INTRODUCTION
This guide gives an overview of what is involved in going public and listing a company in Canada. It is a practical overview of the process from the prerequisites through to life as a public company.
EXECUTIVE SUMMARY
Why List securities in Canada?
Listing your company's securities on a Canadian stock exchange provides access to significant capital pools and investors, both in Canada and abroad. The Canadian capital markets are particularly attractive for resource-based issuers and may provide greater visibility for smaller and medium sized issuers than a listing on other significant markets.
Aside from these advantages, Canada has less rigorous corporate governance requirements than the United States does under Sarbanes-Oxley. While going public in Canada is not fundamentally different than going public in the United States, this guide also highlights the advantages Canada has to offer from the corporate governance and regulatory perspectives.
How is the offering done?
The most common means of offering securities to the public in Canada is to distribute securities under a prospectus in one or more Canadian jurisdictions and to list those securities on one of the Canadian stock exchanges. However, undertaking an initial public offering (IPO) in Canada is not the exclusive way to take your company public. This guide also highlights alternative ways to take your company public in Canada.
Does your company qualify?
The prerequisites for listing in Canada are determined by the applicable stock exchange. To qualify for listing on the Toronto Stock Exchange (TSX), your company must have a relatively well established business and meet industry-based financial criteria. However, the listing requirements of the TSX Venture Exchange (TSX-V) and the Canadian Stock Exchange (CSE) accommodate more junior and early-stage issuers.
Is your company ready?
Before offering its securities, your company should review its:
- business plan – a detailed strategic business plan for the company and the proceeds to be raised through the offering should be developed to assist in marketing, preparation of the prospectus and stock exchange approval;
- structure – the capital and organizational structure should be consistent with that of a typical public company and unusual attributes that could interfere with marketing the flotation should be reconsidered; and
- corporate governance - board composition, committees and mandates should be reviewed to ensure adequate representation of independent directors and compliance with corporate governance requirements.
What goes in the prospectus?
The prospectus will contain a detailed description of your company designed to provide full, true and plain disclosure of all material facts related to the securities to be distributed in the offering. Audited financial statement for the 3 most recently completed financial years and unaudited interim financial statement are also required.
What is involved in the process?
This guide summarizes the principal steps in undertaking an IPO in Canada including the initial preparations, preparation and review of the prospectus, marketing the offering and the primary continuing obligations following a successful IPO.
This guide also summarizes the principal steps in undertaking a reverse take-over (RTO) of an existing Toronto Stock Exchange or TSX Venture Exchange listed company. Aside from an IPO, an RTO transaction is another way to take your company public in Canada.
While any listed issuer may complete an RTO transaction, the Toronto Stock Exchange also has a special listing category for "Special Purpose Acquisition Corporations" (SPACs). SPACs allow the founders of listed shell companies to raise proceeds for the purpose of completing the acquisition of an operating business within 36 months of listing. The specific requirements governing SPACs are also summarized in this guide.
Your company could also go public in Canada through a transaction known as a "qualifying transaction" with a capital pool company listed on the TSX Venture Exchange. The rules are substantially different for that process and are beyond the scope of this guide. For a summary of these rules, see A Guide to Capital Pool Companies and Qualifying Transactions Resulting in Reverse Take-Overs, BLG (March 2017).
CANADIAN REGULATORY FRAMEWORK AND EXCHANGES
Each of the provinces and territories of Canada has its own securities legislation and rules, although the process for offering the securities of your company is substantially harmonized. The securities regulatory authorities in the jurisdictions where you choose to offer securities will be the principal regulators for the offering.
The federal government, five provinces and one territory are pushing ahead with the establishment of a single securities regulation system (to be operated jointly by the federal and provincial governments), notwithstanding the historical opposition by a number of provinces to the establishment of a single regulator.
The Canadian stock exchange on which you choose to list will also be involved in the process, through review of your business plan, investigation of the principal shareholders, directors and officers of your company and imposition of initial minimum listing requirements.
The TSX is the senior equities market in Canada, with approximately 1,482 listings and a quoted value of approximately $2.7 trillion at December 31, 2016.
The TSX-V is the principal junior equities market in Canada, with approximately 1,648 listings and a quoted value of approximately $38 billion at December 31, 2016.
The CSE primarily serve junior equities, and other smaller stock exchanges and alternative trading systems are also recognized by Canadian regulators.
PREREQUISITES TO LISTING
Generally, a company seeking a Canadian listing will offer securities under a prospectus for which a receipt is obtained in one or more Canadian jurisdictions. The prospectus must contain specified disclosure about your company and will provide the foundation for your company's ongoing Canadian disclosure obligations.
