Alberta has recently joined British Columbia in offering tax incentives for investors in the eligible small businesses. The legislation is similar in both provinces and both BC offers 2 investment tracks:
- VCCs resemble self-directed “investment clubs” – typically started by groups of angel investors.
- EBCs are formed by eligible small business to all them to offer similar incentives to interested, arms-length investors.
VCCs – venture capital corporations – are formed by investors who wish to invest in eligible small businesses. So, in the unlikely event that your small business is approached by a VCC, your business doesn’t need to explicitly register for the program.
Small businesses who are seeking investors and wish to offer a tax incentive to investors, may also register under BC’s Small Business Venture Capital Act – or the new Alberta equivalent – as an “eligible business corporation”.
Typically we would advise that you first identify an investor before you register as an EBC. Your investor may prefer convertible debt – which doesn’t qualify for the tax credit anyway, or may like specific features or rights attached to the shares, In other words, paying a lawyer first to create a share structure, and then paying again to modify that same structure, seems like a pointless exercise.
Simply put, it is difficult to anticipate an individual investor’s preferences in terms of structuring. The chances of getting arm’s-length investors early on is relatively low. It doesn’t really make sense to build a capital structure to suit a “prototype” investor when angel investors tend to be very idiosyncratic. In other words it makes more sense to build the structure to suit the investor than the other way round.
Government Incentives 