Private companies
What is investing in private companies?
Like public companies 
, private companies can sell their securities—shares, limited partnership units, bonds, and undivided interests in land—directly to investors, rather than through registered salespeople. However, they are subject to different rules than public companies and that leads to additional risks. Unlike public companies, they rarely use an independent underwriter to investigate the company and its management.
Private companies are exempt from continuous disclosure and prospectus requirements, and instead may offer their securities to family, friends or accredited investors with no required disclosure or to anyone using an offering memorandum (OM) . An OM must meet fewer and less time sensitive disclosure requirements than a prospectus. It’s important to understand that securities regulators do not review OMs before the securities are offered to investors.
What risks do they have?
Investing in private companies can be very risky. Private companies using the OM exemption must present investors with 'Risk Acknowledgement' form 
that says, “I acknowledge that this is a risky investment and that I could lose all the money I invest” and which the purchaser must sign. It’s important to understand that securities regulators do not review OMs before the securities are offered to investors.
Before investing in any securities described by an OM, read the ‘risk acknowledgment form’ and then consult a lawyer, accountant, financial adviser, or someone with business expertise who is not connected with the investment. Seeking high-quality advice will help you determine whether the company has a good chance of success.
Can you sell them easily?
No. Almost all private company securities have resale restrictions. If the company never reaches the stage when more disclosure is required (for example, trading on a stock exchange) then the resale restrictions may remain indefinitely and you may never be able to sell your shares. Even if resale is possible, you may find there is no market for the shares you acquired.
What are the associated costs?
Sales representatives often earn a high commission for selling you shares in a private company. Administrative and legal costs may be indirect costs you will bear.
What is the expected type of returns?
If the company decides to sell to a buyer, you will receive whatever share price is offered. If the company eventually goes public, you can sell your shares on the public market. Either way, you could earn capital gains or losses.
Some private companies raise money by setting up limited partnerships . Cash is distributed annually, similar to a dividend , to unit holders under terms set out in the partnership agreement.
For more information see Private company investing and our Worksheet investing in private companies .