An investment protection account, or IPA, is a special account used by venture capital corporations in British Columbia, Canada. Whenever the VCC sells treasury shares, it must put 30 percent of the proceeds into an IPA. This money can then only be released with the written authorization of the VCC fund administrator.
Venture Capital Corporation
A venture capital corporation is a type of Canadian business entity that exists solely for the purpose of bringing together investors to put money into new or growing businesses. As long as the VCC operates in line with regulations and invests in eligible businesses, investors in the VCC can benefit from tax credits.
Treasury Shares
When a VCC invests in a business, it will usually do so by buying a proportion of the shares in the business. At a later date, it may sell the shares back to the business. The shares are then considered withdrawn from circulation, thus reducing the total number of shares in the business. When a business buys back shares in such a way, they becomes known as treasury shares. In this context, "treasury" has no relation to any government department or national agency.
IPA Rules
VCC behavior in British Columbia is governed by the Small Business Venture Capital Act. Section 19 (1) of this act states that a VCC must set up a special account known as an investment protection account. The act also states that 30 percent of the money received from selling what become treasury shares must go into the account.
Withdrawals
Money can only be withdrawn from the IPA with the written permission of the Administrator. This is not somebody related to the VCC, but rather the holder of a government post appointed under the Small Business Venture Capital Act.
The Administrator grants permission under a series of complicated rules. The principle is that withdrawals must be made to partially fund a new investment in a business, but the amount withdrawn can be no more than 37.5 percent of the new investment.
The money in an IPA may be seized by the government if the VCC breaches regulations regarding its investments and the tax credits offered to investors.
References
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A professional writer since 1998 with a Bachelor of Arts in journalism, John Lister ran the press department for the Plain English Campaign until 2005. He then worked as a freelance writer with credits including national newspapers, magazines and online work. He specializes in technology and communications.