Private Company Investments – Questions to Consider
As RRSP season ramps up in February, you will start seeing many advertisements for investment products. There are different investment products available to you, so you need to do your research before you make an investment decision. If you are thinking about investing in a private company now, or at any time during the year, there are many questions to consider.
BCSC InvestRight offers a free Guide to Investing: The Private Placement Market for Retail Investors and a short, animated video on the private placement market. These resources will help you get a better understanding of private placement investments and the questions you should be asking.
Questions About Private Company Investments
Can I invest in a private company?
Securities laws require private companies to ensure that their investors are eligible to purchase their securities using the correct exemption. It is up to you to protect your own interests by knowing what exemption the company is using to sell you its securities. If you are considering a private placement investment for your RRSP, you need to make sure it qualifies by getting independent tax and legal advice.
What is the sales situation?
Always ask someone if they are registered to sell investments. It the answer is no, you may want to contact the BCSC to ask exactly what this means.
What are the risks?
The failure rate of start-up businesses is high compared to established businesses with a history of successful operations. A failed business is unlikely to return your capital, let alone give you a return.
Can I sell them easily?
Securities of private companies sold under an exemption are usually subject to very strict resale rules. These restrictions mean that you may not be able to get your money out when you need or want to. Ultimately, you may never be able to sell your shares.
More Information About Private Company Investments
Our Private Company Investments page walks you through more questions that you should be asking before you invest. Like any investment decision, it is important to consider all of your options before making your decision.
This video, Informed Investing: Private Placements, may also help investors considering a private company investment.
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using BCSC’s online complaint form.
InvestRight.org is the British Columbia Securities Commission’s investor education website.