Doing Business in Canada by FMC Law

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Doing Business in Canada by Fraser Milner Casgrain LLP (FMC) provides a general overview of the principal corporate, tax and other legal considerations that would be of interest to foreign businesses …

Doing Business in Canada by Fraser Milner Casgrain LLP (FMC) provides a general overview of the principal corporate, tax and other legal considerations that would be of interest to foreign businesses wishing to establish or acquire a business in Canada. The material contained in this publication focuses on federal, British Columbia, Alberta, Ontario and Québec legislation.

The guide covers a huge array of topics including: Constitution
Foreign Investment Regulations
Tax considerations
Import Considerations
Competition Act
Privacy Laws
E-Commerce Law
Immigration Restrictions
Labour and Employment
Energy Law
Environmental Law

and much more!

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  • 1. Fraser Milner Casgrain llp LEGAL GUIDEDoing Businessin Canada
  • 2. Doing Businessin CanadaFraser Milner Casgrain llpLEGAL GUIDE
  • 3. IntroductionThe Canadian economy is dominated by free market activities and private enterprise. As a result, it isrelatively easy to commence or expand business activities in Canada. In addition, in recent years, the federalgovernment has acknowledged the need for, and benefits of, attracting foreign investment into the country.There is no general insistence that foreign businesses operate only on a joint venture basis with Canadian-controlled businesses or that they attract Canadian minority investors. For North American investors, entryto Canada is even easier than it is for other foreign investors, pursuant to the North American Free TradeAgreement (the “NAFTA”).One of the primary objectives of the NAFTA is to eventually eliminate all barriers to trade in goods and ser-vices between Canada, the U.S. and Mexico. As a result of the implementation of the NAFTA, the Canadianbusiness climate is increasingly more receptive to new investments, and Canadian industry is continuing tobe challenged to be more competitive and export-driven.The United Nations Human Development Reports consistently rank Canada among the best countries inthe world in terms of overall quality of life. These findings reinforce Canada’s position as a premier place toinvest, relocate, and commence or acquire a business. Canada continues to be ranked very highly as a placein which to live, work and raise a family. As the 2009 United Nations Human Development Report demon-strates, Canada is one of the best countries in attracting highly skilled immigrants.Canadian legislation affecting business conduct may be national, provincial or municipal in origin, dependingon the nature and scope of the business activity. This publication has been prepared to provide a generaloverview of the principal corporate, tax and other legal considerations that would be of interest to foreignbusinesses wishing to establish or acquire a business in Canada. As the practice of FMC is, to a great extent,based in the provinces of British Columbia, Alberta, Ontario and Quebec, most of the material contained inthis publication focuses on the legislation of these respective provinces, as well as the applicable federal leg-islation. This material is not meant to be an exhaustive analysis of the law. Persons considering commencingor acquiring a business in Canada should obtain professional advice as it relates to their specific investmentor activity.Additional information relating to the establishment, acquisition or conduct of a business in Canada maybe obtained from our professionals at any of the offices of Fraser Milner Casgrain llp (FMC).February 2011
  • 4. Table Of ContentsTHE CANADIAN CONSTITUTIONAL SYSTEM 1Distribution of Legislative Powers 1The Canadian Charter of Rights and Freedoms 2Human Rights Legislation 2Electoral Process 2 Federal and Provincial Electoral Processes 2 Municipal Electoral Process 3 Lobbying 3REGULATION OF FOREIGN INVESTMENT 4The Investment Canada Act 4 General 4 Establishment of New Business 4 Direct Acquisition of a Canadian Business 5 Indirect Acquisition of a Canadian Business 5 National Security 6 Notification and Review Procedures 6 Time Limits for Review 7Restrictive Federal Policies and Statutes for Special Business Sectors 7Provincial Legislation 8Exchange Controls 8FORMS OF BUSINESS ORGANIZATION 9Introduction 9Corporations 9 General 9 Canadian Subsidiary Corporation 10 Foreign Corporation - Branch Operation 10 Incorporation and Organization of Corporations 11 Unlimited Liability Companies 14Other Types of Business Organizations 15 Sole Proprietorships 15 Partnerships 15 Joint Ventures 17 Canadian Distributors and Selling Agents 17Franchising 18 Franchise Disclosure, Registration and Regulation 18 Quebec 19 Other Areas of Law Affecting Franchising Arrangements 19DIRECTOR AND OFFICER LIABILITY IN CANADA 21Introduction 21 General Duties Under Common Law and Corporations Statutes 21 Specific Statutory Duties 22
  • 5. Duties Specific to Public Corporations 23Officer Liability 24 Shareholder, Stakeholder and Regulatory Remedies 24Risk Management: Protection from Liability 25Defences 26INCOME TAX CONSIDERATIONS 27Introduction 27Canadian Subsidiary Corporation 28Canadian Branch Operation 30Choosing Between Subsidiary and Branch Operation 30Joint Ventures and Partnerships 31Canadian Distributors and Selling Agents 31Non-Resident Trusts 32Withholding Taxes 32Personal Income Tax Considerations 33COMMODITY TAX CONSIDERATIONS 34Introduction 34Goods and Services Tax 34Harmonized Sales Tax 34Provincial Sales Tax 35Provincial Land Transfer Tax 36CANADA’S TRADING REGIME 37Implementation of Canada’s International Obligations 37The World Trade Organization 37The North American Free Trade Agreement 38Bilateral and Regional Trade Agreements 38Foreign Investment Protection and Promotion Agreements 39IMPORT-EXPORT CONSIDERATIONS 40Introduction 40Customs Duties 40Classification 40Origin – The Applicable Rate of Duty 40Valuation 41Anti-Dumping and Countervailing Duties 41Customs Duty Relief 41Excise Duties 42Packaging and Labelling 42Import Permits 42Export Permits 42Controlled Goods 43Economic Sanctions 43Foreign Extraterritorial Measures Act 44
  • 6. THE COMPETITION ACT - CANADA’S ANTITRUST LEGISLATION 45Introduction 45The Commissioner 45The Competition Tribunal 46Merger Law 47PROTECTION OF INTELLECTUAL PROPERTY 52Introduction 52Trade-mark Law 52 General 52 Registration 52 Rights Conferred by Registration 53 Licensing of Trade-marks 53 Marking 53Copyright Law 53 General 53 Rights Conferred by Registration 54 Remedies 54 Marking 54Patent Law 54 General 54 Foreign and Convention Applications 55 Rights Conferred by a Patent 55 Marking 55Industrial Design Law 55 General 55 Registration 55 Rights Conferred by Registration 55 Marking 56Integrated Circuit Topography Law 56Trade Secrets 56PRIVACY LAWS IN CANADA 57Introduction 57PIPEDA 57 What is Personal Information? 57 Application of PIPEDA 57 General Principles of PIPEDA 57 Consent as a Key Principle 58 Employee Personal Information 58 Business Transactions Exception 59Provincial Legislation 59 Alberta and British Columbia 59 Quebec 60
  • 7. ELECTRONIC COMMERCE LAW 61Introduction 61Canadian E-Commerce Legislation 61 Uniform Electronic Commerce Act 61 Central Features of E-Commerce Legislation 62.ca Domain Names 63IMMIGRATION RESTRICTIONS ON NON-CANADIANS WORKING IN CANADA 65Introduction 65Temporary Worker 65Permanent Admission Into Canada 68LABOUR AND EMPLOYMENT LAW CONSIDERATIONS 71Jurisdiction 71Basic Employment Standards 71Employment Contract 75The Organization and Operation of Trade Unions 75Organizing and Certification 76 Collective Bargaining 76 Strikes, Pickets and Lockouts 77 Arbitration and Judicial Review 77Occupational Health and Safety 78Human Rights 78Pay Equity 78Acquiring an Existing Business 79LAND OWNERSHIP IN CANADA 80How Land is Conveyed 80 Registered Interests in Land 80Security 81 Mortgage 81 Lease 81 Debenture 81Land Transfer Tax 82LAND USE PLANNING/LAND DEVELOPMENT 83Introduction 83How Land Development is Regulated 83 Authority 83 Official Plan 84 Zoning 84 Subdivision/Sale of Land 84 Redevelopment 84ENERGY LAW 85Oil and Gas Law in Canada 85Northern Canada 85
  • 8. Offshore British Columbia 85Offshore East Coast 86Conventional Onshore 86Oil Sands 87ENVIRONMENTAL LAW IN CANADA 89Jurisdiction 89The Environmental Permit System 89 Permit Requirements 89 Environmental Assessments 89 Permit Transfers 90Enforcement of Violations 90 Overview 90 Inspection and Investigation Powers of Regulators 90 Spill/Release Reporting 90 Whistleblower Protection 91 Penalties and Defences 91 Ongoing Liability 91Real Estate Transactions and Contaminated Land 91 Overview 91 Lender Liability 92 Disclosure of Known Contamination 92 Asbestos 92Regulatory Liability in the Context of Corporate Acquisitions 92 Share Transactions vs. Asset Transactions 92 Shareholder Liability 93Environmental Insurance 93Corporate Disclosure of Environmental Liabilities 93Waste Management 94 Generation and Transport 94 Waste Diversion 94Environmental Litigation 94Climate Change and Emissions Trading 94FEDERAL CONSUMER PRODUCT AND LABELLING STANDARDS 96Introduction 96Consumer Packaging and Labelling Act 96Food and Drugs Act 96Hazardous Products Act 98Other Product-Specific Legislation 98The NAFTA and Harmonization of Product Standards 100FRENCH LANGUAGE REQUIREMENTS IN THE PROVINCE OF QUEBEC 101The Charter of the French Language 101 Contracts 101
