Business Opportunities

Competition Act

A foreign investor must consider the Competition Act (Canada) in seeking to acquire an interest in a Canadian business, either by way of acquiring assets or shares. In a share acquisition, if the acquirer and target, on a consolidated basis (including their respective affiliates), will have CAD $400,000,000 or more in aggregate value or gross revenues after completing the transaction, pre- notification is required and the acquirer must receive the approval of the Competition Bureau before it may proceed with the transaction. In an asset deal, the transaction will be reviewable if the aggregate value of the Canadian assets to be acquired or of the annual Canadian sales generated by such assets exceeds CAD $35,000,000. In both cases, even if the financial threshold is not met, the transaction will be reviewable if it is found not to be in the public interest or to create a concentration which would unduly reduce competition. The statutory exceptions include acquisitions of public companies, acquisitions of real estate, and transactions made in the ordinary course of business. As in the United States, the approval may be conditional upon the divestment by the acquirer and/or target of certain businesses.

Investment Canada Act

A non-Canadian establishing a new business in Canada or acquiring control of an existing Canadian business must also consider the Investment Canada Act (Canada). Any investment by a non-Canadian to establish a new business is subject to notification, either prior to or within 30 days of implementation. The information required to be provided includes identification of the investor, the projected number of employees at the end of the second full year of operation, the projected amount to be invested in the new business over the first two full years of operation, and the projected level of annual sales or revenues during the second full year of operation. The acquisition of control (as defined by certain statutory formulae) of a Canadian business is reviewable if the assets of the entity or entities being acquired exceed certain thresholds. Luckily for members of the World Trade Organization (e.g., Americans), the usual threshold of CAD $5 million is replaced by an annually prescribed amount based on a comparative of the Canadian GDP (gross domestic product) in the current year to that of the previous year, which for 2006 has been set at CAD $265 million. Even if it is not reviewable, the transaction still requires notification, either before or within 30 days after its completion. The acquisition of control by a non-Canadian of any Canadian business which is engaged in the production of uranium or provides any financial or transportation service or is a cultural business is automatically reviewable, without consideration of any threshold. A cultural business is defined as the publication, distribution and sale of books, magazines, periodicals or newspapers in print or machine readable form (other than merely printing or typesetting them), the production, distribution, sale or exhibition of film or video recordings, audio or video music recordings, music in print or machine readable form, or radio communication in which the transmissions are intended for the general public as well as radio, television and cable television broadcasting undertakings, satellite programming and broadcast network services.

Securities

There has recently been an increasing movement to standardize the securities regulations across Canada, such as the adoption as of September 1st, 2005 of National Instrument 45-106, which sets out the prospectus and dealer registration requirements and exemptions, and replaces the exemptions previously found in the provincial securities legislation.
For example, in Québec, prior to the adoption of the new National Instrument 45-106, if a corporation met the criteria to be a “closed company”, in that its charter permitted a maximum of 50 shareholders (not counting former or current employees, directors or officers), restricted share transfers (e.g., by requiring prior approval by the board of directors or shareholders) and prohibited any distribution of its shares “to the public” (not statutorily defined), then the Securities Act (Québec) did not apply. Now, to the consternation of non-securities-literate business lawyers, the concept of a “closed company” has been replaced by the notion of a “private issuer”, which requires an examination of all share issuances and transfers to ensure that they have been made only to the permitted categories of potential shareholders (generally the founders, directors and officers and their respective family members as well as close personal friends and close business associates) as well as accredited investors (generally institutions or high net worth individuals or entities).

Employment Law

In general, employment law is much more protective of (if not overtly biased in favor of) employees in Canada (and particularly in the Province of Québec) than is the case in the United States. There are provincial as well as federal privacy laws which protect an employee’s right to privacy and personal information, and the rights of an employee are enshrined not only in labor standards legislation but also in human rights legislation [e.g., the Charter of Human Rights and Freedoms (Québec), which prohibits discrimination in the hiring and treatment of employees. Acts and policies which are taken for granted in the United States (e.g., drug testing and video or other forms of electronic surveillance, including monitoring of electronic or telephone communication) must be carefully reviewed to ensure compliance with more stringent Canadian laws.

In certain jurisdictions (such as the Province of Québec), the purchaser of a business is deemed to be a continuing employer and inherits the employees under their current employment conditions, including compensation, seniority, vacation and other benefits. Unlike the United States, employees of an acquired business cannot generally be terminated at will and considerable paid time in lieu of notice may be required.

 

The North American Free Trade Agreement(“NAFTA”)

Under NAFTA, citizens of Canada, the United States and Mexico can gain quicker and easier temporary entry into the three countries to conduct business-related activities or investments. All provisions are equally available to citizens of the three countries. Permanent residents of these countries who are not citizens are not covered by the NAFTA provisions.

NAFTA applies to four specific categories of business persons: business visitors, professionals, intra-company transferees and persons engaged in trade or investment activities, all of whom can enter Canada without meeting the labor market test (i.e., validation of their job offer is not required).

NAFTA waives the need for employers in Canada to obtain confirmation from the Human Resources Development of Canada in regard to hiring US or Mexican businesspersons for a position in Canada.

A Business Visitor

  • Must enter Canada to take part in a specific activity listed in NAFTA, including technical or scientific research, attendance at a convention or trade fair, sales of products or services (but not delivery at the time) and after-sales service.
  • Does not require an employment authorization (work permit).

A Professional

  • Must be qualified to work in one of the more than 60 professions listed in NAFTA and requires an employment authorization (work permit).

An Intra-Company Tranferee

  • Must have been employed for at least one year in the preceding three-year period for the U.S. or Mexican employer who now wishes to effect the transfer.
  • Must be transferred to Canada to work temporarily for the same or an affiliated employer.
  • Works only at the executive or managerial level, or has specialized knowledge.
  • Requires an employment authorization (work permit).

A Trader or Investor

  • Is a businessperson carrying on substantial trade in goods or services principally between Canada and his/her country of citizenship.
  • Is a businessperson conducting substantial investment activities in Canada, in a supervisory or executive capacity, or in a capacity that involves essential skills.
  • Meets additional requirements under NAFTA.
  • Requires an employment authorization. (work permit)

Real State

Real estate is a matter of provincial jurisdiction. Because all provinces other than Québec are governed by Common Law, the issues found and concepts applied in Canadian real estate in those jurisdictions would be familiar to most American practitioners. Under Québec’s Civil Law, the concepts are somewhat different, as is the nomenclature.

 

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