What is a Beansprout Company™?

A Beansprout Company™ is a new investment company, whose operations are subject to TSRC Beansprout Company™ Rules. The concept is similar to that of the Canadian Capital Pool Company Program of the Toronto Stock Exchange – Venture Market.
A TSRC Beansprout Company™ will be a new company, and no more than six months old at the time of quotation, and must not have traded. It must also be an EU or EEA company.

 

What is a Beansprout Company™ for?

A Beansprout Company™ facilitates capital raising for, and the development of, young entrepreneurial businesses. TSRC has developed the Beansprout Company™ rules for any EU stock exchange subject to the rules of those Stock Exchanges and their Regulators.

 

There are already many ways to raise capital. Why should I choose a Beansprout Company™?

A Beansprout Company™ can be more accessible compared to other routes to the market for small companies, because of the fixed fee entry and there is no need to pay ongoing costs for NOMADS and broker retainers, though a retainer of no more than £15,000 pa will be payable to TSRC.
Beansprout Company™ companies are to be traded on the London Stock Exchange via a Standard Listing.
The cost, and structure as a product, is less onerous route to market for both companies and investors.

 

Does a Beansprout Company™ have a light touch regulation?

No. On the contrary, Beansprout Companies must comply with two sets of rules: Recognised Investment Exchange Standard Listing Rules AND TSRC Beansprout Company™ rules. We believe it is fairer to investors whilst giving entrepreneurs an opportunity to make good returns.

 

How is a Beansprout Company™ created?

The Beansprout Company™ structure is that of a new investment company, created by founder directors who provide the seed capital, plus corporate, finance, industrial and commercial experience. The directors must outline their investment policy which might be, for example, that they intend to seek an acquisition in an industry sector, based upon where their experience lies. They must then find a minimum of 75 other investors in a Public Offer of new shares to raise further investment money for the Beansprout Company™.

 

What are the three stages of a Beansprout Company™?

Stage 1: PLC formed with £50,000 capital
Stage 2: A minimum of £700,000 net raised from Public Offering when the Company is listed on the market
Stage 3: A reverse takeover takes place

 

How many directors are required?

A minimum of three and a maximum of six Directors are required for a new Beansprout Company™.

 

What criteria for Founder Directors?
A Beansprout Company™ Founder Director must have relevant experience for the Beansprout Company™ industry or sector selected in the investment policy, and must be a professional investor.
Founder Directors of a Beansprout Company™ between them should have a demonstrable record in running a public enterprise, investment, corporate and/or having significant industrial/commercial experience, such that they have the competencies to identify a target acquisition and, if thought helpful assist in the development of the Beansprout Company™ after completion of the Permitted Transaction.

 

What is a Founder Shareholder?

A founder shareholder is an individual investor who provide seed money to create the Beansprout Company™ but does not hold any director’s responsibility.

 

Do I have to pay the Directors?

No. The directors cannot spend money on directors’ fees, and leasing of assets. There are other restrictions relating to Connected Parties.

 

What is Permitted Transaction?
The money in the Beansprout Company™ can only be used in the pursuit of a Permitted Transaction, which will most likely be the acquisition of an existing trading business looking for new capital and to raise its profile, by means of a reverse takeover (“RTO”).

 

How many shareholders are required?

A minimum of 75 shareholders is required at the Offer for Subscription. Once the Beansprout Company™ has raised the capital from 75 plus investors that it is seeking, the Beansprout Company™ shares will be quoted on the relevant Agreed Market. There is the possibility that the Beansprout Company™ can raise further funds before a Permitted Transaction has been announced, by the issue of more shares at the Public Offer price, or higher, but not lower.

 

What criteria for shareholders?

Check your suitability with this type of investment with your financial advisor. It is likely that prior experience of investing in smaller companies will be required, where the investor is aware of the perceived greater risks to their capital associated with investing in smaller companies.

 

How long do the Directors have to find an investment opportunity for the Beansprout Company™ money?

The Founder Directors have two years in which to find a suitable business that fits within the Investment Policy stated in the Prospectus, and complete a Permitted Transaction.

 

What happens if the Directors fail to find a suitable business within two years?

If the Beansprout Company™ does not succeed within that time, the founding directors must liquidate the Beansprout Company™ and return the balance of the money to the shareholders in proportion to their investment, i.e. if the founders have invested at, say, £0.01 per share and the Public Offer was a £0.02, then the liquidation funds is to be distributed in the same ratio.

 

Will I get all of money back if it fails?

No. Whilst looking for a target for the Permitted Transaction, the directors may need to spend the money on valuations or appraisals; business plans; feasibility studies and technical assessments; Expert Reports; and financial and commercial due diligence.
The directors cannot spend money on directors’ fees, and leasing of assets. There are other restrictions relating to Connected Parties.

 

What happens if the Directors breach the Rules?

There are a number of mitigations, including but not limited to: the rules are publicly available on www.thesharrepublic.com, there are contracts with directors, and TSRC can sue non compliant companies. If the Beansprout Company™ and/or its Directors do not comply with the Prospectus, TSRC as the adviser can ask the market regulator to suspend the shares.

 

How much seed funding is required to create a Beansprout Company™?

