Step-by-Step Guide to Setting Up a Mortgage Investment Corporation (MIC) in Ontario

Setting up a Mortgage Investment Corporation (MIC) in Ontario requires careful planning and compliance with both federal and provincial regulations. This step-by-step guide provides a comprehensive approach, ensuring that your MIC is structured properly and meets all legal and tax requirements.

STEP 1 – Determine Your Securities Exemption Strategy (if applicable)

The first step in establishing a Mortgage Investment Corporation (MIC) in Ontario is determining whether your MIC will operate as an exempt issuer under Canadian securities law or whether you will proceed with a prospectus-qualified offering. In virtually all private MIC structures, the corporation raises funds under one or more prospectus exemptions available under National Instrument 45 106, Prospectus Exemptions. These exemptions allow MICs to raise capital without the costly and time-consuming process of preparing and filing a full prospectus with securities regulators. Commonly used exemptions include the, private issuer exemption, the accredited investor exemption, which limits participation to high-net-worth individuals and institutions, and the offering memorandum exemption, which permits sales to a broader group of investors provided that a detailed offering memorandum is delivered and specific investor qualification and risk acknowledgment requirements are met.

This decision is important because the chosen exemption will shape the MIC’s compliance structure, investor documentation, offering materials, marketing restrictions, and reporting obligations. For example, if the MIC relies on the accredited investor exemption, exempt distribution reporting to the Ontario Securities Commission may be required. By contrast, the private issuer exemption is generally the least onerous from a securities filing perspective, but it is also narrower and more restrictive, as it is only available where the issuer and investors satisfy specific conditions, including limits on the number and type of security holders. Selecting the correct exemption strategy at the outset is therefore critical, as it will determine not only who may invest in the MIC, but also the legal and compliance framework required to support the capital raise.

In contrast, a non-exempt MIC—one that conducts a public offering with a prospectus—must undergo rigorous regulatory scrutiny, file a full prospectus with the Ontario Securities Commission, and comply with continuous disclosure obligations similar to those of public companies. This structure is uncommon except for large, publicly traded MICs or real estate investment entities seeking access to broader capital markets. A prospectus-qualified MIC may appeal to those planning a large-scale operation with institutional-grade governance, but it comes with substantial legal, accounting, and regulatory burdens.

For most entrepreneurs and private founders, relying on a securities exemption provides a practical and cost-effective path to raising capital while maintaining tighter control and avoiding the public reporting requirements of a listed issuer. Selecting your exemption strategy at the outset will guide the drafting of your corporate documents, offering materials, and compliance framework. It also impacts how you can advertise your MIC, the types of investors you can accept, and the ongoing reporting you must undertake. Legal advice is essential at this stage to ensure the exemption you choose aligns with your MIC’s capital-raising goals and operational realities.

STEP 2- Set Up the Corporation with a Compliant Structure

Once you have decided on your securities exemption strategy, the next step is to incorporate the Mortgage Investment Corporation. This should be done with the guidance of an experienced corporate or tax lawyer who is well-versed in the specialized rules that apply to MICs under the Income Tax Act and related securities and corporate legislation. The incorporation process is not a standard one-size-fits-all exercise. MICs are highly regulated vehicles with specific structuring requirements, and failing to adhere to these rules can result in the loss of their special tax status.

Your legal advisor will help prepare and file the Articles of Incorporation, draft the share structure, create bylaws, and ensure that the governance framework aligns with statutory requirements. One of the most critical elements at this stage is designing a share structure that is compliant with section 130.1 of the Income Tax Act. This often involves issuing multiple classes of shares—typically voting common shares for founders and non-voting preferred shares for investors. Your lawyer must carefully navigate ownership and control limitations to ensure the MIC qualifies for the favourable tax treatment it is intended to receive.

Key rules that must be respected when structuring a MIC include:

No individual investor (alone or together with their spouse or minor children) can own more than 25 percent of any class of shares in the MIC at any time. This rule is assessed on a per-class basis, meaning it applies separately to each class of shares issued.
The MIC must have at least 20 shareholders throughout each taxation year. This test is met if there are 20 or more distinct shareholders recorded on the corporation’s share register. While this requirement is waived during the MIC’s first fiscal year, it must be satisfied on an ongoing basis thereafter.
At least 50 percent of the MIC’s assets must be residential mortgages or cash and insured deposits held in respect of such mortgages. This test is relevant when selecting the MIC’s investment focus but also affects how the share rights are structured to reflect the underlying asset mix.
If the MIC issues preferred shares (which is common), the dividend entitlements must comply with section 130.1 of the Act. Preferred shareholders must receive their fixed dividends first, and once they and common shareholders have received equivalent per-share dividends, both classes must participate equally in any surplus distribution.

