Equity Investors Incentive

The Equity Investors Incentive program in Prince Edward Island offers a non-repayable rebate of up to 20% to investors who support approved PEI-based businesses, encouraging private investment to fuel business growth and economic development in the province.

The Equity Investors Incentive is a strategic initiative designed to bolster economic growth and development in Prince Edward Island by encouraging private sector investment in local businesses. Through this program, both new and expanding businesses in PEI have access to an innovative financial tool that increases the return on investment for investors. This comprehensive guide explores in detail the eligibility criteria, application process, potential benefits, and more, providing a clear understanding of how the program functions and its impact on the region.

At its core, the Equity Investors Incentive aims to attract and encourage private sector investment into Prince Edward Island businesses by offering a non-repayable rebate to eligible investors. This incentive, calculated at up to 20 percent of the purchase price of the equity investment, aims to mitigate the risks associated with investing in small and medium-sized businesses within the province. The maximum rebate available to all investors for any single approved investee company cannot exceed $200,000.

To be considered eligible for the Equity Investors Incentive, a company must meet specific criteria. These criteria ensure that the program targets businesses that can significantly contribute to the economic fabric of Prince Edward Island. Key eligibility requirements include: - **Consultation Requirement**: Prior to submitting an application, businesses must consult with Innovation PEI. - **Corporate Structure**: The business must be a taxable, private Canadian corporation registered to operate in PEI. - **Geographic and Operational Requirements**: The company's head office and primary business operations must be based in Prince Edward Island, and the business must have been operational in the province for at least one year. - **Industry Focus**: The business should be a provider of exportable goods or services in strategic sectors such as bioscience, aerospace and defense, advanced manufacturing and processing, renewable energy and clean technology, information and communications technology, or creative and cultural industries. - **Payroll Distribution**: At least 75% of the company's payroll must be paid to employees residing in PEI. - **Size and Financial Health**: The company should have fewer than 50 employees and assets valued at less than $10 million. Additionally, the company must have no defaulted outstanding debt obligations with the Government of Prince Edward Island Central Default Registry. - **Compliance and Planning**: The business must comply with securities legislation and have a well-developed business plan demonstrating the appropriate use of funds raised to support expansion or ongoing operations in PEI. Not every business that meets these minimum criteria will be approved for the incentive. The program prioritizes high-growth potential businesses that demonstrate significant economic benefits to Prince Edward Island, and decisions are influenced by annual budget constraints.

When evaluating an applicant's request for assistance, various conditions are taken into account to ensure the program's objectives are met. These conditions may include: - **Long-term Viability**: Assessing the qualifications and track record of senior management to determine the potential for the business's long-term success. - **Economic Benefit**: Evaluating the economic impact on Prince Edward Island, including employment creation, export sales, and import substitution. - **Environmental Impact**: Considering the environmental impact of the business operations or the products/services offered. - **Program Funds Availability**: Ensuring that sufficient program funds are available for the proposed investment. - **Government Assistance Level**: Accounting for other government programs' assistance already offered or available to the business.

The Equity Investors Incentive offers financial assistance in the form of a direct rebate to investors, providing a tangible return on their investment. This rebate incentivizes the flow of capital into local businesses, aiding in areas such as: - **Reducing Debt and Financing Needs**: The incentive helps reduce the need for conventional term debt and working capital financing by providing additional equity. - **Easing Cash Flow Burdens**: For small businesses, this can significantly improve monthly cash flow, aiding day-to-day operations. - **Supporting Expansion and Development**: The funds can support business expansion, diversification of products or services, and commercialization efforts. - **Injecting Expertise**: The investment often brings not just financial resources but also technical and managerial expertise, benefiting the business's growth and operations. Eligible equity issues for the program can include common, preferred, redeemable, voting, or non-voting shares, as long as they represent no more than 49% of the aggregate voting interest.

Applying for the Equity Investors Incentive involves several key steps: 1. **Initial Consultation**: Contact Innovation PEI to discuss eligibility and program requirements. 2. **Application Submission**: Submit a detailed application demonstrating how the business meets the eligibility criteria and outlining the proposed use of funds. 3. **Review and Approval**: Innovation PEI reviews the application against the program criteria and evaluates the potential economic impact. 4. **Contract Agreement**: If approved, a letter of offer is sent to the business, which, when accepted, constitutes a binding contract. It's crucial to note that the application must be submitted before any financial or legal commitment is made on the project.

Investors eligible for the incentive include any Canadian person, Canadian-controlled private corporation, or other Canadian-controlled company that is at arm's length to the investee company, as defined under Section 251 of the Income Tax Act (Government of Canada). It is the responsibility of the investors to conduct due diligence on the investee company, assess the investment's merits, and make informed decisions as Innovation PEI does not guarantee any investment.

To ensure the effective use of the incentive and monitor the performance of the investee companies, a four-year monitoring period is enforced. During this period, approved companies must: - Complete a yearly reporting questionnaire. - Provide annual financial statements. - Submit a notarized record of all share transactions. - Supply additional information on the business's ongoing activities as requested. During the monitoring period, equity shares on which incentives have been paid cannot be redeemed. If the company decides to redeem these shares, the incentive amount paid by Innovation PEI is due and payable by the investee company.

The Equity Investors Incentive is a vital tool for driving private sector investment into Prince Edward Island businesses. By reducing financial risk and increasing return on investment, the program stimulates economic growth, fosters innovation, and creates employment opportunities in strategic sectors across the province. Both businesses and investors stand to benefit significantly from this initiative, contributing to the overall prosperity and development of Prince Edward Island's economy. For more information and to begin the application process, businesses are encouraged to consult with an Innovation PEI Business Development Officer. For detailed guidelines, visit the Innovation PEI website and download the Equity Investor Incentive Guidelines.