  • 9. Labour Relations and Collective Agreements 101 Catalogues and Brochures 101 Computer Software 101 Product Labelling 102 Public Signs and Posters and Commercial Advertising 102 Registered Trade-Marks 102 Company Names 102 Francization of Business 103FINANCING CANADIAN OPERATIONS 104Debt Financing 104 Debt Financing by Banks and Other Institutional Lenders 104 Debt Financing by Shareholders and Other Business Owners 105 Non-Traditional Financings 105 Participating Debt 106Equity Financing 106 Introduction 106 Securities Legislation in Canada 106 Principal Mechanisms 107 Prospectus Requirements and Exemptions 107 Registration Requirements and Exemptions 109 Continuous Disclosure Requirements 110 Multijurisdictional Disclosure System 110Government Assistance 110SECURITY INTERESTS IN PERSONAL PROPERTY 112Introduction 112Security Regimes 112 PPSA Jurisdictions 112 Civil Code of Québec 112 Other Relevant Legislation 112 Bank Act Security 112Types of Security 113 The PPSA - Application 114 Perfection and Attachment of Security Interests 114 Personal Property Security Registration (PPSR) 114 Priorities within the PPSAs 115 Rights and Remedies upon Default 115CORPORATE INSOLVENCY 116Introduction 116Insolvency 116Arrangements under the Companies’ Creditors Arrangement Act 116Receiverships 117Proceedings under the Bankruptcy and Insolvency Act 117
  • 10. Involuntary and Voluntary Bankruptcy 117 Administration of the Bankruptcy 117 Scheme of Distribution 118 Priority Claims 118 Proposals 119 Reviewable Transactions 119REGULATION OF SPECIFIC INDUSTRIES 121CONCLUSION 122ABOUT FMC 123
  • 11. The Canadian Constitutional SystemDistribution of Legislative PowersCanada has a constitution that distributes law-making powers between different levels of governmentand imposes certain limits on the authority of all branches of government. The statute which performsthese roles is the Constitution Act, 1867.The Constitution Act, 1867 establishes a federal system in which the authority to enact statutory lawsis divided between a national or federal Parliament, and ten provincial legislatures. While the provincesvary greatly in size and population, each possesses almost identical legislative authority. Other law-makingbodies, such as municipal governments and the assemblies of the three northern territories - the Yukon, theNorthwest Territories and Nunavut - do not have the same degree of autonomy or permanence. The formerare dependent upon a province for their powers and the latter are creatures of ordinary federal statute.The areas of federal and provincial jurisdiction are, by and large, intended to be mutually exclusive. Inpractice, however, many activities may be regulated to some degree. In the event of an operational conflictbetween valid federal and provincial legislation, the federal will prevail. The courts serve as referees of thedivision of powers through their authority to declare any law that is beyond the jurisdiction of the enactingbody to be of no force and effect.There are several subjects on which the federal Parliament may pass laws that are likely to impact businessactivities, namely: • the regulation of foreign investment; • the incorporation of federal companies; • direct and indirect taxation; • the regulation of interprovincial and international trade; • competition (anti-trust) law; • patents and copyright; • immigration; • bankruptcy and insolvency; • banking and bills of exchange; and • interprovincial undertakings in the transportation and telecommunication fields.The provinces may exercise control over certain business activities through their authority to make lawsin relation to: • the incorporation of provincial companies; • direct taxation within the province; and • the regulation of trade and commerce within the province.Doing Business In Canada 1
  • 12. The Canadian Charter of Rights and FreedomsAs a result of the Constitution Act, 1982, Canada’s constitution now also contains the Canadian Charter ofRights and Freedoms (the “Charter”). The Charter imposes limitations on federal and provincial authoritiesin their legislative and administrative capacities. Among other things, it guarantees: • fundamental freedoms, such as those of belief, expression, opinion, conscience, religion and association; • democratic rights; • the basic legal rights of persons subject to law enforcement processes, including freedom from unreasonable search and seizure, and the right to legal counsel; and • the equality of individuals before and under the law.Human Rights LegislationThe Charter, is designed to protect against improper actions by the state and not by private persons.However, all Canadian jurisdictions have enacted or adopted human rights legislation that is designed toensure equality in the private sector, by prohibiting discrimination on grounds such as sex, religion, nationalorigin and race. This legislation has been described by the courts as “quasi-constitutional”, since it usuallyprevails over other inconsistent laws.Electoral ProcessFederal and Provincial Electoral ProcessesThe Parliament of Canada is the legislative branch of the federal government and consists of the Queen(as represented in Canada by the Governor General), and the Upper House, styled as the Senate and theHouse of Commons. The Senate is appointed by the Governor General acting on the advice of cabinet.The House of Commons is an elected body. Only the House of Commons is constitutionally permitted tointroduce legislation concerning the raising or spending of funds.The legislative branch of each province consists of the Queen (as represented by a Lieutenant Governor)and an elected provincial legislature.Members of the House of Commons and provincial legislature are elected for terms of not more than fiveyears. On average, elections are conducted every four years. Members may be re-elected for multiple terms.Vacancies are filled through by-elections. Members elected in by-elections will face re-election during thenext general election.The executive branch of government consists of the Governor General (provincially, the LieutenantGovernor), the Prime Minister (provincially, the Premier) and a cabinet of ministers selected by the PrimeMinister or Premier. Ministers are ordinarily selected from among the governing party’s members ofParliament (provincially, the legislature).Most members of Parliament and the provincial legislatures are members of political parties. The leaderof the political party, whose members hold a majority of the seats in the legislature, will ordinarily be askedto form the government. Should no party hold a majority, the leader of the party holding the largest pluralityof seats in the legislature will normally be invited to attempt to form a government.Doing Business In Canada 2
  • 13. Only citizens and permanent residents of Canada may make political donations to registered federalpolitical parties and federal candidates. Corporations and trade unions are not permitted to make donationsto federal political parties or federal candidates. In the case of citizens and permanent residents, thereare federal monetary limits. Quebec also prohibits political contributions from corporations and tradeunions, and imposes monetary limits for contributions from individuals. Other jurisdictions, such as Ontario,Alberta and British Columbia, permit contributions from corporations and trade unions. Ontario and Albertaimpose monetary limits on contributions. British Columbia does not.Municipal Electoral ProcessProvincial governments have delegated certain of their legislative powers to municipal governments.These powers usually include land use planning and certain business licensing functions.Municipal governments typically consist of a mayor, reeve, or other head of council elected at largeacross the municipality, and a number of councillors elected either at large or as representatives of smallerelectoral divisions within the community. Elected municipal officials serve for set terms, which typicallyvary from province to province between two and four years.A number of provinces have created two tiers of local government consisting of a regional government,which includes several municipal governments.LobbyingFederal, provincial and even some municipal governments in Canada, have established a variety of codesof conduct related to the conduct of public servants, office holders and others. A major feature of someof these codes is lobbyist registration legislation.Lobbyist registration legislation typically requires public registration and disclosure (in some cases monthly)by persons engaged in communication with a public office holder for a variety of purposes, including: theintroduction, passage or amendment of legislation; the making or amendment of a regulation; the makingof a decision about outsourcing; the awarding of contracts or grants; and the arrangement of meetings witha public office holder. The legislation requires registration within specified parameters and the disclosureof a variety of information about the parties’ activities being conducted, and the action proposed. Thelegislation affects and regulates the activities of in-house lobbyists and consultant lobbyists differently.Doing Business In Canada 3
