
• Net asset test: net assets of at least C$5,000,000 

Entities, such as corporations, trusts, and partnerships, qualify as accredited investors if they have net assets of at least C$5,000,000 as shown on their most recently prepared financial statements. 

Issuers relying on the accredited investor exemption must obtain a signed risk acknowledgement from each individual investor and file a report of exempt distribution with the relevant securities regulator after closing. Failure to properly verify accredited investor status, and document that verification, exposes the issuer to regulatory enforcement and gives investors rescission rights. Verification cannot be casual. 

The friends, family, and business associates exemption allows certain investors to purchase securities on a prospectus-exempt basis based on their relationship with the issuer or its directors and officers. 

The minimum amount investment exemption allows a person that is not an individual, and was not created solely to make the investment, to purchase securities on a prospectus-exempt basis where they invest a minimum of C$150,000 in cash at the time of distribution. 

The Listed Issuer Financing Exemption (LIFE) allows eligible public companies to raise capital efficiently without filing a prospectus, enabling investors to acquire new free-trading shares with no required hold period. This exemption has become increasingly used by TSX and TSXV-listed issuers as a faster and lower-cost alternative to a full prospectus offering for follow-on financings. 

2. Canadian stock exchanges 

The Toronto Stock Exchange (the “TSX”) and the TSX Venture Exchange (the “TSXV”) are the two largest stock exchanges in Canada. The TSX is Canada’s senior exchange, intended for established issuers with a track record of operations. The TSXV is primarily for junior and development-stage that have not met certain requirements for listing on the TSX. A third Canadian exchange is the Canadian Securities Exchange (the “CSE”) which offers an opportunity for micro-cap and emerging growth companies to list their shares with a reduced barrier to listing and reduced ongoing listing requirements as compared against both the TSX and TSXV.  

All companies listed on the TSX, TSXV and CSE are required to complete a listing application to the respective exchange which allows the exchange to assess whether the applicant company meets its specific listing criteria. In addition, any company seeking to go public in Canada must file audited consolidated financial statements for two to three years preceding the listing date, which generally must be prepared in accordance with IFRS.   

While the TSX, TSXV and CSE each have differing threshold requirements for accepting an application to list on the respective exchange, certain factors considered by the exchanges include, a record of successful operations, sufficient experience and expertise of the management of the applicant company, whether the company has or has access to capital sufficient to operate the company and its business plan for the subsequent 12 months, and whether there are sufficient outstanding securities in order for there to be a viable market in the trading of the company’s listed securities. There are typically additional listing requirements and levels of scrutiny for companies whose principal business operations or operating assets are primarily located in or conducted from a jurisdiction outside Canada, the United States, Australia, New Zealand or Western Europe.   

Once a company is listed in Canada, each exchange will have ongoing listing requirements related to corporate governance, ongoing disclosure (in addition to corporate and securities laws requirements) and approvals for certain share issuances or amendments to certain organizational and other key corporate documents. Failure to meet such ongoing listing requirements may lead to, among other things, the issuer being delisted from the exchange.   

What makes Canada’s equity markets distinctive for foreign issuers, and why it matters 

The threshold size at which a Canadian IPO is viable is materially lower than in the US. 

The securities regulatory regime in Canada and the rules of the country’s stock exchanges have been developed in a manner to foster efficient capital raising opportunities for small-capitalization companies.  The policies and rules have been designed in a manner whereby compliance costs are minimized as compared to other jurisdictions such as the U.S., without sacrificing investor protections.  As a result, the threshold size and valuation whereby a company will pursue an initial public offering (IPO) in Canada is typically much smaller than in the U.S.  Programs such as the TSXV’s capital pool program (CPC) have be specifically designed to foster relatively inexpensive and efficient go-public transactions, which has become the most common IPO route for new listings on the TSXV. 

While many sectors are important in the Canadian economy and capital markets, mining remains Canada’s most durable public market strength, both domestically and internationally.  Canada continues to occupy a unique position within global mineral-resource finance. The TSX, TSXV and CSE collectively support one of the world’s most sophisticated and prolific mining finance ecosystems.  Canada’s National Instrument 43-101 provides a “best-in-class” comprehensive disclosure framework governing scientific and technical information for mining companies, while investors, regulators, analysts, lawyers, accountants and technical consultants possess decades of experience evaluating everything from upstart mineral exploration and development projects to long-producing mining companies. 

3. Cross-border offerings: the multijurisdictional disclosure system  

The multijurisdictional disclosure system (the “MJDS”) is a cooperative effort between the U.S. Securities and Exchange Commission (the “SEC”) and Canadian provincial securities regulators. It was established to facilitate cross-border securities offerings between the two countries.   

