Your Guide to Going Public
- What is "Going Public"?
- The Decision to Go Public
- The Role of the Securities Commission
- Requirements of the Securities Act
- Types of Companies
- The Process of Going Public
- Continuous Disclosure by Reporting Companies
- Duties of Directors and Officers
- Listing on a Stock Exchange
- The Regulatory Framework
- Where to Find Materials
"Going Public" is raising money for a company by selling shares of the company to the general public. Many private businesses decide to go public when they need additional capital for growth and sufficient financing is not available from the personal resources of the principals, their family and business associates or from financial institutions.
For example, a privately-owned mining company may receive an engineering report that recommends further exploration or a privately-owned industrial company may identify a market for a new product or service. In each case, the owners may want to expand their company's activities. To raise the money required and to spread the financial risk of further exploration or product development, the owners decide to take their company public.
Canadian and foreign companies have made British Columbia an important venture capital market. The TSX Venture Exchange , has attracted mining, oil and gas development and industrial and service companies from all parts of North America, as well as from Pacific Rim and European countries. The TSX Venture has served as the vehicle for many small companies that have decided to go public.
Before deciding to go public, a company should obtain expert financial advice in order to determine whether it is at an appropriate stage of development to benefit from public financing. A reporting company assumes costs and obligations that may outweigh the advantages of going public. The decision to go public and the timing of going public are important strategic considerations that should be made in the context of a well developed business plan.
The mandate of the British Columbia Securities Commission is to regulate securities markets in the province. It fulfills this mandate by:
- administering the Securities Act, Rules and related legislation and policies;
- ensuring investors have timely and complete information to help them make informed investment decisions;
- investigating and taking appropriate action against individuals and companies involved in fraud, misconduct and market manipulation; and
- generally providing an efficient structure for the public formation of capital in the province.
The Commission Proper is responsible for the establishment of policy under the Securities Act and Rules and acts as a quasi-judicial tribunal in hearing and deciding on certain matters arising under the legislation
The Executive Director, as chief administrative officer, is responsible for day-to-day administration of securities legislation and policies.
A company going public must meet requirements set out in the Securities Act , the Securities Regulation and Rules as well as several policy statements issued by the securities commission. If the company was incorporated or carries on business in British Columbia, it will also be subject to certain requirements set out in the Business Corporations Act .
Many of these requirements are of a legal or technical nature. Therefore, a company should consult a lawyer and an accountant who practice in the securities area. These professionals can advise on the application of the legislation and policies to the company's particular circumstances
Should be the company's plans include selling securities in other provinces or countries, the company must also follow the laws of those jurisdictions. Such laws may be considerably different from those in British Columbia.
There are two basic types of companies - private companies and reporting companies. The latter are commonly referred to as public companies.
A private company is one that has 50 or fewer shareholders and which has not otherwise become a reporting company
A reporting company is most commonly one that has issued securities under a prospectus in British Columbia or has at any time been listed on the TSX Venture .
Both private and reporting companies must comply with certain statutory reporting requirements. Requirements that apply to a reporting company are much more extensive and ensure that shareholders and interested investors have timely and relevant information on which to base investment decisions. Some of these requirements are described later in this brochure.
Once a company makes a decision to go public, the company should retain a lawyer specializing in securities law. The lawyer can help the company organize its affairs to comply with the applicable statutes, regulations and policies.
The company will work with its lawyer to prepare a prospectus - a detailed document that accompanies a public offering of securities. The prospectus must describe the company, its holdings, capitalization, future plans and matters such as how proceeds from the sale of shares qualified under the prospectus will be spent.
Each prospectus is an individually written, finely-tailored document. It must provide full, true and plain disclosure of all materials facts relating to the company and the offering, and it must comply with all relevant legislation and policies.
The lawyer prepares the prospectus based on information provided by the company and its advisors. For example:
- Accountants provide audit reports, which a company attaches to its financial statements.
- Engineers or management consultants prepare a detailed engineering or technical report, which assesses the company's business and assets. The report must be prepared or reviewed by an experienced consultant who is independent of the company.
- Underwriters or agents advise on the structuring of the offering as well as sell the shares qualified under the prospectus. They are also required to make certain inquiries about the company, a process known as due diligence, and to sign the prospectus.
Once completed, the company (usually through its legal counsel) files the preliminary prospectus, supporting documents and applicable fees with the Executive Director. When all the required documents are filed, the Executive Director issues a preliminary receipt, which allows the company and its underwriters to solicit expressions of interest from potential investors.
After a thorough examination of the filed material, the Executive Director sends a letter to the company commenting on the disclosure in the preliminary prospectus. Once all comments have been dealt with, the company files a final prospectus and the Executive Director issues a receipt for it. It should be noted, however, that the Executive Director may refuse to issue a receipt for a prospectus if they consider the proposed offering to be prejudicial to the public interest.
With a final receipt in hand, the company becomes a reporting issuer and may begin selling the shares qualified under the prospectus. As noted earlier, selling is generally handled by underwriters or agents. They have the knowledge, experience and sales force necessary to ensure a successful offering. Underwriters or agents are paid for their services by a commission or a discount on the price of the shares. They may also receive options to acquire shares of the company at a future time.
