Qualifying Transaction Definition

What Is a Qualifying Transaction?

A qualifying transaction is a process wherein a private company in Canada issues public stock. This process involves the appearance of a capital pool company (CPC) that acquires all of the exceptional shares of the private company, making it a subsidiary and a public company.

Understanding a Qualifying Transaction

Private corporations go public to boost capital to finance their operations and expansion. Financing is each done by way of equity financing, which is the issuance of shares to most of the people, or debt financing, which involves a loan. Inside the U.S., equity financing is done by way of an initial public offering (IPO). In Canada, equity financing may also be achieved in a different way, by way of a qualifying transaction and the appearance of a capital pool company (CPC).

A capital pool company (CPC) is a listed company with professional directors and capital, then again no commercial operations. Essentially, it is a shell company whose sole function is to later acquire a privately held company by way of a qualifying transaction.

The directors of the CPC point of interest on acquiring a privately held company and, upon the final touch of the acquisition, that company has get right to use to the capital and the document in a position by way of the capital pool company. The private company then turns right into a fully-owned subsidiary of the CPC. Qualifying transactions must be completed by way of a CPC within 24 months after the date of the CPC’s first document, which involves filing a prospectus and applying for a brand spanking new document on the TSX Enterprise Alternate.

The qualifying transaction is also structured as a share for share trade; an amalgamation, where the private company and CPC form one corporate; plan of affiliation, where the capital building of the private company is complicated or unique and requires court docket and shareholder approval; or an asset achieve, where the CPC purchases belongings from a third party in trade for cash and/or securities of the CPC. In each and every case, the shareholders of the private company turn into protection holders of the CPC.

Qualifying Transactions to Go Public

Capital pool corporations, and comparable qualifying transactions, are necessarily probably the most incessantly used manner of going public on the TSX Enterprise Alternate in Canada as opposed to initial public alternatives (IPOs).

This method of going public is additional surroundings pleasant than a typical initial public offering (IPO) on account of, no longer like in an IPO, non-public corporations aren’t required to incur in advance costs forward of promoting shares to possible consumers. For the reason that capital pool company will, by way of nature, do not have any trade of its non-public, regardless of line of industrial that the private company engages in becomes the trade of the CPC.

Qualifying transactions usually formally get started when the shareholders and the CPC create a Letter of Intent (LOI) outlining the words of the agreement. Normally, the CPC must include a plan for financing the transaction in every LOI.

Capital Pool Company Prerequisites for a Qualifying Transaction

CPCs have sure regulations and prerequisites to watch when turning a private company public. Legislation stipulates {{that a}} CPC must have 3 other folks that can contribute the bigger of $100,000 or 5% of the overall worth vary raised for the shares.

In addition to, the CPC must advertise the shares at two occasions the price of the seed shares to most of the people to a minimum of 200 consumers. The ones consumers have to shop for a minimum of 1,000 shares each and every. This sale must lead to a cost between $200,000 and $4,750,000. This raised capital then will have to be used for an acquisition.