Qualifying Transaction


DEFINITION of 'Qualifying Transaction'

A type of transaction that occurs when a company issues public stock in Canada. A qualifying transaction occurs when a qualified Capital Pool Company (CPC) purchases all of the outstanding shares of a privately-owned company from the current shareholders. The private company then becomes a fully-owned subsidiary of the CPC.

BREAKING DOWN 'Qualifying Transaction'

Because the capital pool company will, by nature, have no business of its own, whatever line of trade that the private company engages in becomes the business of the CPC. Qualifying transactions usually formally begin when the shareholders and the CPC create a Letter of Intent (LOI) outlining the terms of the agreement. Usually, the CPC must include a plan for financing the transaction in every LOI.

  1. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. ...
  2. Third-Party Transaction

    A third-party transaction is a business deal involving a buyer, ...
  3. Junior Capital Pool - JCP

    A corporate structure whereby companies can issue shares to the ...
  4. Transaction

    1. An agreement between a buyer and a seller to exchange goods, ...
  5. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  6. Transaction Risk

    The exchange rate risk associated with the time delay between ...
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