Going Public in Canada & the United States

– *updated August 30, 2015 –

 going-publicThere are four main ways a company can “go public” in the United States and Canada. One is issuing securities in an offering or transaction registered with all relevant securities commissions (initial public offering). A second is registering your company and its outstanding securities with the Securities and Exchange Commission (the “SEC“), State and or provincial regulators (non-offering registration of existing securities). The third is conducting a reverse takeover of a public shell company or other public vehicle. The fourth is through a listing on the TSX Venture Exchange (“TSX-V) as a capital pool company. In the US, the last option is not available and the routes open to going public are the first three. In Canada, all four means of going public are available to companies.

Initial Public Offering

Going public via an initial public offering is theoretically available to companies of all sizes. Traditional initial public offerings, however, require an underwriter. Finding a willing underwriter in the US and Canada is often difficult if not impossible to accomplish by small and micro-cap companies. Many small companies are using direct public offering as a non-traditional initial public offering. One of the main advantages of a direct public offering is companies avoid the expense and complications of an underwriter and underwriter’s counsel. A direct public offering can be very effective particularly when the amount being raised is under $2,000,000 and the internet is utilized to sell all or part of the offering. Direct public offerings are more effective in the US than in British Columbia, since in BC, companies need to be listed on a recognized exchange (the US OTC Markets are not recognized by Canadian securities regulators).

Registration of Existing Securities

In 1999, hundreds of companies filed Form 10SB documents with the SEC to register their companies and their outstanding securities with the SEC to become fully reporting under the federal securities level. This rush to register was caused when the OTC Bulletin Board imposed eligibility requirements on OTCBB quoted companies, which included being a reporting company with the SEC. The disclosure required in a Form 10SB is similar in content to that required in a prospectus. Unlike a prospectus, however, not all Form 10SB documents are reviewed by the SEC.

Canadian resident or operating companies may also become US reporting companies by registering their outstanding securities with the SEC. They may choose to register using the forms provided by the SEC for foreign issuers (Form 20F) or use Form 10 which is provided for US domestic issuers. There are several differences between the two forms of registration and perceived and real advantages and disadvantages.

Companies may also elect to register their outstanding securities in the US or Canada by filing a prospectus qualifying these securities for resale. Canadian transactions will need an underwriter if the shares are to be registered in Canada and the company wishes to become a reporting issuer in Canada.

Reverse Takeovers

Going public via a reverse takeover remains a popular method for small and micro-cap companies in the US and Canada. A reverse takeover is where an operating private company merges into or is acquired directly or indirectly by a non-active or shell company. The value of the shell company is in its reporting issuer status and/or the fact that its securities are listed or quoted for trading. After the merger, the former management, the board of directors and the majority of the stockholders of the operating company control the former shell company.

Reverse takeovers are popular with small and micro-cap companies for a number of reasons:

  • generally a reverse takeovers tends to take less time to complete than either an initial public offering or US Form 10 registration filing;
  • often the public shell company provides the shareholder spread and public float requirements needed to list on an exchange or quotation service;
  • there is no risk of the transaction not closing due to unstable market conditions, which is a real risk when conducting an initial public offering;
  • initial public offerings and US Form 10 registrations tend to require greater attention from management than reverse takeover transactions;
  • there is no need for an underwriter to complete a reverse takeover; and
  • there is often less dilution of ownership.

Capital Pool Companies

In Canada, the TSX-V has allowed companies to list whose sole purpose is to conduct a reverse merger or acquire the assets of promising company or venture. They are called capital pool companies (“CPC“) and are exclusive to the TSX-V. A CPC must merge or acquire a company or asset within 18 months of listing on TSX-V. This is called a qualifying transaction. After a successful qualifying transaction, the CPC becomes a regular listed company on TSX-V. All CPCs must comply with TSX-V policy 2.4.

A CPC which fails to merge or acquire a company or asset within the required time frame is de-listed from the TSX-V and may or may not be subsequently listed on the NEX Board which was recently created by the TSX-V for companies which no longer meet the listing standards of the TSX-V. A CPC which has been delisted from the TSX-V can still complete a reverse merger or acquisition which would qualify it to re-list on the TSX-V, the CSE or the TSX so long as at the end of the transaction the company meets the listing standards or the exchange it proposes to be listed on.

Much of the information in this section has been taken from the TSX Group website and the CSE website.

