B.C. has the highest percentage of Chinese population in Canada, and the Greater Vancouver area has attracted many Chinese immigrants to live and establish their companies due to its favorable climate. The operation and development of a company cannot be done without the support of a large amount of capital. In the initial stage of the company's development, the cost of operation and development is often high, while the profitability is low, and it is difficult for the company's own capital and income to meet the needs of the company's development. In this case, many companies choose to obtain funds in the form of financing. There are two common types of financing for companies: debt financing and equity financing, and the common types of debt financing include bank loans, corporate bonds, and shareholder loans. Although debt financing is fast and simple, it often stipulates a fixed repayment period. Once a company is unable to repay the principal and interest on time, it will face a huge debt crisis or even the risk of bankruptcy. Therefore, many companies choose the way of equity financing.
Common Misconceptions about Equity Financing
In BC, companies are mainly governed by the Business Corporations Act and Business Corporations Regulation. However, many start-up companies often have the misconception that only listed companies are subject to securities laws (including the Securities Act, Securities Regulation and other laws and regulations). In fact, regardless of whether a company is listed or not, any company may be subject to securities laws from the time of its incorporation, as long as it issues shares, whether in the form of common shares or preferred shares, and in any other form of securities.
The B.C. securities laws include the following two basic requirements:
Any individual (including businesses and individuals) engaged in the sale or trading of securities must be registered with the B.C. Securities Commission; Any individual (including businesses and individuals) issuing or selling new shares or new securities must file a prospectus with the B.C. Securities Commission. Unless a company's issuance of new shares for sale qualifies for an exemption under the Securities Act, failure to comply with the above two basic requirements will be suspected of violating the Securities Act.
Prospectus Exemption Conditions
Not all companies are required to file a prospectus with the B.C. Securities Commission when raising equity. The purpose of the prospectus requirement is primarily to enable investors to obtain sufficient information about the portfolio company to minimize the risk of their investment. In some cases, if the investor knows enough about the investee company, such as the investor is the founder, actual controller, or director of the investee company, the investor does not need to rely on the prospectus to obtain the relevant information about the investee company, in which case, compelling the company to prepare and file a prospectus may affect the efficiency of the company's financing. Therefore, the B.C. Securities Act provides for exemptions from the prospectus requirement.
Common exemptions include the following:
The investor is a director, officer, employee, or beneficial owner of the portfolio company; The investor is a family member of a director, officer, or beneficial owner of the portfolio company; The investor is a close friend or business partner of a director, officer, or de facto controller of the portfolio company; The investor is an existing shareholder; The investor is a securities law qualified investor. Qualified Investor
A company's sale of new shares to a qualified investor under the securities laws may also be exempt from the prospectus requirement. Investors who are a qualifying investor under the securities laws include:
Financial institutions; Pension funds; Corporations, limited partnerships, and trusts with more than $5 million in net assets; Individuals (or with a spouse) with pre-tax financial net worth in excess of $1 million; Individuals with pre-tax net income over $200,000 in each of the previous two years (or joint net income over $300,000 with a spouse); Individuals (or with a spouse) with a net worth in excess of $5 million; Other investors who are qualified under the securities laws or recognized by the BC Securities Commission.
It is important to note that under the Securities Act, if a natural person investor believes he or she qualifies as a qualified investor, he or she will need to complete Form 45-106F9 to confirm that he or she qualifies as a qualified investor and fully understands the risks of the investment.