The market will expect strong indications of profitability and positive future prospects. Effective management, a demonstrated track record, innovative products or services, a significant market share, a niche market, or a high growth industry may make a company more attractive to underwriters and investors.
Many companies already listed on non-Canadian stock exchanges will meet the requirements for listing their securities in Canada.
Listing Requirements – The Toronto Stock Exchange
The TSX is focused on listing growth-oriented companies with strong performance records. To list on the TSX, your company must have at least 1 million freely tradable shares, generally having a market value in excess of $4 million, which are held by at least 300 independent public holders, each holding one board lot or more.
The TSX has specific listing requirements for industrial companies, mining companies and oil and gas companies. For industrial companies, the financial criteria differ for profitable companies, companies forecasting profitability, technology companies and research and development companies. For mining and oil and gas companies, there are different criteria for producing companies and exploration and development companies.
Examples of the TSX minimum listing requirements are attached in Appendix A.
International companies already listed on other exchanges do not have to meet specific TSX listing requirements but must demonstrate that they are able to satisfy public reporting obligations in Canada. In addition, companies organized under the laws of foreign jurisdictions that do not have equivalent shareholder protections to those under Canadian corporate law may be required to amend their constating documents to provide such protections.
Listing Requirements – The TSX Venture Exchange
The TSX-V is focused on emerging companies seeking access to public venture capital. The minimum distribution requirements for the TSX-V are a public float of 500,000 shares, 200 independent public shareholders, each holding 1 board lot or more and having no resale restrictions, and at least 20% of the issued and outstanding shares in the hands of public shareholders. Your underwriters will assist you in meeting the distribution requirements. It is important that the underwriters you select have retail distribution capabilities.
The TSX-V has specific listing requirements tailored by industry and stage of development. Issuers are classified into Tier 1 and Tier 2 companies. Generally, Tier 2 companies need to comply with slightly less stringent requirements in respect of assets or revenues, working capital and financial resources, and public distribution.
Examples of the TSX-V initial listing requirements are attached in Appendix B.
International companies already listed on other exchanges do not have to meet specific TSX-V listing requirements but must demonstrate that they are able to satisfy public reporting obligations in Canada. However, the TSX-V may impose the following additional requirements for a foreign company seeking listing in Canada:
- articles of incorporation of the issuer must be reviewed and amended so they are consistent with the Canadian corporate law standards;
- the issuer must be sponsored by an existing member of the TSX-V or an organization, who is not a member but has access to the trading privileges of the TSX and agrees to the TSX-V requirements relating to sponsorship;
- the issuer must become a reporting issuer by making its public offering in at least Alberta and British Columbia, and in Ontario if it has significant connections with Ontario;
- the issuer must maintain an office in Canada; and
- some of the directors of the issuer must have North American reporting issuer experience.
THE DEAL TEAM
The process of listing on an exchange and going public in Canada will require your company to assemble an experienced deal team. The deal team will include underwriters, lawyers, accountants, technical experts and other consultants.
Underwriters
A public offering is conducted through an investment dealer or dealers, acting as underwriter, who offer your company's securities to the public.Underwriters play a key role in pricing and structuring the offering.
Lawyers
Counsel for your company and the underwriters manage the offering process and prepare the required documents and agreements, such as the prospectus, listing application and underwriting agreement, and deal with the securities depository, securities regulators and stock exchange. They will also arrange translation of your prospectus into French, if it will be filed in Quebec.
Accountants
Audited historical financial statements are required in order to go public. Accountants will assist your company in updating audited financial statements, preparing and verifying other financial information in the prospectus, including interim financial statements, capitalization tables and other non-audited financial disclosures, translation of financial statements into French if required, and providing comfort letters to the securities regulators and underwriters. Accountants will also assist in establishing the controls and procedures required for ongoing public company reporting.
Experts
Companies in the mining or oil and gas industries will require experts to prepare independent technical reports to support technical information, such as reserves and resources, disclosed in the prospectus. In addition, other expert reports, such as property appraisals, may be considered to be necessary or desirable from a marketing perspective.
Securities legislation may require such reports to be certified and a written consent of the expert will be required to be filed in connection with filing the prospectus.
Transfer Agent
Your company will need to retain a registrar and transfer agent. Generally, securities are issued in book entry only form using CDS Clearing and Depository Services Inc as the depository.
Consultants
Typically a public relations or investor management consultant will be retained. Also, it is common for a company to retain a roadshow consultant to assist in marketing of an IPO.
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