  • 14. Regulation Of Foreign InvestmentThe Investment Canada ActGeneralThe Canadian government is anxious to foster a business climate that is receptive to investment fromoutside the country. At the same time, it is determined to monitor the level of new foreign investmentin Canada and to screen a limited number of such investments - generally speaking, transactions screenedare significant in terms of their size or due to the business sector in which they are made. When suchscreening occurs, it involves consideration by government officials of the plans for the Canadian business,with the likelihood of a decision favouring the investment as being of net benefit to Canada. In a very smallnumber of cases, the process will involve meetings with government officials and the requirement toprovide undertakings. The statutory framework for the monitoring and review processes is provided bythe Investment Canada Act.The Investment Canada Act is concerned with the establishment of new Canadian businesses and theacquisition of control of existing Canadian businesses (the “triggering events”) by non-Canadian interests.Therefore, it does not reach: • any new offshore financing of a Canadian business which is already foreign-controlled, which does not involve a change in control; • a passive or portfolio investment in a Canadian business from abroad; or • generally speaking, the expansion of a foreign-controlled business into a broader range of Canadian activities that are related to its previous Canadian activities.For the purposes of the Investment Canada Act, a “non-Canadian” is an individual, government, governmentagency or entity that is not Canadian. An individual is “Canadian” under the Investment Canada Act, if he orshe is a Canadian citizen or a permanent resident of Canada who has not been ordinarily resident for morethan one year after he or she first became eligible to apply for Canadian citizenship. The determinationof whether a corporation is “Canadian” under the Investment Canada Act is more complex and requiresa determination of whether the individuals who are the ultimate controlling shareholders of a corporationare “Canadians”, or whether certain specific deeming provisions are satisfied.Establishment of New BusinessOf the two triggering events that bring the Investment Canada Act into play, the establishment of a newbusiness, regardless of size, normally requires no more than the filing of a short notice by the foreigninvestor. The notice is simply for information purposes. It may be given at any time up to 30 days afterthe new business becomes operative. The two possible exceptions to the notice-only requirement on theestablishment of a new business are: the establishment of a new business in a culturally-sensitive sector,such as publishing, which can be made subject to full review within 21 days after the notice is filed; and anew business that triggers a national security review.Doing Business In Canada 4
  • 15. Direct Acquisition of a Canadian BusinessIn the event of a direct acquisition of control of an established Canadian business, through a purchaseof assets or voting interests of a corporation, partnership, trust or joint venture, the foreign acquirer maybe required either to file a notice or an application for review and approval, depending on the circumstances.Neither obligation will arise if the transaction falls within one of the general exceptions under the InvestmentCanada Act (which general exceptions are, in turn, subject to specific exceptions for certain types ofbusiness). These general exceptions include, among other things: • the purchase of less than one-third of the voting shares of a corporation carrying on a Canadian business; • the acquisition of control of a Canadian business through the realization of security for a loan; and • a change, through a corporate reorganization, in the immediate control of a Canadian business, but not a change in ultimate control.If none of the exceptions applies, the direct purchase of control of an active Canadian business by a foreigninvestor will be subject to pre-closing review under the Investment Canada Act, if the Canadian businesshas assets in excess of certain limits. The review threshold for investors from countries that are members ofthe World Trade Organization (WTO), other than for Canadian cultural businesses, is $312 million for 2011(based on the book value of the assets of the Canadian business for the fiscal year immediately precedingthe implementation of the investment). This threshold is adjusted annually. Where neither the seller northe investor is controlled by WTO nationals, the threshold for pre-merger review is $5 million. This lowerthreshold also applies to direct acquisitions of control, whether by WTO investors or not, of Canadianbusinesses that are cultural businesses.As a result of recent amendments to the Investment Canada Act, the review threshold for direct acquisitionsof non-cultural businesses will increase upon the promulgation of implementation regulations. When thesethreshold amendments come into force, the basis for calculating the monetary threshold will be changedfrom “gross assets” to “enterprise value” (a term that will be defined by regulation). The new financialthresholds triggering review will be $600 million for the year this amendment comes into force and thefollowing year, $800 million for two additional years, and subsequently $1 billion indexed to inflation on anannual basis thereafter.Indirect Acquisition of a Canadian BusinessIndirect acquisitions of control are treated somewhat differently under the Investment Canada Act. Ifcontrol of an entity (a corporation, partnership, trust or joint venture) carrying on a Canadian business isacquired indirectly, as an incidental result of the sale of its larger foreign parent corporation, the transactionis not reviewable if either the seller or the purchaser is WTO-controlled, unless it involves the acquisitionof control of a Canadian business that is a cultural business. Where neither the seller nor the investor isWTO-controlled or the target is a cultural business, the review threshold is $50 million in book value ofassets of the Canadian business (provided that if the assets of the Canadian business represent more than50% of the assets involved in the total international transaction, the review threshold is $5 million in bookvalue of assets).Doing Business In Canada 5
  • 16. National SecurityRecent amendments to the Investment Canada Act also established a national security review process similarto the national security screening for foreign investment that exists in the U.S.. The government now has theauthority to review foreign investments to assess whether they are “injurious to national security”. A reviewof this nature may be triggered pre- or post-closing. If it occurs pre-closing, the parties will be prohibitedfrom closing the transaction until the review has concluded favourably. Given that the Investment Canada Actdoes not define “national security”, the potential breadth of the term may create some unpredictability forforeign investors.Notification and Review ProceduresAn acquisition of control by a foreign investor of a Canadian business that falls below the relevant thresholdwill simply require notification, as in the case of the establishment of a new Canadian business. However,notifiable investments can be made subject to full review, if they fall into a limited class of culturally sensi-tive businesses, such as publishing, or become subject to national security review. Acquisitions of controlby a foreign investor of a Canadian business above the relevant threshold will require review.If an investment is reviewable, the foreign investor is obliged to complete an application providing certainprescribed information about the investor and the Canadian business in which the investment is to bemade. In most cases, such application must be filed prior to the transaction being completed. There are,however, certain exceptions: applications concerning indirect acquisitions may be filed up to 30 days afterthe investment is implemented; and, applications concerning investments in culturally sensitive sectors thathave been made specifically subject to review, are required upon receipt of the notice for review. There is,moreover, provision for the federal cabinet minister responsible for the Investment Canada Act to permit aninvestment to be implemented prior to completion of the review, if the Minister is satisfied that delay wouldcause undue hardship to the investor or jeopardize the operations of the Canadian business which is beingacquired, in which case the application must be filed within 30 days after the investment is implemented.The application for review must incorporate a description of the investor’s plans for the Canadian business.The plans should be in terms that would indicate some benefit to Canada. The information provided will beassessed against the following factors, where they are relevant: • the effect of the investment on the level and nature of economic activity in Canada, including the effect on: employment; resource processing; the utilization of parts, components and services produced in Canada; and on exports from Canada; • the degree and significance of participation by Canadians in the Canadian business, and in any industry in Canada of which it forms a part; • the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; • the effect of the investment on competition within any industry or industries in Canada; • the compatibility of the investment with national industrial, economic and cultural policies, taking into consideration industrial, economic and cultural policy objectives enunciated by the federal government, or the legislature of any province likely to be significantly affected by the investment; and • the contribution of the investment to Canada’s ability to compete in world markets.Doing Business In Canada 6
