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Securities and Capital Markets

How can I find an investment target?
How can I find an investment target? 150 150 Jiang Hong Wilkin Business Law

One difference between public companies and private companies is that public companies have disclosure obligations. So investors can review the publicly disclosed information to determine where there is a suitable investment target. In Canada public company disclosure documents are available at www.sedar.com, including annual and quarterly financial statements, press releases, prospectuses and other major disclosure documents, material contracts, annual information forms (for TSX companies), etc. Further, the insider information of the public company is also publicly filed, available at www.sedi.ca. Insiders of public companies include its directors, officers and shareholders holding 10% or more. Insiders are required to report the increases and decreases they hold in the public company in shares, options, etc.
Whether you are looking for a public or private investment target, you can always use intermediaries such as brokers or consulting firms to assist in your search. However, intermediaries will generally charge a fee. Also, if the intermediary is in the business of trading or advising, they will need the appropriate securities dealer/advisor registration.

How does a public company go private?
How does a public company go private? 150 150 Jiang Hong Wilkin Business Law

After completion of the acquisition (take-over bid transaction) of a public company, the next important step is going private. There are two applications that need to be made for going private. One is the application to the stock exchange to voluntarily delist the company’s shares. The second application is to the securities commissions to cease to be a reporting issuer (public company). To apply to the securities commissions, the company must have fewer than 50 shareholders. If the take-over bid resulted in the acquiror acquiring 100% of the public company shares, then it is very simple to go private. If the acquiror gets 90% of the public company shares, going private is also fairly easy as the acquiror can forcibly buy the remaining 10%. Once the 100% was acquired and the number of remaining shareholders is below 50, then going private applications should be made to the stock exchange and the securities commissions. If the acquiror does not acquire 90% re more in a take-over bid, then the acquiror must do another transaction to reduce the number of shareholders to below 50. The second transaction may be by way of share consolidation or amalgamation, etc. The acquiror may use a plan of arrangement or amalgamation instead of a take-over bid. If a plan of arrangement or amalgamation is used, then the acquisition of the public company and going private can be accomplished in one transaction. After the company ceases to be a reporting issuer (public company), the company will no longer be subject to audit, financial disclosure and other public company obligations.

Should my fund be a company, LP or trust?
Should my fund be a company, LP or trust? 150 150 Jiang Hong Wilkin Business Law

An investment fund is basically a group of people making investment together. There are several structures for funds. It could be a company. It also could be a limited partnership or a trust. Which structure should be used is mainly a tax consideration. If it is a company, the company will pay taxes. Profit and loss will remain in the company. The investor gets the dividends and capital gain from the company. Limited partnerships and trusts usually do not need to pay taxes themselves. All the profits and losses will be passed through to the investors. The investors pay taxes. Another factor to choose the structure of funds is liability. Companies and limited partnerships have limited liabilities. The liabilities of the investors are limited to the amount of investment in the funds. For publicly listed trusts, the liability is also limited. For non-publicly listed trusts, the liability is unlimited. Therefore, many private funds chose to use limited partnerships.

Who must get a securities dealer’s licence?
Who must get a securities dealer’s licence? 150 150 Jiang Hong Wilkin Business Law

Some people ask their own clients, friends or relatives to invest a project by buying shares, and then earn a commission. In Ontario, only the registered dealers can do this. Ontario securities law requires that all those in the business of trading securities in the capital market must have a dealer licence. The most basic dealer license is the exempt market dealer (EMD). The dealer can earn commissions openly after being registered. It is illegal to be paid commissions from securities trading if you are not a registered dealer. This requirement applies not only to public listed companies, but also to private companies, since the shares of a private company are securities as well.

Are private companies subject to securities law?
Are private companies subject to securities law? 150 150 Jiang Hong Wilkin Business Law

Most people think that securities law applies to the public companies only, and private companies do not need to worry about securities law. This is not correct. In Canada, private companies issuing shares must also comply with securities law. Private companies are exempt from prospectus requirement, if certain conditions are met. For example, there should be share transfer restrictions, shares can only be issued to certain permitted people, non-employee shareholders cannot be more than 50, etc. These exemption conditions have to be evidenced in the legal documents.

Can you use two sets of books when going public in Canada?
Can you use two sets of books when going public in Canada? 150 150 Jiang Hong Wilkin Business Law

If a Chinese company would like to go public, they must give up on using two books of financial statements. For tax purpose, some Chinese companies intentionally decrease the profit in financial statements. When they are going to public, they say the actual profit is much higher than the profit in the financial statements. This does not work. If the company would like to use the numbers for higher profit, they have to report to the Tax Bureau and pay the extra tax. If they do not want to pay the extra tax, only the numbers in the financial statements which was reported to the Tax Bureau can be used for going public purposes. The securities commissions and stock exchanges in Canada have become much smarter. They require not only the financial statements prepared for the going public transaction, but also the financial statements submitted to Chinese Industry and Commercial Bureau and Tax Bureau. If the financial statements are not the same, then the Company is providing false information and the going public transaction will not be successful.

What are the crowdfunding rules in Canada?
What are the crowdfunding rules in Canada? 150 150 Jiang Hong Wilkin Business Law

Ontario (and QB, MN, NS, SK, NB) Multilateral Instrument 45-108 Crowdfunding became effective on January 25, 2016. The major requirements are the following:

1.    Head office of the issuer is located in Canada and a majority of directors of the issuer reside in Canada.

2.    The issuer provides the standard disclosure on website.

3.    Must use a registered funding portal.

4.    Investment limitation per investor:

  1. For a non-accredited investor, $2,500 per distribution, and $10,000 for all distributions in same calendar year.
  2. For an accredited investor, $25,000 per distribution, and $50,000 for all distributions in same calendar year.
  3. For a permitted client (mainly non-individual investors), no limitation.

5.    The issuer cannot raise fund more than $1,500,000 within 12 months.

6.    The issuer has responsibility to make certain disclosure after distribution.

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