What Is a Qualifying Transaction?

A qualifying transaction is a process in which a private company in Canada issues public stock. This process involves the creation of a capital pool company (CPC) that acquires all of the outstanding s꧙hares of the privat🦂e company, making it a subsidiary and a public company.

Understanding a Qualifying Transaction

Private companies go public to raise capital to finance their operations and growth. Financing is either done through 澳洲幸运5开奖号码历史查询:equity financing, which is the issuance of shares to the public, or 澳洲幸运5开奖号码历史查询:debt financing, which involves a loan. In the U.S., equity financing is accomplished through an 澳洲幸运5开奖号码历史查询:initial public offering (IPO). In Canada, equity financing can also be achieved in a different way, through a qualifying🤡 transaction and the creation of a capita⛦l pool company (CPC).

A capital pool company (CPC) is a list♔ed company with experienced directors and capital, but no commercial operations. Essentially, it is a shell company whose sole purpose is to later acquire a privately held company through a qualifying transaction.

The directors of the CPC focus on acquiring a 澳洲幸运5开奖号码历史查询:privately held company and, upon the completion of the acquisition, that company has access to the capital and the listing prepared by the capital pool company. The private company then becomes a fully-owned subsidiary of the CPC. Qualifying transactions must be completed by a CPC within 24 months after the date of the CPC's first listing, which involves filing a prospectus and applying for a new listing on the 澳洲幸运5开奖号码历史查询:TSX Venture Exchange.

The qualifying transaction may be structured as a share for share exchange; an 澳洲幸运5开奖号码历史查询:amalgamation, where the private company and CPC form one corporation; plan of arrangement, where the capital structure of the private company is complex or unique and requires court and shareholder approval; oꦫr an asset purchase, where the CPC purchases assets from a third part🌠y in exchange for cash and/or securities of the CPC. In each case, the shareholders of the private company become security holders of the CPC.

Qualifying Transactions to Go Public

Capital pool companies, and associated qualifying transactions, are the most frequently used m🤡ethod of going public on the TSX Venture Exchange in Canada as opposed to initial publiℱc offerings (IPOs).

This method of going public is more efficient than a traditional initial public offering (IPO) because, unlike in an IPO, private companies are not requiredꦚ to incur upfront costs before marketing shares to prospective investors. Because the capital pool company will, by nature, have no business of its own, whatever line of trade that the private company engages in becomes the business of the CPC.

Qualifying transactions usually formally begin when the 澳洲幸运5开奖号码历史查询:shareholders and the CPC create a 澳洲幸运5开奖号码历史查询:Letter of Intent (LOI) ou𒉰tlining the terms of the agreement. Usually, the CPC must include a plan for financing the tran𝕴saction in every LOI.

Capital Pool Company Requirements for a Q😼ualify🌱ing Transaction

CPCs have certain rules and requirements to f🧜ollow when turning a private company public. Law stipulates that a CPC must have three individuals that can contribute the greater of $100,000 or 5% of the total funds raised for the shares.

In addition, the CPC must sell the shares at twice the price of the seed shares to the public to a minimum of 200 investors. These investors have to purchase a minimum of 1,000 shares each. This sale must result in a value between $200,000 and $4,750,000. This raised capital then has to be used for an 澳洲幸运5开奖号码历史查询:acquisition.