Disclaimer: The following information is intended only as general introductory information to address some common questions. It is not intended to be and must not be relied on as legal advice. Please refer to the specific provisions of Alberta securities laws. We encourage you to seek legal advice from legal counsel familiar with Alberta securities laws.
Although an initial public offering or IPO is the method of going public with which most people are familiar, it is not the only way of going public. There are a number of ways of “going public”, for example:
- an initial public offering, i.e. an issuer’s first public offering of securities by prospectus, typically followed by a listing on a stock exchange
- a reverse take-over, i.e. a transaction such as an amalgamation or merger with another issuer:
- that is already a reporting issuer and typically listed on a stock exchange, but
- the issuer no longer has any significant business operations or assets
- a capital pool company or CPC qualifying transaction, which is a special program of the TSX Venture Exchange that is similar to a reverse take-over but where the reporting issuer with whom the transaction is conducted is a special purpose company that was created solely for the purpose of going public, raising money and finding a business to acquire
- a direct listing on a stock exchange. Because stock exchanges will generally require that an issuer seeking to list its securities have a certain number of public holders who are able to freely resell those securities, this option will be available in only certain circumstances (e.g. an issuer that already has a large number of security holders and that files a non-offering prospectus)
Businesses will go public for a number of reasons. In some cases, the issuer needs significant financing and investors want to have the ability to freely resell their securities. Being able to resell their securities may make the investment more attractive to new investors and to existing and potential employees. It may provide a means for existing investors to “exit” their investment, satisfying an obligation to them, and allowing the issuer and those investors to change their relationship. Before going public an issuer may have only a few investors but each with a significant investment. After going public, an issuer may have many more investors but each with much less significant investments. Going public is sometimes also seen as a way of gaining more public awareness or profile.
When an issuer goes public it will generally need to file a prospectus or other comprehensive disclosure document (e.g. in connection with a merger or similar transaction or a direct listing). This will involve costs. In going public the issuer will become a reporting issuer and will be required to provide certain ongoing disclosure to the market. This will typically involve new costs as this will usually require disclosure of additional or different information than the issuer provided to any investors it had before going public.
There are advantages and disadvantages of going public and advantages and disadvantages to the different methods of going public. Issuers should discuss these with their financial and legal advisors and determine what is best in their particular circumstances.
In considering whether or not to go public, it is worth noting that in Canada we are somewhat unique. We have stock exchanges, like the TSX Venture Exchange and the Canadian Securities Exchange, that provide a “venture” marketplace tailored to issuers that are still at quite early stages of development. Consequently, going public is not limited to the largest, most established businesses. Furthermore, securities regulators in Canada have recognized that the issuers trading on these venture exchanges tend to be smaller and at an earlier stage of development and have tailored the securities law disclosure and governance requirements to reflect that.
Most people think of an initial public offering or IPO when they think of “going public”. An issuer conducting an IPO would file a comprehensive disclosure document called a prospectus with securities regulators in each of the jurisdictions in which their securities would be offered for sale.
The prospectus used in an IPO publicly offers for sale certain classes of securities of the issuer. Staff of the securities regulator review the prospectus and provide comments on it. Once those comments are resolved, the issuer is invited to file the final version of the prospectus and accompanying documents. If everything required is filed, the securities regulator will issue a receipt for the final prospectus and the issuer can proceed to offer and sell the securities.
An issuer that has filed a prospectus and obtained a receipt for it is then a reporting issuer and is then required to provide ongoing disclosure about its business (see “What is the significance of an issuer becoming a reporting issuer?”).
The issuer will typically retain one or more investment dealers as “underwriter” to sell the securities on its behalf. The issuer and the underwriter will determine the price at which the securities will be offered to the public.
An issuer that conducts an IPO will often also make an application to a stock exchange to have its securities listed for trading. This is a separate process from the prospectus process. The stock exchange will consider whether the issuer meets its requirements for listing. Once listed on a stock exchange the issuer will be required to comply with both securities laws and the additional rules of the stock exchange.
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Stock exchanges in Canada are typically for-profit entities that are separate from securities regulators. Stock exchanges have their own criteria for determining whether to list an issuer's securities and will typically impose requirements on a listed issuer that are in addition to those of securities laws. The stock exchanges in Canada, e.g. the Toronto Stock Exchange (TSX), TSX Venture Exchange (TSXV), Canadian Securities Exchange (CSE) and NEO Exchange (NEO), are overseen by the securities regulators in Canada. |