This distinction matters when an entity wants to purchase private-market securities offered without a prospectus. Before accepting the investment, the issuer or dealer will normally ask for documents showing how the entity qualifies.
What Is an Accredited Investor?
Accredited investor status is part of Canada’s exempt-market framework. It allows certain investors to buy securities under the accredited investor prospectus exemption, but it does not mean a regulator has approved the investment or that it is low risk.
When discussing Canadian accredited investors, consider who is making the purchase: the person, corporation, partnership, estate, or trust named on the subscription agreement.
How a Corporation May Qualify
The common route for a corporation is the entity asset test. A person other than an individual or investment fund may qualify if it has net assets of at least $5 million, based on its prepared financial statements.
Net assets generally mean total assets minus total liabilities. The corporation should expect the seller to review financial statements rather than rely on an owner’s verbal estimate.
A corporation may also qualify when all owners of its interests—whether direct, indirect, or beneficial—are accredited investors. This route requires careful review of the ownership chain. One non-qualifying beneficial owner may prevent the entity from relying on this category.
How a Trust May Qualify
A trust may use the same $5 million entity test, provided it is not treated as an individual or investment fund, and its latest financial statements support the required net-asset level.
Other categories may apply in narrower situations. For example, a regulated trust company acting for a fully managed account can qualify. A trust may also qualify through the all-owners category, but determining who holds the relevant beneficial interests can be complex.
The fact that a settlor, trustee, or beneficiary qualifies personally does not automatically settle the trust’s status. You need to examine the trust deed, beneficial ownership, management arrangement, and applicable category.
Documents Commonly Requested
An issuer, dealer, or fund manager may request:
- Current financial statements
- Corporate ownership records or a shareholder register
- The trust agreement or deed
- Details of direct and indirect beneficial owners
- A completed accredited-investor certificate
- Supporting confirmation from legal or accounting advisers
The exact request depends on the exemption being used and the investor’s structure. Keeping these records current can reduce delays during subscription review.
Accredited Status Does Not Remove Investment Risk
Qualifying as an accredited investor only addresses eligibility under a prospectus exemption. It does not guarantee liquidity, income, capital protection, or suitability.
Before purchasing units in a private REIT in Canada, an entity should examine fees, redemption restrictions, valuation methods, debt levels, distributions, conflicts of interest, and tax treatment. Corporate and trust investors should also obtain advice suited to their structure, province, and objectives, since securities and tax consequences can differ.