A properly structured MIC should be able to issue shares to investors under the applicable securities exemption and comply with both the technical requirements of the Income Tax Act and the expectations of private investors. Your legal team will also help ensure the MIC’s share classes and rights are clearly defined in the Articles of Incorporation and supported by appropriate shareholder agreements and offering documents. Incorporating the MIC correctly from the outset avoids expensive restructuring later and ensures the company is positioned to operate and raise capital in full compliance with the law.

STEP 3 – Set Up the Management Company and Operating Structure

In many MIC structures, the founders establish a separate management company to manage the business and operations of the MIC. The management company may be responsible for sourcing mortgage opportunities, coordinating underwriting, liaising with mortgage brokers and administrators, overseeing the mortgage portfolio, preparing investor reporting, coordinating distributions, and handling the general business affairs of the MIC.

The licensing structure must be considered carefully. Depending on the activities performed, the management company may need to hold a mortgage brokerage licence, a mortgage administrator licence, both, or engage properly licensed third-party service providers. For example, a mortgage brokerage licence may be required where the manager or a related entity is dealing in mortgages, arranging mortgage transactions, lending as a mortgage lender, negotiating renewals, or conducting other regulated mortgage brokering activities. A mortgage administrator licence may be required where the manager administers mortgages, including receiving borrower payments, remitting funds to the MIC, or taking steps to enforce payment under mortgages. Alternatively, the MIC may outsource some or all of these functions to licensed third-party mortgage brokerages and mortgage administrators. s.

A written management agreement should also be prepared between the MIC and the management company. This agreement should clearly set out the manager’s duties, authority, compensation, reporting obligations, conflict-of-interest rules, expense reimbursement rights, termination rights, regulatory compliance obligations, and the scope of any outsourced services. The agreement should also clarify whether the manager will receive a management fee, origination fee, servicing fee, performance fee, borrower-paid fees, or reimbursement of expenses. Properly documenting the relationship between the MIC and the management company is important because the manager’s compensation, authority, and regulatory obligations will affect both the MIC’s operations and the disclosures made to investors.

STEP 4 – Prepare the MIC’s Corporate, Investment and Compliance Documents

Once the MIC structure, securities exemption strategy, management company, and licensing model have been determined, the next step is preparing the required legal, investment and compliance documents.

This is a critical stage in the process because the documents must be tailored to the MIC’s specific structure. A MIC relying on the private issuer exemption, for example, will not necessarily use the same subscription package, investor acknowledgments, disclosure materials, or compliance process as a MIC relying on the accredited investor exemption, the offering memorandum exemption, or another securities-law exemption.

The required documentation may include corporate records, subscription agreements, investor eligibility confirmations, disclosure materials, management agreements, mortgage administration agreements, internal policies, securities-law filing documents, and ongoing minute book records. The specific documents required will depend on the MIC’s capital-raising strategy, investor base, share structure, management arrangement, mortgage lending model, and regulatory obligations.

It is also highly recommended that the founders of the MIC’s management company enter into a shareholder agreement. This agreement should address ownership, decision-making, compensation, duties of the principals, transfer restrictions, exit rights, deadlocks, disputes, confidentiality, and what happens if a founder leaves the business. In many MIC structures, the management company is the operating engine of the business, so the relationship among its shareholders should be carefully documented at the outset.

The MIC’s minute book should also be kept up to date on an ongoing basis. This includes maintaining proper corporate records, documenting material decisions, approving share issuances, recording distributions, maintaining shareholder registers, and ensuring that the corporation’s records remain consistent with its tax, securities, and corporate-law obligations.

Because MICs involve a combination of corporate law, securities law, mortgage regulation, tax compliance, investor relations, and ongoing governance, the documents should not be prepared in isolation or copied from generic templates. A properly prepared document package should reflect the MIC’s actual business model, exemption strategy, management structure, licensing arrangements, investor disclosures, and long-term compliance needs.

STEP 5 – Raise Capital from Investors

Once the corporation has been properly structured and incorporated, the next step is to begin raising capital from investors. This is typically done by issuing non-voting preferred shares to passive investors, who contribute funds in exchange for the right to receive dividends generated from the MIC’s mortgage investments. The capital raised at this stage becomes the foundation for the MIC’s lending activity and long-term viability.