Being a public company carries a statutory obligation to maintain an accurate and up-to-date profile of the company on the public record. This concept is known as "continuous disclosure". Continuous disclosure involves keeping shareholders fully informed of the company's affairs, issuing news releases on a timely basis and making required filings with the Securities Commission, the Registrar of Companies and any stock exchange on which the company's shares are listed.
Material required to be filed by the Securities Act includes:
- audited annual and unaudited interim financial statements
- quarterly "management discussion and analysis"
- insider reports
- information circulars and other material distributed in connection with a meeting of shareholders
- takeover bid materials
- reports of material changes in the affairs of the company
The position of directors and officer carry certain duties and responsibilities. Directors and officers are responsible to shareholders, employees, creditors, regulatory authorities and the general public. They must be honest, diligent, prudent and act in the best interests of the company. Directors and officers must avoid conflicts of interest with the company and, should a conflict arise, act in accordance with requirements of the Business Corporations Act .
Directors and officers may be held legally responsible for certain activities of the company even if they did not participate in or have knowledge of those activities. Directors who are not officers of the company or involved in the company's daily affairs are not relieved of those responsibilities. After directors and officers resign, they remain accountable for activities which took place during their term of office
Further information on duties and responsibilities of directors and officers can be obtained from Directors Duties in Canada published by CCH Canada Limited . In Vancouver, Simon Fraser University offers a course on organizing and managing a public company. The course includes information on directors' responsibilities.
A reporting company may apply for a listing on a stock exchange once it has received a receipt for its prospectus and met the minimum listing requirements of the exchange.
The TSX Venture may allow a company to obtain a conditional listing concurrently with the final receipt for the company's prospectus. The company's shares will be listed for trading once the TSX Venture's minimum listing requirements are satisfied.
Both the securities commission and stock exchanges have imposed certain requirements that must be met before a listing application will be accepted. A company should, therefore, review all applicable legislation, securities commission policies and the bylaws, rules and policies of the stock exchange on which it intends to list.
The following is a summary of rules relating to public companies in British Columbia:
- The Business Corporations Act sets out the procedure for incorporating a company or registering an extra provincial company in British Columbia and the requirements that must be met by the company on an ongoing basis. More information can be obtained from the Registrar of Companies in Victoria; phone (250) 387-7848 or write to 940 Blanshard Street, Victoria, British Columbia V8W 3E6.
- The Securities Act regulates the trading of securities in British Columbia. The Securities Act prohibits trading of securities except by registered persons and prohibits a distribution of securities unless a prospectus has been filed. Parts 5 and 8 of the Securities Act and Securities Regulation provide specific exemptions from these registration and prospectus requirements. The Securities Act and Securities Regulation also address registration matters, prospectus requirements and continuous disclosure obligations.
- Common law is the body of law arising from court decisions rather than legislation. Common law contains interpretations of such terms as "security" and "public" and sets out standards of conduct for directors and officers. Those involved in the securities filed should develop an understanding of applicable common law; the assistance of a lawyer is usually required.
- Policy statements are issued by the Securities Commission to expand on the law and set out procedures and practices to be followed by industry participants. National policy statements and national instruments are applied uniformly by regulatory authorities in all provinces in Canada. Multilateral instruments only apply in those jurisdictions in which they have been implemented. BC Policies & Instruments apply only in British Columbia.
- Notices are issued to provide general information on Securities Commission activities and more detailed information on areas of current concern.
- Stock exchange bylaws, rules and policies apply to all companies listed on that stock exchange. Inquiries concerning TSX Venture rules should be directed to:
TSX Venture, Vancouver Office
P.O. Box 11633
#2700, 650 West Georgia St.
Vancouver, BC, V6B 4N9
The Continuing Legal Education Society of British Columbia (CLE) publishes a set of regularly updated binders containing the British Columbia Securities Act and regulations, national and local instruments and policy statements, blanket orders, notices and forms. For more information contact The Continuing Legal Education Society of British Columbia, 300-845 Cambie Street, Vancouver, British Columbia, V6B 5T2, telephone (604) 669-3544.
The above information is also included in the CCH Canadian Securities Law Reporter looseleaf service. Subscriptions are available through CCH Canadian Limited, P.O. Box 49216, 2674-4 Bentall Centre, 1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1K8, telephone (604) 688-7510. The Canadian Securities Law Reporter is also available for reference at major public libraries as well as some courthouse, college and university libraries.
If you would like to obtain print copies of the Business Corporations Act or Securities Act, refer to the suppliers on the Act, Regulations, and Rules page of our website.
National and local instruments and policy statements and all blanket orders, notices and forms issued under the Securities Act are available at the securities commission for public viewing and copying. They are also available on the commission’s public website in the Policies and Instruments section. Pre-printed registration, insider report and quarterly report forms are available from the securities commission free of charge. Securities Act and Securities Regulation amendments, new instruments, policy statements, blanket orders and notices are published on the British Columbia Securities Commission Weekly Report web page.