The MJDS operates in two directions, and foreign companies need to understand both: 

The northbound MJDS enables U.S. issuers to offer securities in Canada following SEC regulations. It encompasses various activities such as rights offerings, takeover and issuer bids, business combinations, approved debt and preferred share offerings, as well as securities offerings by specific large issuers. Similarly, qualified Canadian issuers can access U.S. capital markets through the southbound MJDS rules.  

The southbound MJDS, enables Canadian issuers to offer securities in the United States using a prospectus prepared in accordance with Canadian securities rules, while also incorporating specific additional disclosures. To qualify for the southbound MJDS, a Canadian “foreign private issuer” (excluding “investment companies” as defined by U.S. legislation) must have complied with the continuous disclosure requirements of any provincial securities regulator for a period of 12 calendar months and the issuer’s aggregate market value of equity shares must be at least US$75 million.  

4. Public company mergers and acquisitions 

In general, mergers and acquisitions of public companies are regulated under Canadian securities law, general corporate law, and the common law (precedent set by courts of competent jurisdiction).  

Procedural and substantive fairness requirements must be satisfied in order for transactions to be completed. These safeguards attempt to ensure that good corporate governance practices are followed, good disclosure is provided to investors, and that mergers and acquisitions are completed with procedural fairness.   

Early warning disclosure is triggered when an investor acquires 10% or more of a public company’s voting shares (or securities convertible into voting shares).   

Take-over bids are triggered when an investor makes a bid to acquire 20% or more of a public company’s voting shares, subject to certain exemptions.  A take-over bid in Canada must remain open for at least 105 days, all shareholders must be offered the same consideration, and a minimum tender condition of more than 50% of the outstanding shares (excluding shares held by the bidder) must be met before the bid can be taken up. The 105-day minimum — which can be shortened to 35 days with target board approval — is a material timeline constraint that must be built into transaction planning from the outset. 

There are additional regulatory requirements for publicly traded companies that are involved in any transactions with related parties or any issuer bid or insider bids.  These types of transactions result in additional disclosure requirements and include requirements for formal valuations and/or the approval of the majority of the minority shareholders, subject to certain exemptions.   

What to do before acquiring a significant position in a Canadian public company 

• Map the early warning thresholds against your acquisition plan, filing obligations at 10% and each 2% increment are not optional and carry market disclosure consequences.
• Assess whether your acquisition constitutes a take-over bid before crossing 20%, the 105-day minimum tender period and the all-holders equal-treatment requirement have significant transaction structuring implications.
• Identify any related party transaction requirements that apply to your specific transaction, formal valuation and minority approval requirements can add time and cost that must be factored into deal certainty provisions.
• Assess whether your transaction also triggers Investment Canada Act (ICA) review, a public company acquisition that crosses the ICA thresholds requires simultaneous foreign investment and securities law analysis.

5. Insider trading and reporting 

In Canada, securities laws prohibit insiders of a publicly traded company and other individuals with privileged access to material information that has not been generally disclosed to the public (i.e. those in a special relationship) from engaging in purchasing or selling securities of that company while possessing such knowledge.   

It is also illegal in Canada for a person in a special relationship with a publicly traded company to communicate any confidential material information about the company to another person, unless such communication is in the necessary course of business.  Similarly, it is illegal for a person in a special relationship with the publicly traded company to give any investment advice or recommendations about the company while in possession of confidential material information about the company. 

Directors, senior officers and large (10% or more) shareholders of a public company are “reporting insiders” and they must publicly report all their securities transactions involving their company’s securities.  Reporting insiders are required to file an insider report on the System for Electronic Disclosure by Insiders (SEDI) within five days of any change in their beneficial holdings.  

Foreign executives who join the board of a Canadian public company become reporting insiders from the date of appointment. Every acquisition, disposition, or pledge of the company’s securities, including shares received as compensation, must be reported on SEDI within five days. Late filings are a regulatory offence and a reputational issue in Canada’s capital markets, where insider trading compliance is actively monitored. 

How Miller Thomson can help 

Canada’s securities regulatory environment rewards issuers, investors, and acquirors who understand its structure, the provincial framework, the passport system and its Ontario exception, the prospectus exemptions that make private placements efficient, the exchange listing paths that are genuinely accessible to growth-stage companies, and the insider trading and reporting obligations that apply from the moment a foreign executive joins a Canadian board or receives material non-public information. 

Miller Thomson’s capital markets and securities team advises foreign companies and investors across the full spectrum of Canadian securities law, from private placements and prospectus offerings through exchange listings, cross-border MJDS transactions, public company M&A, take-over bids, and regulatory compliance. Our national presence means we can coordinate securities advice with the ICA review, competition law, and tax structuring that frequently arise in the same transaction, because the companies that close Canadian transactions efficiently are the ones that treat these as connected disciplines, not parallel silos. 

Speak with a Miller Thomson Capital Markets and Securities lawyer about your Canadian capital markets strategy