The basic principle in Canada and the U.S. is a distribution of securities has to be made pursuant to a prospectus for which a receipt has been obtained from the regulators and they must be sold by a registered dealer. This is not to say securities regulators are living in the dark ages with respect to the Internet. Private companies seeking to attract investment capital must pay close attention to these laws. The definition of security is broad. In general, securities laws require prospectus-type information to be disclosed to any investors.
Most people encounter a prospectus when they purchase stocks or mutual funds.
There are some exemptions to the prospectus and registration requirements. Articles of incorporation for private companies include clauses saying it may have no more than 50 shareholders and a requirement of director or shareholder approval of share transfers. Securities laws and exemptions are technical and the consequences of failing to comply with them can be severe. No company can afford to venture into this area without obtaining competent advice. You can in our Columnist newsgroup.