Since most MICs rely on prospectus exemptions under National Instrument 45-106, it is essential that all investors meet the requirements of the exemption being used. Accredited investors, for example, must meet prescribed income or asset thresholds, while non-accredited investors can be admitted only if an offering memorandum exemption is used and additional disclosure obligations are satisfied. Each investor must sign a subscription agreement confirming their eligibility and acknowledging the risks associated with the investment.

It is also important to understand how the shareholder count affects the MIC’s eligibility under the Income Tax Act. Section 130.1 of the Act requires that a MIC have a minimum of 20 shareholders at all times. However, the legislation provides a degree of flexibility during the MIC’s first year of operation. Specifically, the shareholder-count and 25 percent ownership tests are deemed to be met during the first taxation year so long as they are satisfied at the end of that year. This means the MIC can initially raise funds from a smaller group of investors—often four or five founders or early supporters—and work toward reaching the 20-shareholder minimum before the end of its first fiscal year.

Despite this initial flexibility, founders should plan their capital-raising strategy carefully to ensure that by the end of year one, the MIC has:

At least 20 distinct shareholders recorded on its share register
No person (including related persons such as spouses or minor children) owning more than 25 percent of any class of shares

To build the investor base, many MICs rely on personal networks, referrals, or licensed exempt market dealers who help identify eligible investors. It is critical to keep accurate records of share subscriptions, ensure that investor qualification documents are properly completed, and file applicable exempt distribution reports with the Ontario Securities Commission. Your legal team will play an important role in overseeing compliance with securities laws and ensuring that your MIC remains on track to meet all shareholder-related requirements by the end of its first taxation year.

STEP 6 – Meet Taxation, Legal, and Accounting Requirements Annually

Once the MIC is operational and has raised capital, it must comply with a series of ongoing taxation, legal, and accounting obligations to preserve its eligibility under the Income Tax Act and to maintain investor confidence. Annual compliance is essential for the MIC to benefit from its flow-through tax treatment and to meet the standards expected by regulators and shareholders.

From a taxation perspective, the MIC is required to distribute one hundred percent of its net income each year to its shareholders. This income, which is primarily generated from interest earned on mortgage loans, must be paid out as dividends in order to avoid corporate-level tax. The MIC must file a T2 corporate tax return annually and issue T5 slips (or other relevant tax slips) to investors to report their share of income. A key component of maintaining tax compliance is ensuring that all income distributions are properly calculated and made by the end of the taxation year.

On the legal side, the MIC must ensure that its corporate records are kept up to date. This includes preparing annual shareholder and director resolutions, maintaining the corporate minute book, filing the annual corporate return, and ensuring that the share register is current and accurate. If the MIC issues new shares throughout the year under a specific prospectus exemption, it may be required to conduct filings with the Ontario Securities Commission within a set time of each distribution. Any material changes to the MIC’s business or capital structure may require updated offering documents or legal amendments.

From an accounting standpoint, MICs must prepare accurate annual financial statements. Many MICs may be required to undergo an audit, particularly if they have multiple investors or are relying on the offering memorandum exemption, which typically requires audited financial statements. These financials must reflect the MIC’s income, expenses, mortgage portfolio, and shareholder distributions. An experienced accountant will also help ensure that the MIC’s dividend policy complies with the Income Tax Act and that all tax slips issued to investors are accurate and filed on time.

Meeting these ongoing requirements is critical to the MIC’s continued success. Setting aside a budget for legal and accounting professionals each year is advisable to avoid compliance issues and to ensure that the MIC remains in good standing with tax authorities, securities regulators, and its investors. A properly maintained MIC is not only compliant but also instills trust and transparency in its investor base.

After the MIC has been established and initial compliance measures are in place, attention must shift to the long-term management and governance of the corporation. Effective oversight is essential for operational efficiency, investor confidence, and sustained regulatory compliance. Decisions made at this stage will determine how the MIC functions on a day-to-day basis and who is responsible for its key activities, including mortgage origination, administration, investor relations, and regulatory filings.

In terms of governance, the MIC must maintain a board of directors that is competent, engaged, and capable of exercising independent judgment. Although the Income Tax Act does not require a specific number of directors, corporate legislation (such as Ontario’s Business Corporations Act) mandates that a corporation have at least one director, with many MICs opting for three or more to ensure adequate oversight and institutional credibility. Founders often serve as directors initially, but as the MIC grows, it may be prudent to introduce independent directors with expertise in finance, real estate, or compliance.