A Beansprout Company™ is a Public Limited Company which requires a minimum capital of £50,000.

 

What’s in it for the Founder Directors?

A minimum of 5,000,000 and a maximum of 25,000,000 founder shares can be issued to provide the seed capital. Each founder director must subscribe for a minimum of 50,000 shares. The Beansprout Company™ must have a minimum of three and a maximum of six founding directors. As an incentive for the seed investment, the directors can set the Public Offer price up to 2.5 times the seed share price. On finding, agreeing and executing a Permitted Transaction, the directors might remain with the Beansprout Company™ as Non-Executive Directors, to guide and assist the Beansprout Company™ in matters of corporate governance and development in the public arena.

 

What’s in it for Beansprout Company™ Shareholders?

A Beansprout Company™ shareholder is an investing member of the public who subscribes for new shares via the Public Offer of shares, or possibly via a Placing, at a price of up to 2.5 times that at which the founders subscribed. In essence, the Beansprout Company™ shareholder is supporting the skill set of the directors to find and agree a Permitted Transaction, which most likely will be a RTO of a private company that looks to have a promising future. Generally, private companies are valued at significantly lower levels than public companies, and a combination of the Beansprout Company™, growing business and additional capital (from the Beansprout Company™ and any additional fund raising at the time of undertaking the Permitted Transaction) ought to lead to a higher valuation and share price on re-admission to an Agreed Market.

 

What are the risks?

There are risks. After reaching an agreement with, and possibly entering a Memorandum of Understanding with an acquisition target, the Beansprout Company™ might spend money on, say, due diligence, and then the transaction is aborted. Money will have been spent, thus reducing funds available to continue the search for a business. Once a Permitted Transaction is agreed and executed, there is no guarantee of future success, and therefore any investment in a Beansprout Company™ should be regarded as speculative.

 

Crowd Funding vs Beansprout Companies
Crowd funding is growing rapidly, and is an exciting avenue for both new businesses and investors to explore in order to both, be and find, the winner or winners. But it is a very high risk investment arena as the majority of small businesses fail and the real winners are few.
A key factor in crowd funding is the “exit route” for the investor i.e. how can he realise his investment and turn it back into cash. Most crowd funding investors will be locked in for a long time, and whilst it may be fun to follow the venture, and share its ups and downs, at some point a sale or transfer of the investment holding will be required, even if it must wait until the executors in probate have to transfer the holding to future beneficiaries!

A Beansprout Company™, unlike a crowd funded investment, will be quoted on an Agreed Market (a stock exchange), so that value can be ascribed (by the share price) and the investment can be reasonably readily realised. Whilst the investment, via Permitted Transaction, by a Beansprout Company™ is unlikely to be a start up, it may well be at a very early stage in its life, but should have the benefit of oversight by the directors of the Beansprout Company™ who may also be able to bring to bear their experience to assist the Beansprout Company™ development. Here the crowd funder is not left to his/her own devices, but places his/her confidence in the ability of the Beansprout Company™ Founder Directors to find an appropriate investment.

 

What documents are required to create a Beansprout Company™?
The Share Republic have developed the following templates to establish Beansprout Company™.
1. Plc formation pack
2. Directors’ questionnaire
3. Responsibility Memorandum (where the directors agree to follow the Beansprout Company™ rules)
4. Option agreements (these are limited in quantum, to ensure Beansprout Company™ shareholders are not unreasonably diluted)
5. Orderly market and lock-in agreement(s)
6. Working capital comfort letter (signed by an audit firm)
7. Stock Exchange application form (e.g. LSE)
8. Directors’ letters of Appointment
9. Other documentation necessary to achieve a quotation

 

How much does it cost?
The cost will be £40,000 plus a 10% commission on the funds raised by the Public Offer for subscription. This sum covers the costs of the financial adviser, accountant, and lawyer. The minimum fundraising is £700,000. On that basis, assuming a fee of £40,000 and £70,000 paid in commission, the cost to quotation will be £110,000. There will be a stock exchange fee of circa £6,000. The UKLA will charge around £19,000. If these charges are added the cost total cost will be circa £135, 000. Whilst quoted, the Beansprout Company™ will have to retain a Corporate Advisor which will likely cost between £10,000 and £15,000 p.a. Fees for the completion of a Permitted Transaction will need to be agreed between the parties.

 

In a nutshell...
A Beansprout Company™ programme should allow experienced directors to find a suitable unquoted company or venture to reverse into the Beansprout Company™. Beansprout Company™ investors can use the skills of those directors, perhaps rather than be a crowd funder, to add value to their investment. Investors must be informed and then consulted via a General Meeting of the Beansprout Company™ to agree or reject a Permitted Transaction. Meanwhile, a venture going into a Beansprout Company™ has the prospect of utilising the skills of the Beansprout Company™ directors and having (or raising) additional cash funding to further develop the business. Costs are low, and investors can realise their investment if they wish. As the ventures are small and/or young there are risks, and there must be a presumption that these ventures are speculative and there is a risk that money will be lost.
Beansprout Companies might become a significant route for companies to come to market, as Capital Pool Companies in Canada have shown. It has attractive investors protection measures built into the product. Founder directors are rewarded by success, not fees or salaries, and it is in their interests to find and complete a suitable acquisition.