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Qualifying Transaction

Qualifying Transaction

What Is a Qualifying Transaction?

A qualifying transaction is a cycle where a private company in Canada issues public stock. This cycle includes the creation of a capital pool company (CPC) that secures every one of the outstanding shares of the private company, making it a subsidiary and a public company.

Grasping a Qualifying Transaction

Private companies open up to the world to raise capital to finance their operations and growth. Financing is either finished through equity financing, which is the issuance of shares to the public, or debt financing, which includes a loan. In the U.S., equity financing is achieved through a initial public offering (IPO). In Canada, equity financing can likewise be accomplished another way, through a qualifying transaction and the creation of a capital pool company (CPC).

A capital pool company (CPC) is a listed company with experienced directors and capital, yet no commercial operations. Basically, it is a shell company whose sole purpose is to later obtain a privately held company through a qualifying transaction.

The directors of the CPC center around obtaining a privately held company and, upon the completion of the acquisition, that company approaches the capital and the listing prepared by the capital pool company. The private company then turns into a completely possessed subsidiary of the CPC. Qualifying transactions must be completed by a CPC in something like 24 months after the date of the CPC's most memorable listing, which includes filing a prospectus and applying for another listing on the TSX Venture Exchange.

The qualifying transaction might be structured as a share for share exchange; a amalgamation, where the private company and CPC form one enterprise; plan of arrangement, where the capital structure of the private company is complex or unique and requires court and shareholder endorsement; or an asset purchase, where the CPC purchases assets from an outsider in exchange for cash as well as 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 often utilized method of opening up to the world on the TSX Venture Exchange in Canada rather than initial public offerings (IPOs).

This method of opening up to the world is more efficient than a traditional initial public offering (IPO) in light of the fact that, dissimilar to in an IPO, private companies are not required to cause upfront costs before marketing shares to prospective investors. Since the capital pool company will, naturally, have no business of its own, anything line of trade that the private company participates in turns into the business of the CPC.

Qualifying transactions typically formally start when the shareholders and the CPC make a Letter of Intent (LOI) framing the terms of the agreement. Normally, the CPC must remember a plan for financing the transaction for each LOI.

Capital Pool Company Requirements for a Qualifying Transaction

CPCs have certain rules and requirements to follow while turning a private company public. Law specifies that a CPC must have three people that can contribute the greater of $100,000 or 5% of the total funds raised for the shares.

Moreover, the CPC must sell the shares at two times the price of the seed shares to the public to at least 200 investors. These investors need to purchase at least 1,000 shares each. This sale must bring about a value somewhere in the range of $200,000 and $4,750,000. This raised capital then, at that point, must be utilized for a acquisition.

Features

  • A CPC must complete a qualifying transaction's requirements in something like 24 months of its creation, which includes filing a prospectus and applying to the TSX Venture Exchange.
  • A qualifying transaction is a cycle where a private company in Canada opens up to the world about the intent to raise capital for business purposes.
  • A qualifying transaction is the most common form of opening up to the world on the TSX Venture Exchange, especially when compared to an initial public offering (IPO).
  • The CPC is responsible for selling the shares and raising the capital all while submitting to the rules and regulations around a qualifying transaction.
  • A qualifying transaction includes the creation of a capital pool company (CPC) that secures every one of the outstanding shares of the private company, making it a subsidiary and a public company.