Report scams & complaints

Complaints about an investment in a private company

In British Columbia, private companies issue millions of securities every year. Their shares are sold outside of stock exchanges, and people often buy them without the advice of a investment firm or representative. Most are start-up businesses, so these investments are very risky.

Taking Stock of Start-Ups explains what private companies must do to legally raise money in private transactions and the risks of investing in private companies. Some of the information is provided below.

How to know if a private company has broken securities law

Although private companies do not have to file a prospectus with the BCSC to sell their securities, they must comply with the Securities Act, which limits how and to whom they can sell their securities. The following is a brief list of the rules they must follow. A private company may sell you its securities under exemptions. However, if it does not provide you with an “offering memorandum,” or you do not qualify under an exemption, the sale may be illegal.

Offering memorandum: This is a legal document about the investment that must include a detailed explanation of the company’s business, its financial statements, the risks of the investment, and how the company plans to use the money it raises from investors.

A company can sell its securities to you without an offering memorandum only under these exemptions:

  • You qualify as a close relative, friend or business associate of one of the principals of the company: This means only a spouse, parent, grandparent, sibling, child, or in-law, or a close friend or close business associate with a direct, longstanding personal or business relationship with a principal of the company.
  • You are an "accredited investor": To qualify you must have at least $1 million in financial assets (not including real estate) before taxes, net of any debts; or your net income before taxes must be more than $200,000, or $300,000 combined with your spouse’s income.
  • You are investing $150,000: You must put up the whole amount — you cannot pool your funds with other people to come up with the full amount.

To learn more about capital raising exemptions, you can read Part 2 of National Instrument 45-106 Prospectus and Registration Exemptions new window.

These claims and tactics used to promote an investment are illegal

A company cannot make the following claims to promote the sale of its securities:

  • saying that the company will refund all or some of your investment or buy back the securities
  • making promises that the value or price of the securities will be higher at a future date

High-pressure sales tactics, promises of spectacular returns, or guarantees that a company will go public are warning signs of a dangerous or fraudulent investment. 

Complaints about private companies should be reported to the BCSC

If you believe that a private company has broken any of these rules in selling you its securities, you can fill out a BCSC complaint form or contact us  to find out your alternatives. You can also:

  • check our disciplined persons list new window for the names of individuals associated with the company
  • look for decisions and orders new window against the company in BC
  • call us to determine whether the company or any of its directors and officers have been disciplined for securities violations.

If you are looking to get your money back

Securities of private companies are not traded on public markets. Therefore, it will be difficult, or impossible, to sell the securities or get your money back if you need it or change your mind about the investment.

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