Ever since Spotify, the Swedish music streaming Company, decided to go public through a direct listing in 2018, more and more issuers have pursued this listing method as its cost effective and quick. However, there is often a lack of clarity on what the general listing requirements are.
This article provides a basic outline of the steps required to complete a direct listing on the Canadian Securities Exchange (the “CSE”). To understand how direct listings compare to listings by way of reverse takeover, you can read more here.
The direct listing process typically takes 8 to 12 weeks from the time the initial submission is provided to the provincial securities commission. Variations in this timeline depend on a number of factors such as:
- the timely submission of the required documentation;
- the review process by the CSE and securities commission; and
- any additional requirements that may arise.
The examples we’ve provided below assume the Company will be completing a subscription receipt offering prior to listing, and such subscription receipt units will be qualified for listing by a non-offering prospectus. Alternatively, Company’s can use a direct listing to complete a brokered offering concurrent with the listing process.
Basic Listing Requirements
The minimum requirements that must be met to qualify for listing on the CSE are as follows:
|Net tangible assets, revenue, or financing||An operating company with revenue from the sale of goods or services; or|
A non-operating company with financial resources to carry out a proposed work plan or achieve stated objectives for 12 months following listing, and have advanced to a stage of development at which additional financing is typically available to the companies in the industry
|Working capital||Adequate working capital and financial resources to operate for 12 months following listing, subject to C$200,000 minimum|
|Property||Issuer has significant interest in business or primary asset used to carry on business.|
|History and Work Plan||History of operations or validation of business|
|Management||Management, including board of directors, should have adequate experience and technical expertise relevant to the company’s business and industry as well as adequate public company experience in Canada or a similar jurisdiction. Companies are required to have at least two independent directors.|
|Distribution||Public float of at least 500,000 freely tradeable shares and consisting of at least 150 public holders holding at least a board lot (which can vary from 100 to 1,000 shares, depending on the price of the shares) each.|
The principal steps involved for a direct listing on the CSE are set out below, along with estimated timelines. These steps assume that the Company’s management team and corporate structure are already in place. If corporate restructuring and management changes are required, this will likely extend the timeline.
|Approximate Timeline (days)||Milestones|
|0||Create audit committee and adopt audit committee charter|
|5||Engage transfer agent|
|15||Commence preparation of non-offering prospectus, including a detailed business plan|
|20||Commence subscription receipt financing|
|70||Submit first draft of non-offering prospectus and Personal Information Forms (PIFs) to securities commission|
|75||Submit first draft of non-offering prospectus, listing application and PIFs to CSE|
|85 - 115||Resolve comments from securities commission on non-offering prospectus|
|120||Clear prospectus with securities commission and CSE|
|125||Clear listing with CSE|
Principal Components of Listing Process
Non-Offering Prospectus (“NOP” or “Prospectus”)
A direct listing requires the preparation of a preliminary prospectus followed by a final prospectus in a jurisdiction in Canada. The prospectus provides the CSE with 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. Unlike an offering prospectus, a non-offering prospectus does not require retaining a broker/underwriter because securities are not being offered to the public market.
A prospectus is designed to provide investors with information needed to make an educated investment decision. The level of disclosure needed for the prospectus is full, true and plain disclosure – the highest standard in securities law. The Prospectus must also contain a detailed description of the company’s business and its business plan, all in a prescribed form.
As a result, creating a prospectus is a long and detailed process that requires the co-operation of management, securities lawyers, external auditors, technical consultants and investor relations professionals.
Financial statements of the operating business must be prepared for the past three years, subject to certain exceptions, as well as for any interim periods. All annual financial statements must be audited. In general, audits are required to be prepared in accordance with Canadian auditing standards and use International Financial Reporting Standards (IFRS). There are certain limited exceptions to the IFRS requirement for issuers using US GAAP, or foreign issuers listed on foreign stock exchanges.
Additional Eligibility Requirements and Listing Documents
In addition to the general requirements outlined above, the issuer must also submit their (3) choices for a stock symbol, the listing application and the supplementary documents must be received by the CSE and listing feels must be paid in full before the issuer will qualify for listing.
***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. ***