  • 17. In order to satisfy these criteria, the Minister may require undertakings from the foreign investor,committing the investor to certain courses of action or expenditures.Time Limits for ReviewTo ensure prompt review and decision, the Investment Canada Act sets certain time limits for the Minister,assisted by the Director of Investments, to conduct a review and make a decision. Within 45 days aftera complete application has been received, the Minister must notify the investor that either: • the Minister is satisfied that the investment is likely to be of net benefit to Canada; or • the Minister is unable to complete his or her review, in which case the Minister shall have 30 further days to complete his or her review (unless the applicant agrees to a longer period); or • the Minister is not satisfied that the investment is likely to be of net benefit to Canada.Where 45 days have elapsed from the date of receipt of a complete application without such a notice,or where 30 further days (or the number of further days agreed) have elapsed after notice that the Ministeris unable to complete his or her review and no decision has been taken, then the Minister is deemed tobe satisfied that the investment is likely to be of net benefit to Canada.Where the Minister has advised the applicant, either within the initial 45-day period or any extension period,that he or she is not satisfied that the investment is likely to be of net benefit to Canada, the applicant hasthe right to make representations and submit undertakings within 30 days of the date of the notice (orany further period that is agreed between the applicant and the Minister). On the expiration of the 30-dayperiod (or agreed extension), the Minister must quickly notify the applicant that: • the Minister is now satisfied that the investment is likely to be of net benefit to Canada; or • the Minister is not satisfied that the investment is likely to be of net benefit to Canada.In the latter case, the applicant may not proceed with the investment or, if the investment has already beenimplemented, must relinquish control of the Canadian business. Information that is obtained in the courseof the administration of the Act is treated as confidential.Restrictive Federal Policies and Statutes for Special Business SectorsThere are certain business sectors for which the Canadian government has maintained policies that are,to a greater or lesser extent, restrictive of foreign investment. These policies apply whether or not the inves-tor is from a country that is a member of the WTO. In some cases, the policies are effectively implementedthrough the review process under the Act. In other cases, the policies take specific statutory form and, assuch, operate of their own force and without reference to the Act. For example, there are a number of poli-cies issued by the Department of Canadian Heritage, which has jurisdiction for review of all investments inCanadian businesses that are involved in activities relating to Canada’s national heritage or cultural identity.Theses policies include limitations on foreign investment in such businesses and outline factors that will beconsidered during the review process. Specifically, there are policies relating to the publication, distributionor sale of books, magazines or periodicals, as well as the production, distribution, sale or exhibition of filmor video, which must be considered when the Canadian business subject to the investment is involved inany of these business activities.Doing Business In Canada 7
  • 18. The restrictive rules on foreign investment that have been incorporated in federal statutes include thosein relation to broadcasting, telecommunications and certain types of financial services. The level of permit-ted foreign investment through an acquisition in one of these businesses can be even less than the one-thirdthat would be permitted, without approval, by the terms of the Act. There are no procedures for obtainingapproval for investments above the statutory limit because the foreign investment rules for these busi-nesses do not involve a review process, but rather an absolute prohibition of foreign investment abovea fixed level.Provincial LegislationProvincial laws on foreign ownership may also have to be considered by a foreign investor in a Canadianbusiness. But, in most cases, they are not likely to prove relevant. Such laws are apt to be specific to fairlynarrow ranges of business activities, such as operating a collection agency, serving as a mortgage brokeror, in Alberta, for example, ownership of agricultural and recreational land.Exchange ControlsOnce a Canadian business has been established or acquired, any profits from that business can be freelypaid out to the foreign investor, as Canada has no system of exchange control. Therefore, Canadian dollarincome can be freely exchanged into another currency at the best available rate of exchange and sent outof the country. The only restriction on such payments is the requirement to satisfy Canadian withholdingtax obligations. (For more information concerning withholding tax obligations, see the discussion underthe section below, entitled “Income Tax Considerations”.)Doing Business In Canada 8
  • 19. Forms Of Business OrganizationIntroductionA business may be carried on in Canada in various forms. Most commonly, a business being carried onin Canada by a foreign corporation would be conducted using a corporate vehicle, either through a Canadianincorporated subsidiary or through a branch operation of the foreign corporation. Depending on the natureand scope of the activity, the degree of limited liability required, certain tax and other considerations, thebusiness activity could also be conducted through a sole proprietorship (for an individual), a partnershipor a joint venture. It is also possible, in some cases, to supply goods and services to Canadians throughvarious contractual arrangements, such as distributorship agreements, without actually setting up a busi-ness in Canada. The legal implications of the respective vehicles available for carrying on businessin Canada are summarized below.CorporationsGeneralA corporation is the most common form of business organization. In Canada, the words “corporation”and “company” are largely synonymous. A corporation is a separate legal entity constituted by one or morepersons who become its members or shareholders. Corporations have perpetual existence and may ownproperty, carry on business, possess rights and incur liabilities. Generally, shareholders of a corporationhave no authority to deal with the assets of the corporation and cannot make legal commitments whichbind the corporation. The shareholders maintain control of the corporation by voting their shares to electthe directors who are, in turn, responsible for the management of the corporation. The liability of theshareholders is usually limited to the amount of their capital investment in the corporation. A corporation istaxed as a separate legal entity at the rate of tax applicable to corporations. The income or loss generatedby the corporation accrues to the corporation and not to the shareholders. (For more information concern-ing the taxation of income earned by corporations in Canada, see the section below entitled “Income TaxConsiderations”.) The corporate form is a flexible structure for business organizations. It is possible to utilize various classes of shares and share conditions to provide different levels of participation, control and risk-taking in the corporation. Once established, a corporation can obtain additional funds by the sale of unissued treasury shares or by the issuance of debt. Most corporations in Canada are “private” corporations, generally being corporations which have fewer than 50 shareholders, which carry restrictions on the right to transfer the shares of the corporation (the requirement that the consent of a majority of the directors or the sharehold- ers to any proposed sale or transfer of shares be obtained being the most common restriction) and which expressly prohibit any invitation to the public to subscribe for securities of the corporation. Non-private or “public” corporations are generally more widely held and the shares of such corporations are often listed on a stock exchange. (For more information concerning the financing of Canadian operations, including the legislative framework governing the distribution of securities in Canada, see the section below entitled“Financing Canadian Operations”.)Doing Business In Canada 9
  • 20. Canadian Subsidiary CorporationIf a company decides to operate in Canada through a Canadian subsidiary, there is a choice of jurisdictionsfor the incorporation between the federal Canada Business Corporations Act (the “CBCA”) and the equivalentlegislation of each of the provinces. Generally, there is some uniformity in this legislation and, where theprincipal activities are to be, at least initially, in one of British Columbia, Alberta, Ontario or Quebec, thechoice would be as between the CBCA and the British Columbia Business Corporations Act (the “BCBCA”),the Business Corporations Act (Alberta) (the “ABCA”), the Business Corporations Act (Ontario) (the “OBCA”)or the Companies Act (Quebec) (the “QCA”), as the case may be. In each of these jurisdictions, the newentity will have the flexibility and the facility to carry on business throughout Canada, subject to complyingwith registration and/or licensing requirements of any particular province in which the corporationproposes to carry on business.In deciding whether to incorporate under the CBCA or provincial legislation, the type of business to beconducted by the corporation should be one of the factors taken into consideration. For example, a corpora-tion wishing to register as a venture capital corporation in British Columbia, as a railway company in Alberta,or as a small business development corporation in Ontario, must be incorporated under the relevantprovincial legislation.The principal distinction between a federal and a provincial corporation is that a federal corporation isusually entitled as of right to carry on business under its corporate name throughout Canada. A provinciallyincorporated corporation, on the other hand, is required to obtain an extra-provincial licence or becomeregistered in each province in which it proposes to carry on business, and such extra-provincial licence orregistration can be refused by another province, if the name of the provincial entity conflicts with the nameof an existing corporation already incorporated, licensed or registered in the other province. In Quebec,corporations are also required to adopt a French trade name in conformity with the Charter of the FrenchLanguage. Accordingly, especially with provincially incorporated corporations, it may be advisable to clearthe name and seek registration or licensing in the provinces in which the corporation expects to carry onbusiness in the foreseeable future at the time the business is first established in Canada. A federal corpora-tion is also required to obtain an extra-provincial licence or registration in each province in which it “carrieson business”, however, no province (except Quebec) can refuse to register the corporation. (See the sectionbelow under the heading “Foreign Corporation - Branch Operation” for further discussion of when an extra-provincial licence is required.) The incorporation fee ranges from $100 to $360, depending on the jurisdiction. More information con- cerning the incorporation and organization of corporations in Canada is set out below under the heading“Incorporation and Organization of Corporations”. (The tax consequences of using a Canadian subsidiary are outlined below under the section “Income Tax Considerations”.)Foreign Corporation - Branch OperationIf a branch operation is to be established, the foreign corporation is required to register or become licensedas an extra-provincial corporation in each province in which it “carries on business”. The question whetherany particular activity or group of activities will constitute “carrying on business” is not specifically definedin most cases, and is to be determined by reference to the particular facts and circumstances. RegistrationDoing Business In Canada 10
