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12.5.3 Capital Pool Company Program

Comprehensive guide to the Capital Pool Company (CPC) Program designed by the TSX Venture Exchange for small and emerging businesses to obtain early-stage financing.

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.


CSC® Exams Practice Questions

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Welcome to the Knowledge Checkpoint! You'll find 10 carefully curated CSC exam practice questions designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you're on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

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## What is the primary goal of the Capital Pool Company (CPC) program? - [ ] To help established companies diversify their investments - [ ] To provide a loan to private companies - [x] To help emerging businesses obtain financing earlier than possible with a traditional IPO - [ ] To facilitate mergers between large corporations > **Explanation:** The CPC program is designed to allow emerging businesses to obtain financing earlier in their development through the TSX Venture Exchange rather than waiting for a traditional IPO. ## What assets does a newly created Capital Pool Company (CPC) typically have? - [x] Cash only - [ ] Real estate - [ ] Manufacturing facilities - [ ] Intellectual property > **Explanation:** A newly created CPC typically has no assets other than cash and no established business or operations. ## Where are CPC shares listed after the IPO is completed? - [ ] Toronto Stock Exchange (TSX) - [ ] New York Stock Exchange (NYSE) - [x] TSX Venture Exchange - [ ] NASDAQ > **Explanation:** CPC shares are listed on the TSX Venture Exchange after the completion of the IPO. ## What is the minimum amount a CPC must raise from its IPO? - [x] $200,000 - [ ] $100,000 - [ ] $500,000 - [ ] $1,000,000 > **Explanation:** Under the CPC program, the issuer must raise a minimum of $200,000 from the IPO. ## What is the maximum amount a CPC can raise through its IPO? - [ ] $2,000,000 - [x] $4,750,000 - [ ] $5,000,000 - [ ] $10,000,000 > **Explanation:** The issuer must raise a maximum of $4,750,000 from the IPO under the CPC program. ## What is the time frame within which a CPC must identify an appropriate business to acquire? - [ ] 12 months - [ ] 36 months - [x] 24 months - [ ] 48 months > **Explanation:** A CPC must identify an appropriate business and issue a news release announcing the agreement to acquire the business within 24 months. ## What document must a CPC prepare after identifying a business to acquire? - [ ] Annual report - [x] Filing statement or information circular with prospectus-level information - [ ] Balance sheet - [ ] Income statement > **Explanation:** After identifying the business to acquire, the CPC prepares a filing statement or information circular providing prospectus-level information on the business. ## Who reviews the disclosure document to ensure the business meets the initial listing requirements? - [x] TSX Venture Exchange - [ ] Financial Post - [ ] Bank of Canada - [ ] Ontario Securities Commission > **Explanation:** The TSX Venture Exchange reviews the disclosure document and evaluates the business to ensure it meets initial listing requirements. ## Is shareholder approval typically required to close the qualifying transaction (QT)? - [x] No - [ ] Yes > **Explanation:** Shareholder approval is typically not required to close a qualifying transaction (QT) under the CPC program. ## What happens in the first stage of the CPC program process? - [ ] The CPC merges with an established company - [ ] The CPC completes all its business operations - [x] The CPC files a prospectus, completes the IPO, and lists common shares on the TSX Venture Exchange - [ ] The CPC distributes dividends to initial investors > **Explanation:** In the first stage, a CPC prospectus is filed and cleared, the IPO is completed, and the CPC’s common shares are listed on the TSX Venture Exchange.

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