Don’t Overlook Private Company Investments
The vast majority of today’s successful public companies
started out as private companies. Many of those early stage
investors did remarkably well when those companies grew into
large public companies. But picking the right private companies
for investment requires as much attention as picking a good
publicly traded company. It is worth the effort since many private
companies offer compelling capital gain opportunities. For
income-orientated investors, many pay attractive dividends or
high yields on their debenture/bonds. But finding private company
investments that are eligible for your RRSP is no easy task either.
Private Company Investing & Exempt Market Dealers
Do not expect your stockbroker of mutual fund salesperson
to introduce you to eligible private company investments for your
RRSP. Most of them don’t know, and it’s not in their interests to help
you find out. In Canada, the place to go for private investments are
Exempt Market Dealers (EMDs), something which not all investors
know. EMDs are a category of dealer that specializes in access to
private company investments and connecting private companies
with investors in the private (or “exempt”) market. To find out more
about Exempt Market Dealers, check out the Exempt Market
Dealers Association of Canada at www.emdacanada.com.
Putting Private Company Investments Into your RRSP?
Private company RRSP service providers like Knightswood
Financial Corp. provide a simple solution that enables private
companies to issue “RRSP eligible” debentures and bond
products to public investors. Knightswood has already structured
more than $260 Million of RRSP eligible offerings and is ready
to help more companies ready their securities for the RRS
Western Pacific Trust Company also offers Self-Administered
Registered Plans (RRSP, LIRA) and Tax Free Savings Accounts
(TFSAs) to investors. Eligible private company investments are
accepted for both RRSP and TFSAs. For more information, please
contact Alison Alfer, Manager Administration & Communication,
at 604-683-0455 or by email at email@example.com.
There are 5 key steps in how Knightswood can structure an RRSP eligible offering for a
1. Knightswood incorporates a subsidiary company (Subco) and subscribes for a nominal amount
of share capital, e.g. $100 in common shares
2. Directors of the Subco are nominated by PrivateCo (or the General Partner, in the case of a
limited partnership structure) and approved by Knightswood. Subco arranges for debenture
financing from PrivateCo’s outside investors. The debentures are considered to be qualified
investments for registered retirement savings plans and other deferred plans under Canada’s
Income Tax Act. Knightswood provides PrivateCo. with a registered plan eligibility letter.
3. Knightswood and Subco enter into an Administrative Services Agreement documenting the
fees, services, and other contractual arrangements that have been agreed between the parties.
Knightswood is not involved day-to-day operations of Subco and does not participate in its
profits or losses. As a result, there is no requirement for Subco to be audited or consolidated into
the financial statements of Knightswood.
4. Subco loans the net proceeds raised through its debenture offering to PrivateCo.
5. Knightswood, Subco and PrivateCo enter into a Put/Call option agreement exercisable at any
time during the term of the agreement. Upon the occurrence of certain events, PrivateCo has
the option to purchase or “call” the shares of Subco from Knightswood at pre-specified price.
Alternatively, upon the occurrence of certain events by Subco, Knightswood has the right to sell
or “put” the shares of Subco to PrivateCo at the pre-specified price.