  • 21. will clearly be required in any province in which the corporation maintains an office or other fixed placeof business. The registration in any particular province will be subject to the acceptability of the name ofthe corporation and registration will be denied if such name is the same as, or closely resembles, the nameof another corporation already incorporated or registered in the province. However, a corporation with anunacceptable corporate name may sometimes be registered to carry on business in a province under adifferent business name or style that is acceptable, without having to change its corporate name. In Quebec,foreign corporations are also required to adopt a French trade name in conformity with the Charter of theFrench Language. The fee payable for registration of an extra-provincial licence is generally similar to thatpayable in respect of incorporation.Incorporation and Organization of CorporationsA INCORPORATIONTo incorporate a CBCA, ABCA, OBCA or QCA corporation, articles of incorporation must be filed in theappropriate office along with the required fee. The articles of incorporation must provide certain informa-tion, including the name of the proposed corporation, its registered office, a description of the classes ofshares, any restrictions on share transfers, the number of directors and the restrictions on the business thatthe corporation may carry on (if any). The filing is an over-the-counter procedure and registrationcan usually be completed on the same date that the articles of incorporation are filed.To incorporate a company under the BCBCA, a notice of articles, together with an incorporation applica-tion and the required fee, must be filed electronically with the Registrar of Companies. The incorporationapplication sets out the name of the company, the desired effective incorporation date, and the name andaddress of the incorporator, and includes a certification confirming that the incorporator has signed anIncorporation Agreement relating to the company. The notice of articles sets out the name of the company,the translation of the name (if any), the names and addresses of the initial directors of the company, theaddresses of the company’s registered and records offices, a description of the authorized share structureof the company, and whether there are any special rights or restrictions.B BY-LAWSFollowing the incorporation of a CBCA, ABCA, OBCA or a QCA corporation, a general by-law to regulatethe affairs of the corporation is passed. If desired, further by-laws relating to the regulation of the businessand affairs of the corporation may be passed. Under the BCBCA, the articles are the general regulationswhich govern the internal affairs of the company (similar to the general by-law of a CBCA, ABCA or OBCAcorporation). They set out: the terms of any special rights and restrictions attaching to shares of thecompany; any restrictions on the businesses to be carried on by, or the powers of the company; and anyrestrictions on share transfers. They may also contain special provisions permitted by the BCBCA.C DIRECTORSEach of the CBCA, the BCBCA, the ABCA, the OBCA and the QCA, permit a corporation to have a flexiblenumber of directors, being not less than one, or in the case of a reporting company/public corporation,at least three directors. All CBCA, ABCA, OBCA and QCA private corporations and BCBCA non-publiccompanies must have boards of directors consisting of one or more directors. Under the CBCA, subject toDoing Business In Canada 11
  • 22. certain exemptions (including uranium mining, book publishing or distribution, book sales, and film or videodistribution), only 25% of the directors need be resident Canadians (or if there are less than four directors,only one must be a resident Canadian). Under the OBCA, at least 25% of the directors must be residentCanadians (or if there are less than four directors, one director must be a resident Canadian). There are nodirector residency requirements under the BCBCA and the ABCA requires that at least one quarter of thedirectors be resident Canadians. The QCA contains no requirement that there be a majority of residentCanadians on the board of directors.A “resident Canadian” is defined in the CBCA as: • a Canadian citizen ordinarily resident in Canada; • a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons; or a permanent resident within the meaning of the Immigration and Refugee Protection Act (Canada) and ordinarily resident in Canada, except a permanent resident who has been ordinarily resident in Canada for more than one year after the time at which he or she first became eligible to apply for Canadian citizenship.The corresponding definitions in the ABCA and the OBCA are essentially the same, except that theydo not contain the exception found in the last two lines of the above definition.Under the CBCA, 25% of the directors (or, if there are less than four directors, at least one of them) presentat any meeting must be resident Canadians. Under the ABCA, at least one-quarter of the directors presentmust be Canadian residents.The directors of a corporation are required to manage or supervise the management of the business andaffairs of the corporation. The officers of a corporation undertake the day-to-day operations and affairsof the corporation. Directors have a fiduciary duty to act honestly, in good faith and with a view to the bestinterests of the corporation, and must also exercise the care, diligence and skill that a reasonably prudentperson would exercise in comparable circumstances.Directors may incur personal liability in their capacities as directors under the common law and under anincreasing number of statutory provisions, including the Income Tax Act (Canada), environmental protectionlegislation, employment legislation, and occupational health and safety legislation, as referred to elsewherein this publication. For example, under the CBCA, the BCBCA, the ABCA, the OBCA and the QCA, directorsare liable to the corporation if they vote for, or consent to, a resolution authorizing certain corporate actioncontrary to those Acts, such as the declaration of a dividend or other distribution, at a time when there arereasonable grounds for believing that the corporation would be unable to satisfy a solvency test.D AUDITORSBoth federal and provincial corporations are required to appoint an auditor, unless exempted. Generally,a corporation may be exempt from this requirement if the corporation is not a public corporation and allthe shareholders consent to the exemption.E SHAREHOLDERS’ AGREEMENTSThe shareholders of a corporation may enter into a shareholders’ agreement which provides for the conductof the business and affairs of the corporation, regulates the rights and obligations of the shareholders toDoing Business In Canada 12
  • 23. one another, and which may provide for rights of first refusal or other provisions dealing with the transfer of shares. Under the CBCA, the ABCA, the OBCA and the QCA, all of the shareholders may agree, under a“unanimous shareholders’ agreement”, to restrict in whole or in part, the powers of the directors to manage the business and affairs of the corporation, and to give to the shareholders the rights, powers and duties, which they have removed from the directors. The directors are thereby relieved of such duties and liabilities. Such an agreement might be used in a subsidiary corporation so that it is managed directly by the parent company with an active board of directors. Under the BCBCA, the articles of the company may restrict the powers of the directors and may transfer those powers, in whole or in part, to one or more other persons.F SHARE CAPITALA share is a fractional part of the capital of a corporation which confers upon the holder a certain right to aproportionate part of the assets of the corporation, whether by way of dividend or upon a distribution onthe dissolution of the corporation, and governs the right to vote at shareholder meetings. The corporationmay issue more than one class of shares and may designate the shares in any way, unless restricted by theconstating documents. There is no restriction on the number of shares of each class that may be issuedby a corporation. Under the CBCA, the ABCA and OBCA, the concept of par value shares does not existand, therefore, shares are not expressed as having a nominal or specified value in dollars or other currency.Under the BCBCA and the QCA, the authorized capital of a company may consist of shares with or withoutpar value. The share capitalization of a corporation may be very flexible and can be tailored to meet itsspecific requirements. Very simple share provisions will usually suffice in the cases of a small or closely-heldcorporation.If the share capitalization of a corporation consists of only one class of shares, all the