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Executive Summaries Jan 22, 2019

Capital Pool Companies: A Little-Known But Effective Financing Vehicle

Although relatively unknown to Quebec entrepreneurs, the Capital Pool Company Program administered by the TSX Venture Exchange has a proven track record helping SMEs raise additional capital to develop their operations.

The Capital Pool Company Program (the “CPC Program”) administered by the TSX Venture Exchange (the “Exchange” or “TSX-V”) is an attractive solution for developing companies. Indeed, this program provides SMEs with a way to launch an initial public offering before they have reached the development stage and the sales volume normally required by senior exchanges such as the Toronto Stock Exchange (TSX).

What Does the Program Consist of?

In a nutshell, the program allows a private company to list its shares on the Exchange through a simplified procedure, by combining its operations with those of another company incorporated specifically for this purpose, the capital pool company (“CPC”). The CPC is essentially a shell, having no commercial operations. However, the appeal of the program is that the Exchange allows the shell to complete an initial public offering and become a public company. Since the CPC has the benefit of being listed on the Exchange, the private company will also be listed on the Exchange through what is known as a “qualifying transaction.” Essentially, it is a transaction where the CPC acquires the private company, and the shareholders of that private company then become the majority shareholders of the CPC. The resulting issuer of that transaction will be listed on the Exchange.

One can easily see how it could be very appealing to an entrepreneur to take advantage of the program for the purposes of getting a private company listed on an exchange faster than through a traditional initial public offering. It should also be noted that the TSX-V is a subsidiary of the TMX Group, the firm that owns and operates the Toronto Stock Exchange and the Montreal Exchange. The primary purpose of the TSX-V is to be the exchange for growing SMEs.

Beneficial for Startups and Investors Alike

Less Risky Alternative Than a Public Offering

Because of its structure, the process as a whole is less risky, faster, and more economical than a traditional initial public offering (“IPO”). The costs associated with organizing and launching an IPO are often a barrier to entrepreneurs hoping to attract public capital to develop their business and the CPC Program was created in response to this concern.

In the current economic climate, capital markets are not always conducive to the launch of an IPO. An entry into the stock market through the CPC Program lets a company get around this difficulty.

Another interesting aspect of the program is that an existing CPC can be used. Thus, a private company that completes a qualifying transaction with an available CPC will save on the overall costs of the initial public offering as these costs have already been assumed by the CPC.

Less Dilution 

Let us also point out that the CPC Program is structured in order to allow the founders to retain a larger stake in the company than they otherwise would with a traditional IPO.

Greater Credibility

Companies that take advantage of the CPC Program become reporting issuers. Although this new status entails a number of additional obligations such as continuous disclosure, it also has its share of advantages. Reporting issuers benefit from greater visibility and credibility with customers and investors, and the existence of a market where their shares can be traded makes it easier to attract new outside capital due to the greater liquidity it offers. Also, the greater transparency required of a reporting issuer inspires more trust on the part of potential investors and creditors than in the case of a private company, which is subject to less stringent disclosure obligations.

Investor Protection

In addition, the program includes a number of measures designed to protect investors, which further facilitates the attraction of capital. For example, the directors and officers of a CPC are also required to invest personally in the process by subscribing for a certain proportion of the company’s seed shares.


Finally, it is worth noting that the program offers great growth potential to the companies that choose to take advantage of it, and that once a company is listed on the TSX-V, it can eventually apply for a listing on the TSX if certain conditions are met.

Although the CPC Program is a little-known financing vehicle, its provisions are perfectly suited to the needs of Quebec entrepreneurs. The BCF team has extensive experience with the CPC Program, the firm having acted as legal counsel to the very first Quebec company that took advantage of it.


To learn more about the CPC Program, sign up for our Strategic Forum on Corporate Financing, which will be held on Tuesday, February 19, 2019 in Montreal and Quebec City.