What is a Junior Capital Pool (JCP)?
A junior capital pool (JCP) is a type of corporate capital arrangement that lets startups in their early stages sell shares in the business before they even start making money. Canada is the only country that allows this way of supporting a business.
A capital pool company (CPC) is another name for the JCP.
Currently, the JPC is just a “shell” company with no assets other than cash and hasn’t started doing business. Their problems might be better called stock options than stock shares since we won’t know how much they’re worth until later.
How a Junior Capital Pool (JCP) Works
Alberta, Canada, came up with this new way to finance new businesses in the late 1980s, primarily to meet the needs of new businesses in the province’s growing oil and gas industry.
It has evolved over time into the capital pool company (CPC), a more common type of business organization. New private companies can now use the capital pool company as an alternative way to raise money and go public.
The TMX Group, based in Canada, sets up and oversees the system. This kind of company can also trade on the TSX Exchange.
A capital pool company has experienced leaders and some money, but it is not currently doing business when it goes public for the first time (IPO). The owners of the CPC are usually looking to buy a new business. Once the purchase is complete, the sale gives the new company access to cash and the listing that the CPC set up.
This type of financial arrangement aims to make it easy for new businesses to get money. The junior capital pool business could get a float and access to public markets with a minimum investment of $100,000 from the founders. This would give them the extra money they needed to get started.
The capital pool program has named about 2,600 companies since it began. These companies have raised about $75 billion Canadian.
A Junior Capital Pool (JCP) Example
Let’s say you are starting a business that has bought a newly discovered oil source and plans to explore and get oil from it. So far, your business hasn’t even drilled or brought a single barrel of oil to market.
Since you set up the business as a JPC, you and the other owners put some of your money into it. After that, you make the company publicly traded on the Canadian market.
The planning stages for this project are still ongoing. Most people think investing in capital pool companies is risky because they don’t have a proven way to make money yet.
Conclusion
- A junior capital pool, or JCP, is a brand-new business that can sell shares to raise money before it even starts running.
- You can only buy and sell JCP in Canada and only on the Toronto Stock Exchange.
- The oil and gas research business proliferated in the 1980s, which led to this type of business organization.
