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.