Skip to main content
Direct Listing by Non-Offering Prospectus (NOP) versus Listing by Reverse Take Over (RTO)

Two popular ways for a company to go public, other than by conducting an initial public offering (IPO), are by reverse takeover (RTO), and, increasingly common in the last couple of years, by direct listing using a non-offering prospectus. Both are simpler, therefore faster and less costly, and do not carry the market risk of an IPO. What do these two methods involve and what are their pros and cons?

Reverse Take Over

With an RTO, the private company seeking to go public (the target) combines with a listed company without an active business (the shell). Capital Pool Companies (shells created under a TSX Venture Exchange program) are also potential vehicles to take a target public through an RTO. In an RTO, the target and the shell agree to combine their businesses by some means, such as a share exchange, an amalgamation, or a plan of arrangement, to form a combined company (the resulting issuer). On completion of the RTO, the former target shareholders own a majority of the shares of the resulting issuer, which becomes listed under the shell’s stock exchange listing, and the business of the target becomes the business of the resulting issuer.

Steps Involved
  • Identify shell/target and agree on respective valuations
  • Values of shells vary depending on what the shell brings to the transaction, which in addition to distribution can be financing, management expertise, etc.
  • Determine the desirable legal form of the transaction: share exchange, three cornered amalgamation, plan of arrangement
    • Tax and securities laws considerations will influence the choice of legal form
  • Prepare audited financial statements for target with clean audit opinion
  • Prepare information circular or filing statement with prospectus-level disclosure (“full, true, and plain disclosure”) about target, shell, and resulting issuer
  • Apply to stock exchange for listing of resulting issuer
    • Exchange review of information circular/listing statement
    • Exchange review of suitability of proposed board and other insiders to manage a public company, based on personal information forms (PIFs)
  • Hold shareholder meeting to approve transaction (not always necessary)
  • Complete financing(s) (may involve one in each of shell and target or in one only)
  • Clear stock exchange and any regulatory review
    • Resulting issuer must have a minimum working capital for a period of 12-24 months and satisfy specific listing criteria for its industry
  • Close transaction
  • Resulting issuer begins trading, often under the former name of the target
RTO Pros and Cons
  • Transaction is predominantly regulated by a stock exchange instead of the securities commission
  • Pre-existing shareholder base assists with liquidity considerations
  • Does not include liabilities of representations made in a prospectus
  • Benefits for resulting issuer from shell’s public markets team (financing, investor relations, continuous disclosure, familiarity with stock exchange policies)
  • Legacy concerns with shell company (liabilities, obligations, rogue shareholders)
  • Shareholders of private company may suffer greater dilution than with a direct listing
  • Finding a clean shell may add time to the transaction
  • Cost of shell is borne by target
RTO timeline

Although it may be possible to complete an RTO in three to four months under perfect conditions, a more realistic timeline that allows for some minimal delays for non-major issues could be six months or longer. Potential delays may be related to the time required to find a suitable shell, carrying out due diligence for both parties, time to hold a shareholder meeting if required, and obtaining audited financial statements for the target.

Direct Listing by Means of a Non-Offering Prospectus (NOP)

In Canada, a direct listing involves a company going public and listing on an exchange without selling shares through an agent or underwriter as is done in a regular IPO. An NOP includes all the information and financial statements that are required under National Instrument 41-101F1 Information Required in a Prospectus to qualify the distribution of the company’s already outstanding securities to the public. No shares are sold in connection with the transaction, hence the name “non-offering prospectus.” An NOP requires sign-off by both the securities regulators as well as the applicable stock exchange, although the former generally scrutinize the deal more closely than the latter.

This can be an attractive option where the company has sufficient funds to carry out its business plan for a year or more after going public, and where the company already has a capital structure that meets the listing requirements of the exchange on which it intends to list (number of shareholders holding at least a board lot, public float). Companies are often structured from the outset with the intention of conducting a direct listing through NOP.

Steps Involved (Assuming the Process Begins with New Incorporation)
  • Incorporate the company
  • Capitalize the company
    • Planning of capital structure to meet exchange requirements
    • Issuing of founder’s shares
    • Vending in an asset or business for shares
    • Obtaining distribution (private placement rounds possibly including a crowdfunding round to ensure that shares are held by a sufficient number of shareholders)
  • Create a board and management team with public company experience
  • Obtain audited statements for the company – audit report must be clean
  • Prepare the NOP – “full, true, and plain disclosure”
  • Prepare listing application documentation to submit to exchange, including personal information forms for insiders
  • Clear regulatory review – may involve several rounds of comments with securities commission and stock exchange
  • NOP receives final receipt and company becomes a reporting issuer
  • Satisfy listing criteria for chosen exchange and type of issuer
NOP Pros and Cons
  • Overall cost may be less than RTO (no cost associated with acquiring shell)
  • No need to perform due diligence on a shell or face unsuspected liabilities related to the shell down the road
  • Shareholder dilution should be less than with RTO
  • Timeline can be faster than with RTO (no shareholder meeting required)
  • Primary review is with securities commission
  • Liability for representations made in a prospectus
  • Company has to raise necessary funds and achieve required distribution through private placement rounds

A direct listing can be completed in under six months from time of incorporation, assuming that everything goes smoothly. The fundraising process may take longer than anticipated and depending on the complexity of the business, regulatory review may require additional time. Any issue arising from meeting financial statement requirements can also delay completion.

For more information on any of the above, or to connect with one of our securities lawyers, feel free to contact us at 604-629-5400, visiting our Vancouver offices or via e-mail at: [email protected]

Authors: Evie Sheppard, corporate, commercial and securities lawyer and Aadam Tejpar, corporate and securities lawyer located in Vancouver, BC.


The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances.  This blog post does not constitute legal advice or other professional advice and may not be relied upon as such.