It is also advisable to adopt formal governance policies, including a code of conduct, conflict of interest procedures, and regular board meetings with documented minutes. These practices help demonstrate to investors and regulators that the MIC is being managed in a prudent, professional, and transparent manner. Over time, as the MIC raises more capital and expands its lending activity, good governance becomes increasingly important—not only to protect investors but also to support operational scalability and regulatory defensibility.

FREQUENTLY ASKED QUESTIONS

HOW MUCH DOES IT COST TO SET UP A MIC IN ONTARIO?

The cost to set up a Mortgage Investment Corporation (MIC) in Ontario varies depending on the complexity of the structure and the calibre of professional advisors involved. For a basic setup involving incorporation, a simple share structure, and minimal legal drafting, a boutique or small law firm may charge between $15,000 and $25,000 in legal fees. If the MIC requires a more comprehensive structure, such as multiple classes of shares, an offering memorandum, shareholder agreements, and the establishment of a management company, legal fees can range from $25,000 to $50,000 or more. Mid-sized firms typically charge between $20,000 and $35,000 for moderately complex setups, while large Bay Street firms may charge upwards of $60,000 to $100,000 for full-service structuring and compliance.

In addition to initial legal fees, government incorporation costs under the Ontario Business Corporations Act are approximately $300, with minor additional fees for name searches or NUANS reports. From an accounting perspective, the MIC must also engage professionals to prepare annual financial statements and corporate tax filings. For MICs that do not require an audit, basic annual accounting fees may range from $5,000 to $10,000. However, if the MIC operates under the offering memorandum exemption or has a large investor base, an annual audit may be required or expected by shareholders, in which case the cost can increase to $15,000 to $30,000 depending on the size of the MIC and the firm conducting the audit.

DOES A MIC HAVE TO BE LICENSED AS A MORTGAGE BROKERAGE?

Generally, no. A MIC does not necessarily need to be licensed as a mortgage brokerage in Ontario if it carries on its mortgage lending activities solely through a licensed mortgage brokerage or another person or entity that is exempt from the requirement to hold a brokerage licence.

Under the Mortgage Brokerages, Lenders and Administrators Act, 2006, a person or entity that carries on business as a mortgage lender in Ontario generally requires a mortgage brokerage licence unless an exemption applies. One important exemption provides that a person or entity is exempt from the requirement to have a brokerage licence if it carries on business as a mortgage lender solely through a licensed mortgage brokerage or another exempt person or entity.

Accordingly, a MIC may structure its operations so that mortgage origination, borrower-facing communications, mortgage negotiation, mortgage arrangement, and related regulated activities are handled through a licensed mortgage brokerage. In that structure, the MIC acts as the lender, while the licensed brokerage and its licensed brokers or agents handle the regulated mortgage brokerage activities.

Disclaimer

The information contained in this article is provided for general informational purposes only and does not constitute legal, accounting, or investment advice. While every effort has been made to ensure the accuracy and timeliness of the content, Jahanshahi Law Firm makes no representations or warranties, express or implied, regarding the completeness, reliability, or suitability of the information contained herein. Readers are advised not to act upon this information without seeking independent professional advice that is tailored to their specific circumstances. No solicitor-client relationship is created by reading this article or by contacting our firm based on its content. Jahanshahi Law Firm expressly disclaims any and all liability for any loss, damage, or inconvenience caused as a result of reliance on the information contained in this publication.

How we can help

At our firm, we assist clients with the full lifecycle of setting up and managing a Mortgage Investment Corporation (MIC) in Ontario. From initial structuring and incorporation to ongoing compliance with the Income Tax Act, securities laws, and corporate governance standards, we provide tailored legal solutions to ensure your MIC is fully compliant and investor-ready. We draft customized share structures, offering documents, shareholder agreements, and management contracts, all with a deep understanding of MIC-specific rules such as the 25 percent ownership limit and the 20-shareholder requirement. We also coordinate closely with your accounting team to ensure the MIC’s tax treatment and financial reporting remain aligned with legal obligations. Whether you’re launching a new MIC or looking to refine an existing structure, our firm offers experienced, strategic legal guidance every step of the way.

ABOUT THE AUTHOR:

Shahriar Jahanshahi is a corporate lawyer and founder of Jahanshahi Law Firm, advising startups, growth-stage companies, and investors on complex legal, tax, and strategic matters. His practice focuses on corporate structuring, tax planning, private M&A, franchising, and real estate, with a client base that includes high-net-worth individuals, private lenders, and entrepreneurs. For further information about Shahriar Jahanshahi, click here.