12.5.3 Capital Pool Company Program

Capital Pool Company (CPC) Program Overview

For small, emerging private companies, the costs associated with going public through a traditional Initial Public Offering (IPO) may not always be financially viable. To address this challenge, the TSX Venture Exchange (TSX-V)—home to many emerging Canadian businesses—developed the Capital Pool Company (CPC) program. This initiative acts as a financing vehicle for emerging businesses, enabling them to obtain capital earlier in their development stages compared to the typical IPO route.

What is a CPC?

A CPC is a newly created company that holds no assets other than cash and has no established business operations. Unique to the TSX Venture Exchange, a CPC is allowed to conduct an IPO and list its shares on the exchange. The ultimate aim of a CPC is to acquire an existing business or significant assets through what is termed as a Qualifying Transaction (QT).

The Two-Stage CPC Process

The CPC program is a two-stage process designed to streamline the path for emerging companies to go public:

Stage 1: Formation and Listing

1. Prospectus Filing

   • Initially, the CPC’s prospectus is filed and cleared.

2. IPO Completion

   • The IPO is completed, allowing the CPC to raise between $200,000 and $4,750,000.

3. Listing on TSX-V

   • Finally, the CPC’s common shares are listed on the TSX Venture Exchange.

Stage 2: Qualifying Transaction (QT)

1. Identification of Business

   • Within 24 months after listing, the CPC identifies an appropriate business or assets to acquire.

2. News Release for Agreement to Acquire

   • The CPC publicly announces the acquisition agreement through a news release.

3. Preparation of Disclosure Documents

   • The CPC prepares a filing statement or information circular, which provides disclosure equivalent to a prospectus about the business to be acquired.

4. TSX-V Review and Approval

   • The TSX Venture Exchange reviews the disclosure document and evaluates whether the acquired business meets initial listing requirements.

Note: Shareholder approval is typically not required to close a QT.

FAQs

What is the Financial Requirement to Start a CPC?

To start a CPC, the institution must raise a capital amount between $200,000 and $4,750,000 through the IPO.

What Happens if the CPC Fails to Complete a QT within 24 Months?

If a CPC does not complete a QT within 24 months of its IPO, the TSX-V may opt to suspend or delist the CPC, requiring it to return the capital to its shareholders.

Do Shareholders Have a Say in the QT?

Typically, shareholder approval is not required to close a Qualifying Transaction. This rule simplifies the QT process, expediting the listing procedure.

Glossary

CPC (Capital Pool Company): A special vehicle designed for raising capital at an early stage, with the aim of acquiring a business later.

TSX Venture Exchange (TSX-V): A stock exchange in Canada that focuses on small and emerging companies.

IPO (Initial Public Offering): The first sale of stock by a private company to the public.

Qualifying Transaction (QT): The acquisition of significant assets or operating business by a CPC.

Key Takeaways

• The CPC program by the TSX Venture Exchange provides a unique vehicle for emerging businesses to obtain necessary financing early in their development stages.
• The program operates in two main stages: forming and listing the CPC, and executing a Qualifying Transaction.
• The capital required to start a CPC ranges from $200,000 to $4,750,000.
• Shareholder approval is typically unnecessary to close a QT, facilitating a smoother process.

By understanding the Capital Pool Company Program, investors and emerging businesses can better navigate early-stage financing and growth strategies within the parameters set by the TSX Venture Exchange.