Going Public in Canada - Initial Public Offering or "IPO"
Updated: Jan 21, 2020
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. Over the years an initial public offering or "IPO" is the most conventional way that a private business would "go public" and, although this process has experienced downward trends over the past decade it has generally been experiencing an upward trend over the past few years.
Going public, generally, has many potential benefits such as:
Increased prestige, generally, as well as visibility and credibility in corporate community, capital and and labour market.
Increased access to further financing opportunities by way of both public and private financing and more flexibility in the manner capital is raised.
Increased liquidity by listing on a public stock exchange or quotation system, an expansion of the investor base and a potential rise in the value of shares or other listed securities and allows existing securityholders an opportunity to exit and realize gains on their investment.
Alas, with the many benefits, there are considerable costs:
Increased costs both in terms of the upfront costs associated with an IPO (which can be significant and include legal, accounting, printing and filing fees as well as underwriters’ commissions, based on the proceeds raised through the IPO, and their expenses); and the ongoing costs associated with public company disclosure and compliance obligations.
Increased public scrutiny of all aspects of your business including financial results, share price, management and director compensation and performance, management, director and significant shareholder trading and corporate governance practices.
Increased demand of management resources typically focused on management of day-to-day business affairs in order to address underwriter, legal, accounting, investor and often board of director concerns.
Increased regulation and often transparency (and therefore scrutiny) with respect to future and ongoing transactions, particularly related party transactions, and consent, notice or shareholder approval requirements under the policies of the applicable stock exchange or quotation system.
Increased exposure and potential for lawsuits and regulatory action against the directors and management for compliance lapses, misrepresentations or omissions in timely disclosure of material changes or facts.
An IPO requires the preparation of a prospectus, which provides investors with full, true and plain disclosure (a very high standard) of material information needed for investors to make an investment decision. Preparing, filing and receipting (clearing with regulators) a prospectus is a long and involved process that will require a significant degree or time, effort and coordination between management, broker-dealers, lawyers, external auditors, technical consultants, investor relations professionals and often significant or controlling shareholders.
While there are numerous and often detailed accounts of the IPO going public process on the internet, a decent summary by the British Columbia Securities Commission can be found here, but always seek advice from an experienced lawyer in your jurisdiction.
Endeavor Law can assist on all aspects of a proposed initial public offer including the initial planning and structuring; negotiation and settlement of a term sheet or engagement letter; diligence, documentation, broker-dealer matters, securities commission regulatory filings and completion of an initial public offering; as well as coordination of listing and approval requirements of the applicable stock exchange or quotation system. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.
Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.