So, the time has come. A business has reached a sufficient level of maturity so as to access the public equity markets. While the access to large amounts of cash is enticing, such a venture, whether in good economic times or bad, must always be weighed against the ongoing costs and obligations of being a reporting issuer in Canada.
While the contents of this condensed article may seem trite to those with even a modest amount of experience in dealing with reporting issuers, we hope, nevertheless, that the information may serve as a useful guide to those that are new to the required expenditures, ongoing disclosure obligations and other responsibilities associated with running a public company. Readers must be cautioned, however, that this article only summarizes some of the primary expenses and obligations of reporting issuers in Canada. As an exhaustive listing of all expenses and obligations of reporting issuers in Canada is beyond the scope of this or any other paper, readers are invited to contact the writer should they require additional information.
Stock Exchange and Other Fees
A reporting issuer will generally list its securities for trading on the Toronto Stock Exchange (“TSX”) or its junior partner, the TSX Venture Exchange (“TSXV”). Whether to list on the TSX or TSXV is a decision to be based on a number of factors, the most important of which relate to the size and resources of the issuer. A reporting issuer that lists its securities for trading on the TSX or the TSXV must pay certain fees and, for TSX fees, there is a calculator here.
Both the TSX and TSXV also charge fees related to certain transactions undertaken by reporting issuers, including stock splits, consolidations and trading symbol and name changes as well as in connection with exchange review of certain issuer documents from time to time. A reporting issuer must also typically retain and pay a transfer agent to administer its share register and provide communication services with an issuer’s registered and non-registered shareholders.
If a reporting issuer is not able to meet (or, in some cases, only narrowly meets) certain financial listing requirements of the TSX or the TSXV, as applicable, the issuer may be required to retain a sponsor in order for the issuer’s securities to be listed. A TSX or TSXV “participating organization” may provide sponsorship services on behalf of such issuers. In most cases, a sponsor plays an important role in bolstering an issuer’s claim for listing suitability.
Continuous Disclosure Obligations
Under National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”), obligations apply to a company that becomes a reporting issuer in Canada and some of those obligations are briefly noted below.
A reporting issuer, other than a venture issuer, must file with Canadian Securities Administrators (“CSAs”) and send, to all of its shareholders that request them, interim financial statements, and do so within 45 days following the end of each of the first three quarters of its financial year. For a venture issuer, the filing deadline is 60 days following the end of the quarter. Where interim financial statements are not reviewed by an auditor, a notice must accompany the filing, indicating that such a review was not performed.
A reporting issuer, other than a venture issuer, must also file with the CSAs, audited annual financial statements and send such statements to all of its shareholders that request them within 90 days following the end of its financial year. For venture issuers, the deadline is 120 days.
A reporting issuer must file its financial statements, along with a certificate signed by both the Chief Executive Officer and the Chief Financial Officer of the company stating that such statements, together with the corresponding Management’s Discussion and Analysis (“MD&A”) and, in the case of the annual statements, the annual information form (“AIF”), do not contain any false or misleading information and fairly present the financial condition, results of operations and cash flows of the issuer for the relevant period.
A reporting issuer, other than a venture issuer, must file an AIF within 90 days following the end of its financial year (which can be filed together with the MD&A and annual financial statements of the issuer). The AIF is a general information document intended to provide material information about the company and its business at a point in time in the context of its historical and possible future development.
Also, as soon as a material change that is not generally known to the public has occurred that would reasonably be expected to have a significant effect on the value or the market price of its securities, a reporting issuer must prepare and distribute for publication in the media a press release authorized by a member of management, disclosing the substance of the change. The reporting issuer must also immediately file with the CSAs a copy of the press release, along with a material change report.
Each reporting issuer must file with the CSAs, concurrently with its publication, a copy of any news release issued by it that discloses information regarding its operations or financial condition. A reporting issuer must also file any document that it sends to its shareholders at the time it sends such document. The issuer must also file a copy of any document setting forth the rights of the company’s securityholders, or affecting them, as well as any material amendments to such documents.
In addition, a reporting issuer must also file a copy of any material contract that it has entered into other than in the ordinary course of business during the last financial year or, if still in effect, on or after January 1, 2002.
When a reporting issuer completes a significant acquisition it must file with the CSAs a business acquisition report within 75 days following the date of the acquisition, along with specified financial statements and pro forma financial statements of the acquired business. The financial statements of the acquired business must include the audited financial statements for the most recently completed financial year and the most recent unaudited interim financial statements. The aforementioned financial statements must be presented in comparison with the relevant periods for the immediately preceding financial year.
Annual and Special Meetings of Shareholders
Under the various corporate statutes in Canada, all companies are required to have annual shareholder proceedings. But when a company becomes a reporting issuer, the documents required to be prepared in connection with such meetings must be prepared in the form prescribed by the CSAs.
It should be noted that in the Fall of 2008, the CSAs released a new Form 51-102F6, Statement of Executive Compensation (“New 51-102F6”), which became effective and applies to financial years ending on or after December 31, 2008. New 51-102F6 is designed to provide an issuer’s shareholders with greater disclosure of executive compensation.
The company, among other things, must also send its shareholders a form of proxy, the requirements of which are specified in NI 51-102. The proxy form is designed so as to allow the holder to specify whether or not he or she would like his or her proxy to vote on certain issues. The form must also allow a shareholder to indicate how the proxy must vote on any other issue specified in the Notice of Meeting or the Circular.
As stated at the outset, the purpose of this article is to provide an overview of some of the major obligations and expenses incurred by reporting issuers in Canada. There are certainly a number of other obligations and expenses, not alluded to in this abridged article, that may be encountered by reporting issuers at any time and from time to time.