Junior Company: Definition, Characteristics & Benefits

KEY TAKEAWAYS

• A junior company is a brand-new business that aims to develop a field or deposit of natural resources.
• Junior businesses look for finance to expand or look to be acquired by a bigger business.
• Small-cap firms with a market value of $500 million or less make up the majority of junior enterprises.
• Junior companies frequently work with venture capital firms with the goal of growing them into successful ones.
• Junior companies are new to the market and haven’t yet established their asset base. Meaning the risks associated with them are significant.

What Is a Junior Company?

A junior company is a small business that is creating or trying to create a natural resource field or deposit. Junior businesses are similar to startups. This is that they are either looking for investment to support their growth or an acquisition by a much larger company.

A senior company typically controls and finances a junior company. This is what’s often known as a mother company.

What Are the Characteristics of a Junior Company?

Junior companies often are small-cap and market capitalizations that are below $500 million. A thin daily trading volume of 700,000 or less is also a common characteristic. They are normally discovered when searching for commodities like oil, minerals, and natural gas. For those who can afford to incur the risks involved, junior companies are thought to be interesting businesses.

The investment required to launch a young business has increased dramatically, but so has the reward for success.

What Is the Significance of a Junior Company?

Many young businesses that have received venture money are looking for funding for their own operations.

Junior businesses are also fraught with danger. The company would suffer financially and might have to file for bankruptcy. This is if it conducts research but is unable to uncover any resources before its debt is due.

Juniors are similarly sensitive to commodity prices. This means that the value of their shares fluctuates in direct proportion to the value of the commodity with which they are linked.

Eligibility Criteria for a Junior Company

In order to be considered a junior company, you need to have little trading activity and a small market capitalization. Junior companies are typically found in the mineral, oil, and gas exploration industries. And it is typically thought of as a small-cap enterprise.

Junior companies typically buy fixed assets—mainly properties. These are assets that could contain mineral and natural resource resources. To ascertain whether there are any possible resources or minerals in the area, they conduct research.

Benefits of a Junior Company

To realize the benefits of a junior company, they must first find out whether there are any possible resources or minerals in the area. To do this, they conduct research. 

The research results are provided to the shareholders or the general public as proof of the natural resource’s existence. If the research shows that a natural resource or mineral is there, the junior firm will look for finance. This will be to continue its exploration or will try to be acquired by a bigger organization.

If this pays off, it can be hugely profitable, although the risks are also very high which somewhat counteracts the benefits.

Summary

A junior company is a small organization or business whose only line of work is the development, exploration, and study of natural resources.

Junior firms are typically found in the exploration of minerals, oils, and gasses.
Junior firms are typically deemed to be high-risk. Meaning they have little or low market capitalizations, low trading volumes. As well as high levels of capital expenditure, high acquisition expenses, and call for a team of highly qualified management employees and technical specialists to manage the company.