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Alixe Cormick is the founder of Venture Law Corporation in Vancouver, British Columbia and a member of Commercialization Advisory Board of the Life Science Institute at the University of British Columbia, the Advisory Board of the National Crowdfunding Association and two private tech companies. She is also a member of the Pacific Northwest Keiretsu Forum, an association of accredited private equity angel investors, venture capitalists and corporate/institutional investors, and Vantech Angel Technology Network, a Vancouver angel group. You can reach Alixe by phone at 604-659-9188, by email at acormick@venturelawcorp.com, on twitter @AlixeCormick or on Google+.

Listing Requirements of the Toronto Stock Exchange (TSX) – Exploration and Mining Companies

– *updated August 31, 2015 –

TSX Venture Exchange Mining Listing RequirementsThe Toronto Stock Exchange has different listing requirements for natural resource, finance, and industrial and technology companies.  The attached chart addresses the requirements of exploration and mining companies only.

We are always open to talk to corporate executives who are considering listing on the TSX.  The listing requirements can sometimes be confusing and waivers can be applied for in certain circumstances when a company desiring to list is strong in all listing categories but for one.  Do feel free to book an appointment with us if you need assistance to determine if your company qualifies to list on the TSX or other exchange.

TSX – Exploration and Mining Companies Listing Requirements

Requirements In Production Mining Companies (TSX Exempt) Pre-Production Feasibility Stage Mining Companies (Non-Exempt Producer) Exploration and Development Mining Companies (Non Exempt Exploration & Development Stage)
Property Requirements 3 years proven and probable reserves as estimated by an independent qualified person. 3 years proven and probable reserves as estimated by an independent qualified person. If not in production, a production decision made. Advanced Exploration Property. Minimum 50% ownership in the property.
Recommended Work Program Commercial level mining operations. Bringing the mine into commercial production. $750,000 on advanced exploration property as recommended in independent technical report.
Net Tangible Assets $7,500,000 $4,000,000 $3,000,000
Pre-Tax Cash Flow Last Year $700,000 in last fiscal year and average of $500,000 for past two fiscal years. N/A N/A
Profitability Pre-tax profitability from ongoing operations in last fiscal year. Evidence indicating a reasonable likelihood of future profitability supported by a feasibility study or historical production and financial performance. N/A
# of Public Board Lot Holders 300 300 300
Minimum Free Trading 1,000,000 1,000,000 1,000,000
Public Float
Value of Free Trading Public Float C$4,000,000 C$4,000,000 C$4,000,000
Market value of Issued Securities to be Listed
Minimum Cash in Treasury N/A Sufficient to bring the property into commercial production. Sufficient to complete recommended programs, plus 18 months G&A, anticipated property payments and capital expenditures.
Minimum Additional Working Capital Adequate working capital to carry on the business. Adequate for all budgeted capital expenditures and to carry on the business. C$2,000,000
Sponsorship Required No Yes(1) Yes(1)
Form 43-101 Technical Report Yes. Yes. Plus management prepared 18 month projection (by quarter of sources and use of funds, signed by CFO. Yes. Plus management prepared 18 month projection (by quarter of sources and use of funds, signed by CFO.

Note: (1) The TSX may waive the sponsorship requirement if sufficient 3rd party due diligence has been conducted (ie. underwriter review in concurrent initial public offering.)

The listing staff of the Toronto Stock Exchange will also look at the suitability of all officers, directors and stockholders holding 10% or more of the company’s stock. Companies must have at least two independent directors. They must also have a Toronto Stock Exchange participating organization sponsor their listing unless they meet the senior company listing criteria.

All companies listed on the Toronto Stock Exchange must agree to abide by the corporate governance requirements of the exchange.

For the listing criteria of technology, industrial and research and development companies click here or go to the TSX website.  TSX – Industrial, Technology, Research & Development.

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Other Articles You May Find of Interest:

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    Alixe Cormick is the founder of Venture Law Corporation in Vancouver, British Columbia and a member of Commercialization Advisory Board of the Life Science Institute at the University of British Columbia, the Advisory Board of the National Crowdfunding Association and two private tech companies. She is also a member of the Pacific Northwest Keiretsu Forum, an association of accredited private equity angel investors, venture capitalists and corporate/institutional investors, and Vantech Angel Technology Network, a Vancouver angel group. You can reach Alixe by phone at 604-659-9188, by email at acormick@venturelawcorp.com, on twitter @AlixeCormick or on Google+.