Securities laws apply to "private issuers" and not just to public companies listed on stock exchanges. Canadian securities laws apply to every corporation or partnership that has issued, or proposes to issue, securities (including common shares and stock options). This means that any new issuance of securities requires the filing of a prospectus, unless an exemption from the prospectus requirement is available under the securities laws. Common exemptions used by companies that are not public include the "accredited investor exemption" and the "minimum amount investment exemption" (both of which are discussed below) and the "private issuer exemption". A "private issuer" means a corporation or partnership that:

- is not a reporting issuer (as defined under the securities laws, but generally meaning has not filed a prospectus with Canadian securities regulators), mutual fund or pooled fund;

- has less than 50 security holders, excluding employees and former employees;

- has restrictions on the transfer of its securities in its articles, bylaws or shareholders agreement; and

- has sold its securities only to the certain categories of persons set out in section 2.4 of National Instrument 45-106 – Prospectus and Registration Exemptions ("NI 45-106").

When a startup issues securities, particularly when it is first incorporated or formed, it typically relies on an exemption from the prospectus requirement known as the "private issuer exemption", which allows it to issue securities to, among others, directors, officers, employees, founders or control persons of the startup and family members, close personal friends or close business associates of directors, officers, founders or control persons of the startup, without having to file reports or pay fees with the applicable securities commissions.

Once a startup loses its status as a "private issuer", it cannot regain that status, and it may, in connection with the issue of securities, be subject to filing requirements, regulatory fees (for example, in Ontario, if the "accredited investor exemption" described below is used, a form must be filed and a $500 fee is payable to the Ontario Securities Commission) and the application, in some cases, of more stringent prospectus exemptions.

If the "private issuer exemption" is no longer available to a startup, it can rely on other exemptions from the prospectus requirement, including, but not limited to, the "employee, executive officer, director and consultant exemption", which allows a company or partnership to issue shares or stock options to employees, executive officers, directors and consultants, provided the participation of those persons in the issue of the securities is voluntary, the "accredited investor exemption" and the "minimum amount investment exemption".  The accredited investor exemption allows a company or partnership to sell securities to qualified investors who meet the definition of "accredited investor" without having to file a prospectus. The definition of "accredited investor" includes, but is not limited to:

- An individual who, alone or together with a spouse, (i) owns financial assets worth more than $1 million before taxes but net of related liabilities or (ii) has net assets of at least $5,000,000

- An individual whose net income before taxes (i) exceeded $200,000 in both of the last two years and who expects to maintain at least the same level of income this year or (ii) combined with that of a spouse, exceeded $300,000 in both of the last two years and who expects to maintain at least the same level of income this year

- Financial institutions

- Most Crown corporations

- Companies with net assets of at least $5 million

Under the minimum amount investment exemption, if a purchaser buys at least $150,000 worth of securities in cash, the company or partnership does not have to file a prospectus in connection with that purchase of securities.

For more information on the accredited investor exemption, the minimum investment amount exemption, and other prospectus exemptions that startups may be able to rely upon when raising financing, please see The Startup Guide – Financing the Business.