The Cross-Border Biotech Blog

Biotechnology, Health and Business in Canada, the United States and Worldwide

Flow-Through Shares for Cleantech and Biotech in Canada

800px-SieveRick Sutin, a partner at Ogilvy Renault (my home-away-from-home), has a post up at Cleantech in Canada singing the praises of flow-through shares.

So far, the flow-through program in Canada has been available (mainly) to resource exploration and development companies, but we have been arguing for a while that the program would be ideal for Cleantech and Biotech as well.

Why? See if any of these points sound familiar to a Biotech audience:

  1. Success comes from discovery and development programs, and relies on large amounts of high risk venture capital where revenues are uncertain and remote; flow-through shares filled the gap for resource exploration by providing venture capital at premium valuations through the public markets.
  2. Flow-through shares have made Canada’s capital markets the recognized global leader in resource finance and home to more resource companies than any other country in the world. The Canadian industry now develops and attracts the top resource management talent in the world.
  3. Government participates not by picking potential winners, but by giving private sector investors a tax incentive to make those choices and take those risks.

Here’s how flow-through shares work:

A company that issues flow-through shares must spend the proceeds on qualifying expenditures in Canada.  The expenditures are then renounced by the issuer to its investors, who can treat the expenditures as if they made them themselves.

How does it look from government’s perspective?

The government incurs an expense by foregoing tax that would otherwise be paid by the investors. However, the government recoups tax revenues from the recipients of the expenditures that would otherwise not have been made without this program and on the subsequent sale of shares, as the tax cost of shares is reduced to zero in the hands of the investors.

This is one of the few government programs that has successfully run for 20 years, contributing to Canada’s dominance in a significant sector without any problems or abuse.

A good deal all around.

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One response to “Flow-Through Shares for Cleantech and Biotech in Canada

  1. Pingback: Flow-Through Shares for Healthcare Part 1 of 3: What Are Flow-Through Shares? « The Cross-Border Biotech Blog

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