Assessing Capital Structure Before an Initial Public Offering: Factors Considered by the Canadian Securities Administrators

The Canadian Securities Administrators (CSA) published Staff Notice 41-305 - Share Structure Issues – Initial Public Offerings on September 24, 2010, in order to provide indications to IPO candidates and their advisors as to the factors the securities regulatory authorities will consider when assessing the proposed share structure of an IPO candidate.

Over the last year, we have encountered instances where, when acting for IPO candidates or their underwriters, information on the IPO candidates' capital structure was required by the securities regulatory authorities. Reference was made to the securities regulatory authorities, referring to their need to assess the appropriateness of an IPO candidate capital structure in the name of the public interest. Areas of interest included the history and development of a corporation and investments made by the founders as well as on any prior valuation. More specifically, instances where the proposed IPO candidate never