What Is a Junior Capital Pool (JCP)?
A junior capital pool (JCP) is a corporate structure whereby companies can issue shares to the public before actually establishing a line of business. The purpose of such a capital structure was to provide an easy way for early-stage companies to raise capital. With a minimum investment from founders of $100,000, the junior capital pool company could get a listing and exposure to public markets, providing them with the additional equity needed to launch.
This novel form of "start-up" financing was first invented in Alberta, Canada, largely fueled by speculation in the province's burgeoning oil & gas industry. Because this capital structure is a legal concept as much as a financial one, JCPs currently only exist in Canada on Toronto's TSX Venture Exchange.
Understanding Junior Capital Pool (JCP)
A capital pool company (CPC) is an alternative way for private companies to raise money and go public. The capital pool company system was created and is currently regulated by the Canada-based TMX Group, and the resulting companies trade on the Toronto Stock Exchange's TSX Venture Exchange. A capital pool company is a listed company with experienced directors and capital, but without current commercial operations at the time of the initial public offering (IPO). The directors of the CPC often focus on acquiring an emerging company and, upon the completion of the acquisition, that emerging company has access to the capital and the listing prepared by the CPC.
As an example, say you are founding a company that plans to explore and extract oil from a newly discovered reserve — but that you have not yet begun drilling and have not yet sold a single barrel of oil to the market. A JPC allows its founders to put up some of their own money and then list the company as a publicly traded entity on a Canadian exchange even while the venture is still in the planning phases. Because there is no proven revenue stream yet, capital pool companies are usually considered very risky investments.
A junior capital pool company (JPC) is a particular type of CPC initially created by the Alberta Stock Exchange. Since its inception, the capital pool program has listed over 2,400 capital pool companies, and as of October 23, 2015, there were 130 companies listed on the TSX Venture Exchange (TSX-V) Capital Pool Company List. The JPC is, essentially, a clean shell corporation with no assets other than cash, and which has not yet commenced business operations.