Before we advise a client regarding a transaction with a specific issuer of flow-through shares, we examine the issuer’s financial position to assess its fiscal soundness and also the transaction documents to ensure the issuer’s legal obligations, and our clients’ legal rights, are articulated accurately.

Our structured flow-through and charity flow-through transactions remove market risk (i.e., the risk of being harmed by a falling share price). The major remaining potential risk is that the issuer fails to spend the funds raised in the offering on eligible expenditures within the prescribed time period. Funds generally must be spent on eligible expenditures by December 31st of the calendar year following the year of the offering. In the event the issuer fails to comply with its commitment to properly spend the funds, the related income tax benefits will be disallowed in whole or in part.

Accordingly, due diligence focuses on the issuer’s financial soundness to ensure the issuer can successfully complete its committed exploration program without hardship. We also ensure the transaction documents include an indemnity agreement whereby the issuer agrees to indemnify subscribers of the flow-through shares where the issuer’s actions result in a full or partial disallowance of the anticipated income tax benefits.

Should you have any questions about the issuer’s spending requirement or the steps we take in our due diligence review, please contact us.

For more information contact us today.