Raising Equity Capital
Before a small business can raise funds from investors it must obtain an approval under section 28.3 of the Small Business Venture Capital Act from the administrator. Prior to granting this approval, the eligible business corporation (EBC) must satisfy the administrator that the shares or convertible right it plans to issue to investors complies with the Act.
Before issuing share capital to investors an EBC should understand the following requirements of the Act:
- The investors must acquire voting or non-voting shares or a convertible right of the EBC for cash consideration (the voting interest of the investor and their associates and affiliates is restricted to less than 50%)
- The shares issued to the investors must be treasury shares issued to raise new equity capital
- If the shares or a convertible right carries retraction or redemption rights, such rights must be exercisable at least five years from the share issue date
- The investors must be at arm’s length from the EBC and must not have disposed of any “eligible business” shares or convertible rights in the past two years (ensures investors won’t sell and then reacquire shares to obtain tax credits)
- The investors must hold the EBC shares or convertible right for at least five years. An investor will be liable to repay the tax credit if the shares or convertible rights are redeemed prior to five years
- The EBC must not redeem or register a transfer of shares or a convertible right on which tax credits were paid for at least five years.
Click here for a list of the prohibited share rights and restrictions.
The maximum equity capital that an EBC can raise under the Venture Capital Programs is $10 million.
Upon registration, the EBC will receive an equity authorization specifying the amount of equity it can raise under the program for the current tax budget year.
EBCs are authorized to raise tax credit supported investment up to the amount of Equity Authorization it is issued. However, tax credit budgets are limited and in the event that tax credit budgets run out the EBC will be notified to cease raising investment under the Equity Authorization, and any unused portion of the Equity Authorization amount will be cancelled. The EBC's equity authorization ends on its expiry date, or the day the EBC’s unused amount of Equity Authorization is cancelled, whichever is sooner. Equity Authorizations may be cancelled at any time with limited or no notice.
EBCs must immediately claim tax credits through the electronic Tax Credit Application (eTCA) system as soon as investment has been raised, and share purchase reports and tax credit application requirements have been met.
EBCs can apply to raise additional equity capital each tax budget year using the Additional Equity Application (PDF, 83 KB).
When raising equity capital, the EBC must ensure that each individual or corporate investor completes and signs a Share Purchase Report (PDF, 639 KB).
The Investment Capital Branch maintains a register of EBCs that are actively raising investment. The register is made available to VCCs and other investors who are seeking investment opportunities and want to know which companies are actively raising investment.