Ineligible Transactions

12 (1) Subject to subsection (3), a venture capital corporation must not make or hold an investment in a small business if all or part of the proceeds of that investment are directly or indirectly used or intended to be used by the small business for any of the following purposes:

(a) lending;

(b) investment outside British Columbia;

(c) investment in land, unless the investment is incidental or ancillary to the activities, prescribed for the purposes of section 10 (1) (c), of the small business;

(d) acquiring securities other than equity shares from an affiliate of a small business, or units of a prescribed limited partnership, that complies with the criteria set out in section 10 (1) (d) (iii) and (iv);

(e) purchasing goods or services from

(i) the venture capital corporation,

(ii) a director, officer or shareholder of the venture capital corporation, or

(iii) an associate of a director, officer or shareholder of the venture capital corporation,

other than

(iv) services of the type described in section 3 (1) (f) (ii) that are purchased at fair market value by the small business, or

(v) goods or services that are sold at fair market value to the small business in the ordinary course of the seller's business as a seller of such goods or services on the open market;

(f) payment of all or part of a debt obligation, unless

(i) the administrator considers that the payment is necessary for the financial viability of the small business, or

(ii) the debt obligation was incurred with the prior approval of the administrator in anticipation of an  investment in the small business by the venture capital corporation;

(g) as part of a transaction or series of transactions directly or indirectly involving any of the following:

(i) the purchase or redemption of previously issued shares or convertible rights of the small business or one of its affiliates;

(ii) the retirement of any part of a liability to a shareholder of the small business or one of its affiliates or to a shareholder's associate or affiliate;

(iii) the payment of dividends;

(iv) except in prescribed circumstances, the funding of all or part of the purchase by the small business of all or a substantial portion of the assets of a proprietorship, partnership, joint venture, trust or corporation;

(v) the funding of all or part of the purchase by the small business of any of the assets of a proprietorship, partnership, joint venture, trust or corporation at a price that is greater than the fair market value of the assets purchased;

(vi) other prescribed events;

(h) other prescribed purposes.

(2) If a small business issues equity shares to a venture capital corporation in payment of all or part of a debt obligation that is the subject of an approval under subsection (1) (f) (ii), the original principal amount of all or part, as the case may be, of the debt obligation must, for the purposes of the definition of "equity capital" in section 1, be treated as if it were money received by the small business.

(3) Subsection (1) does not prohibit a venture capital corporation from making or holding an investment in a small business if the administrator is satisfied that the funds invested by the venture capital corporation were raised other than through the issue of approved equity capital.

13 (1) Subject to subsection (2), a venture capital corporation must not make or hold an investment in a small business if it and any other venture capital corporation or corporations or employee venture capital corporation or corporations, either alone or in conjunction with one or more of their

(a) associates or affiliates,

(b) shareholders or their associates or affiliates,

(c) directors or their associates, or

(d) officers or their associates,

will own, directly or indirectly, shares carrying 50% or more of the votes for the election of directors of the small business or will, in any manner, control the small business.

(2) If the administrator considers that a small business in which a venture capital corporation has made an eligible investment is in financial difficulty, the administrator may permit that corporation to temporarily control the small business under circumstances and on terms and conditions that the administrator may determine.

14 (1) A venture capital corporation must not make or hold an investment in a small business if any of the shares of the venture capital corporation are held by a major shareholder who is, or was at any time during the 2 years immediately preceding the investment, any of the following:

(a) a major shareholder of the small business;

(b) an associate of a major shareholder of the small business;

(c) a voting trust for which the trustee votes shares of the small business;

(d) the small business or an associate or affiliate of the small business.

(2) A venture capital corporation must not make or hold an investment in a small business if the small business or an associate, affiliate, director, officer or shareholder of the small business provides or has provided, directly or indirectly, as part of any transaction or series of transactions, a loan, guarantee or any other financial assistance to any of the following:

(a) the venture capital corporation;

(b) an associate or affiliate of the venture capital corporation;

(c) a director, officer or shareholder of the venture capital corporation;

(d) a member of any common interest group in respect of the venture capital corporation;

(e) another person, for the purpose of that person making an investment in the venture capital corporation.

​15 (1) A venture capital corporation must not make an investment in a small business if, as a result of that investment, the aggregate of all amounts received by that small business, and any affiliates of that small business,

(a) from the venture capital corporation, directly or indirectly, would be greater than $10 million, or

(b) from the venture capital corporation and any other venture capital corporation or corporations, directly or indirectly, would be greater than $10 million within the last two years.

(2) For the purposes of subsection (1), if in the opinion of the administrator one of the reasons for the separate existence of 2 or more small businesses is to increase the amount received from one or more venture capital corporations, the small businesses are deemed to be one small business.

​16 (1) If an investment of a venture capital corporation becomes prohibited under sections 12 to 15, the venture capital corporation must, within 6 months after the investment became prohibited, dispose of that investment unless, within the 6 month period, the circumstances that caused the investment to be prohibited are changed to the extent that it is no longer prohibited under those sections.

(2) If the administrator is satisfied that noncompliance with a provision of sections 12 to 15 by the venture capital corporation occurred even though its officers and directors exercised the degree of care, diligence and skill to ensure compliance with sections 12 to 15 that a reasonably prudent person would have exercised in comparable circumstances, the administrator may, with or without conditions the administrator may require in any particular case, relieve the venture capital corporation for a period the administrator considers appropriate from the consequences of the noncompliance.

3 (1) Subject to the Act, prescribed rights and restrictions, for the purposes of the definition of "equity share" in the Act, are rights and restrictions attached to the share or convertible right or rights and restrictions contained in or forming part of an agreement, commitment or understanding in respect of the share or convertible right that

(a) create a debt between the holder or beneficial owner of the share or convertible right and any other person,

(b) impair or will impair the ability of a venture capital corporation to maintain the levels of equity capital invested in eligible investments required by section 8 of the Act,

(c) impair or will impair the ability of a corporation, in which a venture capital corporation has made an eligible investment, to carry on an ongoing business with a reasonable expectation of profit, or

(d) will entitle the holder or beneficial owner of the share or convertible right to reduce the impact of any loss he or she will sustain in holding or disposing of the share or convertible right.

(2) Notwithstanding subsection (1), prescribed rights and restrictions do not include rights and restrictions that become operative upon the death, permanent disability, bankruptcy or other similar hardship of a shareholder of the venture capital corporation or the small business in which the venture capital corporation makes an eligible investment if that shareholder is a party to a contract with the venture capital corporation and the small business.

(3) For the purpose of subsection (2), similar hardship means a hardship that, in the opinion of the administrator, warrants overriding the considerations referred to in subsection (1).