shareholders will haveequal rights: the right to vote at any shareholders’ meeting; the right to receive the remaining property ofthe corporation on dissolution; and the right to receive any dividend declared by the corporation. If thearticles provide for more than one class of shares, the above rights must be attributed to at least one ofthe classes of shares, but it is not necessary that one class have all of these rights. If there is more thanone class of shares, or if there is only one class of shares with rights in addition to the fundamental rightsdescribed above attaching to the shares, these rights and conditions must be set out in the articles of aCBCA, a BCBCA, an ABCA, an OBCA and a QCA corporation. The rights that may be attached to the sharesof a class are virtually limitless, but some of the common provisions are as follows: • the right to cumulative, non-cumulative, partially cumulative or fully participating dividends; • a preference over another class or other classes of shares as to the payment of dividends; • a preference over another class or other classes of shares as to the repayment of capital upon the dissolution of the corporation; • the right to elect a specified number of directors, or other special voting rights or restrictions; • the right to convert a certain class of shares into another class of shares or a debt obligation; • the right of the corporation, at its option, to redeem all or part of the shares of the class; and • the right of the shareholder, at its option, to require the corporation to redeem its shares (this form of redemption is known as retraction).Doing Business In Canada 13
  • 24. It is also possible to have several series of shares within one class of shares. The use of these series is ad-vantageous where the directors wish to issue shares with certain differing characteristics over an extendedperiod of time, without obtaining the shareholders’ approval of the particular characteristics of each serieswhen the series is issued.Unlimited Liability CompaniesIn recent years, the unlimited liability company (“ULC”) has become popular as a hybrid entity that canoffer U.S. investors certain tax advantages. As a company, a ULC will be treated as a taxable Canadiancorporation under the Income Tax Act (Canada) (and must, therefore, file Canadian income tax returns),yet be eligible for partnership tax treatment in the U.S. (thereby affording U.S. shareholders the same U.S.tax treatment as U.S. limited liability companies). The “check the box” rules adopted by the U.S. InternalRevenue Service on January 1, 1997, provide that any Canadian corporation or company formed under anyfederal or provincial law, which provides that the liability of all the members of such corporation or companywill be unlimited, can qualify for partnership treatment, regardless of what other “corporate characteristics”it may possess. Under the “check the box” process, ULCs can, for U.S. tax purposes, elect either corporateor flow-through status by checking the appropriate box on the election form. There are a number of U.S. taxadvantages to opting for the flow-through treatment, including enabling the U.S. investor to use any antici-pated start-up losses in the Canadian operation for U.S. tax purposes.ULCs are incorporated under the ABCA, the BCBCA and the Companies Act (Nova Scotia) in a mannersimilar to the other corporate statutes in Canada. It is also possible to convert existing corporationsincorporated under the CBCA, and most of the other provincial corporate statutes, into a ULC by, in thecase of Alberta, having such corporation continued under the laws of Alberta as a ULC and, in the case ofBritish Columbia or Nova Scotia, having such corporation continued under the laws of either province andthen amalgamated with a newly incorporated shell ULC (or, in the case of British Columbia, having suchcontinued corporation alter its notice of articles). The costs for registering a ULC in Alberta is significantlyless expensive then the costs for registering a Nova Scotia ULC.As with ABCA corporations, one quarter of the directors of an Alberta ULC must be resident Canadians.There are no restrictions on the residency of directors of British Columbia or Nova Scotia ULCs.The main difference between ULCs and other federal and provincial corporations is that the shareholders ofa ULC have unlimited joint and several liability for the obligations of the ULC upon its dissolution. Therefore,prospective shareholders should consider carefully whether or not to use these vehicles, or if interveningliability entities could or should be used to reduce their exposure. For example, a U.S. investor could inter-pose a “stopco” holding corporation between it and the ULC, and thereby effectively limit the U.S. investor’sliability for the ULC’s obligations. Shareholders of Alberta ULCs may enter into unanimous shareholderagreements, whereas Nova Scotia and British Columbia do not recognize unanimous shareholder agree-ments. As a result, any limitations on directors’ authorities of Nova Scotia ULCs must be set out in thepublicly filed articles of association, and any limitations on directors’ authorities of British Columbia ULCsmust be set out in its articles.Under each of the ABCA and BCBCA and the Companies Act (Nova Scotia), the members of a ULC can con-vert the ULC into a limited liability company and, if desired, continue the company under the CBCA or thelaws of another provincial jurisdiction. Members of a ULC may choose to change the nature of the companyDoing Business In Canada 14
  • 25. in circumstances where it has become profitable and there is no further need to have it taxedon a flow-through basis for U.S. tax purposes.As a result of recent amendments to the Canada-U.S. tax treaty, the use of ULCs in some circumstancesmay not be as tax-effective as they have been in the past.Other Types of Business OrganizationsIn addition to the corporation, other forms of business organization may be used as vehicles to carryon business in Canada. Certain of these are briefly discussed below.Sole ProprietorshipsA sole proprietorship exists where an individual is the sole owner of a business and there is no other formof business organization, such as a corporation, used as a vehicle to carry on the business.All benefits gained and all obligations incurred from the sole proprietorship accrue to the sole proprietor.All income and losses of the proprietorship accrue to the individual and are taxed at the tax rate applicableto the individual. In contrast with the limited liability of shareholders of a corporation, there is no limitedliability for sole proprietorships. The personal assets of the sole proprietor may be seized to satisfy anyobligations of the proprietorship.The sole proprietorship is a simple arrangement for carrying on business. There are few legal formalitiesrequired to create or operate a sole proprietorship. Before beginning to carry on a business as a soleproprietorship, attention should be given to any federal, provincial or municipal licensing requirements.In addition, a sole proprietor who engages in certain businesses in British Columbia, or in any businessin Alberta, Ontario or Quebec, using a name or designation other than the individual’s own name, mustregister a declaration in prescribed form with the relevant government authority.PartnershipsIn British Columbia, Alberta, Ontario and Quebec, general partnerships and limited partnerships may beformed to carry on a business enterprise. In a general partnership, the liability of each of the partners isunlimited. In a limited partnership, the liability of one or more of the partners (general partners) is unlimited,and the liability of one or more of the partners (limited partners) is limited to the amount that the limitedpartner contributes (and, additionally in British Columbia and Quebec, and alternatively in Alberta, theamount the limited partner agrees to contribute) to the business of the partnership. A contribution may beone of money or property, but not services.Generally, for both limited and general partnerships, the income or losses of the partnership are determined,for income tax purposes, at the partnership level and then allocated to the members of the partnership. Theincome or losses are then taxable in the hands of the partners.G GENERAL PARTNERSHIPSTo be considered a general partnership, there must be a relation between persons carrying on a businessin common (which can be in the nature of an ongoing business or a specific transaction) with a view to profit(which excludes charitable and cultural organizations). The relation between the persons may be estab-lished by written or verbal agreement, or be implied by the circumstances.Doing Business In Canada 15
