Capital Pool Company - Explained
What is a Capital Pool Company?
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Table of ContentsWhat is a Capital Pool Company?How does a Capital Pool Company (CPC) Work?The Story Behind Capital Pool CompaniesThe Capital Pool Company ProcessAcademic Research on Capital Pool Company (CPC)
What is a Capital Pool Company?
A capital pool company (CPC) is a new shell company listed on the TSX Venture Exchange (TSX-V) has no commercial transactions and no assets except cash. The CPC's goal is to identify and acquire an active business. The CPC uses its cash holdings to assess promising companies or properties that it would then purchase within 24 months following a qualifying transaction. In other words, a capital pool company is an alternative way to raise capital for private companies and to go public. A capital pool company is a listed company that has qualified management and resources, but at the time of the initial public offering (IPO), has been involved in no commercial operations.
How does a Capital Pool Company (CPC) Work?
A unique listing platform for seasoned management teams with demonstrated public financing skills, together with development companies needing capital and management know-how, is offered by TSX Exchange Capital Pool Company (CPC) scheme. Capital pools list start trading without an operating company, as opposed to traditional public corporations. The aim is to find and buy a promising early stage company and its treasuries are expressly funded for the quest and due diligence process. In the case where a CPC can not complete its qualified transaction in the prescribed time period of 24 months of listing, it may run at risk of a trade suspension or delisting from the TSX-V.
The Story Behind Capital Pool Companies
After acquiring the Canadian Venture Exchange in 2001, the program was structured by TMX Group, based on the Alberta Stock Exchange's previously offered junior capital pool program. TMX Group is, in its own words, an "integrated, multi-asset class exchange group" - the largest exchange group in North America by number of listed companies with equity and derivative markets and clearing houses, including the Toronto Stock Exchange and the TSX Venture Exchange (TSX-V). The latter, partially owing to its lower listing costs and simpler regulatory requirements than US and European exchanges, is home to many rising junior firms. The program provides access to markets for young companies with the assistance of seasoned managers and officers, amongst other items, to the TSX-V.
The Capital Pool Company Process
Phase 1 - Listing a CPC: A prospectus is prepared and a securities commission(s) given a receipt. It is listed with the symbol .P to classify it as a CPC. In order to build a CPC, a minimum of three individuals with experience as directors/officers in business and public companies should invest more than $100,000 or 5% of the total funding raised through the offering personally. Phase 2 - Completing a Qualifying Transaction: When listed, a CPC has a 24-month time to determine a private company it will combine with the program's qualifying transaction. The CPC declares in principle the agreement and then prepares circular information for its shareholders which contains the kind of information found in an IPO prospectus.
Academic Research on Capital Pool Company (CPC)
- Bypassing the financial growth cycle: Evidence from capital pool companies, Carpentier, C., & Suret, J. M. (2006). Bypassing the financial growth cycle: Evidence from capital pool companies.Journal of Business Venturing,21(1), 45-73.
- Reassessing Canadian IPO underpricing: Evidence from common share, Capital Pool Company, and unit offerings, Kooli, M. (2006). Reassessing Canadian IPO underpricing: Evidence from common share, Capital Pool Company, and unit offerings. InInitial Public Offerings(pp. 247-262). Butterworth-Heinemann.
- The Canadian public venture capital market, Carpentier, C., & Suret, J. M. (2010). The Canadian public venture capital market.Strategic Change,19(78), 303-323. The public venture capital market is indeed able to compete with a private one, even if it does not have the tools, skills and valueadded capabilities usually attributed to private venture capitalists.
- How Useful is Venture Capital? Evidence from Capital Pool Companies, Carpentier, C., & Suret, J. M. (2003). How Useful is Venture Capital? Evidence from Capital Pool Companies.
- A Study of the Bond/Debt/Debenture Market in Canada, Purohit, Y. S. (2013). A Study of the Bond/Debt/Debenture Market in Canada.Debt/Debenture Market in Canada (February 23, 2013). Historically, the treatment of exchange-traded derivatives under securities legislation has been inconsistent, in part, because of a difference of views as to whether or not they are securities or should be treated as such. Derivatives are regulated in Canada through securities regulatory authorities only in the provinces of Alberta, British Columbia, Manitoba, Ontario, and Quebec. Alberta and British Columbia can be grouped together as they take a similar approach. The approach taken by Ontario and Manitoba is also similar, but differs from that taken in British Columbia and Alberta. Lastly, Quebec has recently passed a new Derivatives Act that has introduced yet a third approach to derivatives regulation in Canada. These approaches are summarized below along with other developments that have been undertaken in the past with respect to the regulation of derivatives.this paper seeks to answer the various questions related to the financial market instruments in Canada.