  • 26. A general partnership carries on business under a firm name and can sue or be sued under the firm name.Much like a sole proprietorship, the business is carried on directly by the partners and a partnership doesnot form a separate legal entity. However, for certain purposes, a partnership is treated as a unit. All prop-erty contributed by the partners, or purchased by a partnership, becomes partnership property. All partnersin a partnership are entitled to share equally in the capital and profits of the business, and must contributeequally towards the losses, unless otherwise agreed by the partners. Each of the British Columbia PartnershipAct, the Partnership Act (Alberta), the Ontario Partnerships Act and the Civil Code of Québec, permits partnersto vary a set of statutorily prescribed mutual rights and duties (such as the sharing of profits and losses)by express or implied agreement. Each Act also provides a framework to govern the relationship of partnersand third parties (which may not be varied by agreement).In a general partnership, each partner is jointly liable with the other partners to the full extent of thepartner’s personal assets. The estate of a deceased partner remains liable for partnership debts incurredwhen the partner was alive. However, a partner can be discharged from a partnership by an agreement andwill not thereafter be responsible for debts incurred after the signing of such an agreement. General part-nerships created under the laws of Quebec or carrying on business in Quebec, are bound in law to filea declaration of registration in the prescribed form with the Registraire des enterprises.H LIMITED PARTNERSHIPSIn British Columbia, Alberta and Ontario, a limited partnership is created by complying with the relevantprovisions of the applicable partnership legislation, and is governed by that legislation and general partner-ship law. In Quebec, a limited partnership is created by complying with the relevant provisions of the CivilCode of Québec. The limited partnership must consist of one or more general partners, and one or morelimited partners. One person can be both a general and a limited partner. A “person” includes an individual,a sole proprietor, a partnership and a corporation.A limited partner is much like a passive investor in a corporation, sharing the profits of the limited partner-ship in proportion to the contribution made by the partner. This form of partnership is used primarilyfor public financing where passive investors are involved, and it is desirable for profits and losses to flowthrough to the investors. It is also used by investors that are non-taxable entities, such as government-related agencies (e.g. some public utilities or provincial development agencies), where the investor wishesto avoid holding its investment in a company that is required to pay taxes before distributing its incometo its shareholders.In Ontario, a limited partner may give advice to the partnership, or act as an agent or employee of thelimited partnership. However, in each of British Columbia, Alberta, Ontario and Quebec, if the limited part-ner takes part in the control or management of the business, then the partner will no longer be considereda limited partner and will be subject to the unlimited liability of a general partner.Generally, the interest of a limited partner is assignable if all the partners consent to the assignmentor if the partnership agreement permits it.General partners in a limited partnership have the same rights and obligations as in general partnerships,except that certain actions of the general partner may require the prior consent of the limited partners.It is common to have a corporation as the general partner because of the limited liability feature ofthe corporation.Doing Business In Canada 16
  • 27. In British Columbia, Alberta and Ontario, a limited partnership is only legally created when a declarationor certificate in prescribed form, signed by all of the general partners (and in Alberta, all of the limitedpartners), is filed with the relevant registrar. In Quebec, the partnership is created upon the formation ofthe contract, if no other date is indicated in the contract, and must file a declaration in prescribed form withthe Registraire des enterprises. In British Columbia, the certificate includes the name of the partnership, thenature of the business of the limited partnership, the term for which it is to exist, the full name and addressof each general partner, the aggregate amount of cash and property contributed and agreed to be contrib-uted by all of the limited partners, and the basis on which limited partners are to be entitled to share profitsor receive other compensation. In Alberta, the certificate states the firm name, the character of the busi-ness, the name and address of each partner (and whether they are a general or limited partner), the termfor which the partnership is to exist and certain other details of the structure of the partnership. In Ontario,the declaration states the name of the limited partnership, the name and address of each general partnerand the general nature of the business of the limited partnership. In Quebec, the declaration states, amongother things, the object of the partnership, the name and domicile of each of the known partners at the timethe contract is entered into, the place where the register containing up-to-date information on the nameand domicile of each limited partner, and all information relating to the contributions of the partners to thecommon stock, may be consulted. The declaration also distinguishes between general and limited partners.Joint VenturesA joint venture is not a specific type of business organization but rather, it is more aptly described as anassociation of two or more individuals, corporations or partnerships, or some combination of these, for thepurpose of carrying on a single undertaking or a specific business venture. A joint venture may take the formof a partnership, a limited partnership, a co-ownership of property or a corporation. Generally, the parties toa joint venture will enter into a written agreement (whether a partnership agreement, a limited partnershipagreement, a co-ownership agreement or a shareholders’ agreement) which establishes the respectiverights and obligations of the parties in respect of the venture.Canadian Distributors and Selling AgentsA foreign organization can enter into contracts to supply goods or services to Canadians without beingconsidered to be carrying on business in Canada. The distinction is sometimes referred to as “doingbusiness with Canada,” as opposed to “doing business in Canada”. This can also extend to a long-termdistributorship arrangement under which a Canadian individual or corporation markets the products of aforeign business in Canada, either on an exclusive or non-exclusive basis. In this way, a foreign businesscan have an independent sales representative organization in Canada without being liable to Canadianincome tax on its profits from such sales. (For more information concerning the income tax consequencesof such activity, see the discussion below in the section entitled “Income Tax Considerations”.)Doing Business In Canada 17
  • 28. FranchisingFranchising, as a method of business expansion and organization, represents one of the most dynamiccommercial sectors in Canada. In a typical franchise relationship, the franchisor licenses the franchiseethe right to sell products and services under the franchisor’s trade-mark using the franchisor’s prescribedbusiness format. In return, the franchisee agrees to comply with the standards of the franchise system,and to pay an up-front fee and continuing royalties. Franchise arrangements can take many different forms,from master franchise relationships involving multiple locations to single unit franchise agreements forindividual locations.The importance of franchising to the Canadian economy should not be underestimated. Not only doesCanada offer a powerful economic environment, but the legal framework for franchising is encouraging.Currently, only Alberta, Ontario and Prince Edward Island have specific registration or disclosure legislationin force, with which a franchisor looking to set up a franchise system in those provinces must comply.There is currently no specific registration or disclosure legislation dealing with franchising which is in forcein the other provinces, although, as noted below, New Brunswick has passed such legislation (it has notcome into force yet, but is currently expected to be in force by late 2010) and the Manitoba Law ReformCommission has recommended that franchise legislation be implemented in Manitoba. However, manybusiness practices prevalent in franchising are subject to regulation by both federal and provincial lawsof general application. In addition, franchisors that are members of the Canadian Franchise Associationare encouraged to comply with the minimum disclosure obligations of that organization.Franchise Disclosure, Registration and RegulationAlberta, Ontario and Prince Edward Island are the only provinces with legislation in effect that specificallygoverns certain aspects of franchising. Although the New Brunswick legislature passed Bill 32, Franchises Act,in June 2007, the bill has not yet come into force (currently expected to come into force in late 2010). TheManitoba Law Reform Commission published its report on franchise law in May 2008 and recommendedthat franchise legislation be implemented in Manitoba, but the Manitoba government has not yet an-nounced any further developments in this regard. Various governmental bodies have been charged with theadministration of franchise legislation in each province that currently has franchise legislation: the FranchisesAct (Alberta) (the “Alberta Act”) is administered by the Alberta Securities Commission, the Arthur WishartAct (Franchise Disclosure) (Ontario) (the “Ontario Act”) is administered by the Ontario Ministry of Consumerand Business Services, and the Franchises Act (Prince Edward Island) (the “PEI Act”) is administered the byConsumer, Corporate and Insurance Services Division of the Office of the Attorney General. Each of theseActs contains broad definitions of what constitutes a franchise and, as a result, many distributionand dealership arrangements may also be subject to their requirements.In substance, the Alberta, Ontario and PEI Acts are very similar. They primarily contain disclosure require-ments and a number of relationship provisions. None of these Acts directly regulate the substantive aspectsof the franchise relationship. The Acts require fair dealing between parties to franchise agreements, thatfranchisees have the right to associate, and they impose disclosure obligations on franchisors.All three Acts require franchisors to provide a disclosure document to prospective franchisees.The disclosure document must contain copies of all franchise agreements and financial statements,Doing Business In Canada 18
  • 29. and all material facts, including specifically listed material facts. In Alberta and PEI, franchisors arepermitted to use disclosure documents acceptable under franchise legislation in jurisdictions outsideAlberta and Prince Edward Island, as the case may be, provided that these disclosure documents include,by way of an addendum or “wrap around” document, any information necessary to meet the requirementsof a disclosure document under the Alberta Act or the PEI Act, as applicable. The Ontario Act does notspecifically provide for an addendum or “wrap around” document. As a result, a disclosure document isoften prepared for Ontario in accordance with the Ontario Act, and then a “wrap around” is preparedto meet Alberta and PEI requirements.Financial statements prepared in accordance with generally accepted accounting principles must normallybe included within the disclosure statement. The minimum standards of review under the Acts are thoseof review engagement standard. Certain franchisors are exempt from the requirement to include financialstatements in their disclosure documents. The disclosure document must also include a certificate certify-ing that the disclosure document contains no misrepresentation.The Acts impose on the parties to a franchise agreement a duty of fair dealing in the performance andenforcement of that agreement. They also provide the franchisee a private right of action for damagesagainst the franchisor, and every person who signed the disclosure document if the franchisee suffers aloss because of a misrepresentation contained in the disclosure document. As well, if the franchisee did notreceive the franchise disclosure document within the time limits set out in the appropriate Act, the franchi-see has the right to rescind all franchise agreements.QuebecFranchising in Quebec is different than in the other provinces, in that the law is governed by the Civil Codeof Québec. One interesting feature of the Civil Code of Québec is the concept of contracts of adhesion, wherethe essential provisions are imposed by one of the contracting parties and are not negotiable. The conse-quences of a contract being qualified as a contract of adhesion are that if one of its provisions is incompre-hensable, unreadable or abusive, that provision may be nullified or modified by a court. The same appliesto “external” clauses (i.e. clauses that are not contained in the contract but to which the contract refers).The courts of Quebec have often characterized a franchise agreement as an adhesion contract, when ithas been shown that its essential provisions could not be negotiated.Franchise businesses intending to operate in Quebec must also comply with French language laws and, inparticular, the Charter of the French language. Franchisors should realize that they will be expected to carryon business in French, especially outside Montréal, and have all of their materials (operations manuals andother documentation for use by employees) translated into French, although the franchise agreement itselfneed not be translated. (For more information on some of these topics, please refer to the correspondingsections in this publication.)Other Areas of Law Affecting Franchising ArrangementsIn addition to complying with the specific franchise legislation, businesses expanding into Canada by wayof franchising will also want to ensure that they comply with other laws of general application affectingDoing Business In Canada 19
  • 30. franchising arrangements. These include ensuring that their trade-marks are protected under Canadiantrade-mark legislation, that their products and practices comply with applicable product labelling (e.g. forfood and drugs) and consumer protection legislation, and that their arrangements comply with Canadiancompetition laws (which deal with matters such as exclusive dealing, market restriction and tied-selling)and applicable tax requirements.Doing Business In Canada 20
  • 31. Director And Officer Liability In CanadaIntroductionIn Canada, directors and officers of corporations may be subject to personal liability while acting within theircorporate capacity. Such personal liability is intended to ensure that directors are accountable to sharehold-ers and are responsible for the failure of a corporation to meet its legal obligations. Certain industries, suchas banking and transportation, are subject to special regulations that may give rise to liabilities particular tosuch regulatory scheme.Traditionally, director and officer obligations have extended only to shareholders of a corporation. Recently,however, courts in Canada have suggested that directors and officers should consider the interests of otherstakeholders in their decisions as well. There are a large number of stakeholder groups associated with anycorporation, including employees, creditors, communities, consumers and regulatory agencies. Accordingly,in certain contexts, stakeholders, as well as shareholders, may need to be considered when assessing adirector’s duties to the corporation.General Duties Under Common Law and Corporations StatutesThe common law and corporate statutes each impose several duties on directors that may affectpersonal liability.A FIDUCIARY DUTYDirectors are considered “fiduciaries” of the corporations they serve. This principle requires directors toact honestly and in good faith with a view to the best interests of the corporation, and to put the corpora-tion’s interests ahead of their own. It is important to note that case law indicates that there may be instanc-es where the best interests of the corporation and its shareholders diverge, such as where a corporation isnearing insolvency, and that in such cases, it is the duty of the directors and officers to act in thebest interests of the corporation over those of the shareholders.A director’s fiduciary duty also requires that he or she avoid conflicts of interest. Typical conflicts arisewhere a director holds a personal interest in a material contract with the corporation, or gains an oppor-tunity because of information learned in the course of his or her position. In most provinces, directors arerequired to disclose all such conflicts and refrain from voting on any related resolution. Failure to disclosea conflict may make a director liable for any gain earned from the conflicting interest. Directors are also,generally, prohibited from taking advantage of a business opportunity that the corporation either had orwas seeking. Taking advantage of such a corporate opportunity may attract personal liability, even wherea director resigns prior to engaging in the opportunity and the corporation suffers no demonstrable lossfrom the breach of fiduciary duty.B MINIMUM STANDARD OF CAREDirectors are required to provide a minimum standard of care in carrying out their responsibilities.This minimum standard is generally described in the corporate statutes as exercising “the care, diligenceand skill that a reasonably prudent person would exercise in comparable circumstances”. This standard,however, varies from province to province. As well, there are a number of provincial corporate statutesDoing Business In Canada 21
  • 32. that do not define the minimum standard of care. In these provinces, the minimum standard is governedby the common law, which requires that a director exhibit the degree of care and skill that might beexpected of a person with the knowledge and experience of the director in question. In Quebec, corporatelaw requires directors to “act with prudence and diligence”, although recent legislation may change that toprudence, diligence, honesty and loyalty in the best interests of the corporation, however, the courts mayapply a standard similar to that of the common law. Courts generally apply the “business judgment rule”in evaluating whether the minimum standard has been applied. The rule focuses on the process appliedin coming to a decision, rather than on the results of such a decision. The “reasonableness” of the actionsof the directors and officers in the process of reaching their decision is an important factor considered bythe courts. Inside directors (individuals who hold other positions within management) may also be held toa higher standard of care than outside or independent directors, since they are generally better informedabout the corporation’s affairs.C DELEGATION AND RELIANCEWhile directors may delegate authority and responsibility to management, special committees and,in certain cases, independent advisors, all work must be done under the general supervision of the direc-tors. Directors are entitled to rely on the information provided by such parties, provided the director hasverified that such person(s) is qualified, and provided the director makes the proper inquiries when thework product is presented to them. However, directors are statutorily prevented from delegating certainresponsibilities.Directors should keep in mind that they are liable for any acts or omissions of the board of directors carriedout in their absence, since they are deemed to have consented, unless they register their dissent accordingto the procedures set out in the governing corporate statute.Specific Statutory DutiesWhen attempting to determine the potential liabilities which may attach to the directors of a corporation,it is important to assess the entire regulatory regime applicable to the business that a corporation carrieson. The following are some of the various provincial and federal statutes that impose personal liability ondirectors while acting in their corporate capacity:D ENVIRONMENTAL LEGISLATIONDirectors may be held liable for environmental offences, for causing or permitting environmental damageor for environmental offences committed by the companies they serve. Directors can be charged both asprincipals under environmental legislation, for their personal involvement in the activity constituting theoffence, and as indirect actors, on the basis that control over the corporation and its employees had beenimproperly exercised. Directors face both common law and statutory liability for environmental offences.Common law liability can arise out of, among other things, nuisance, negligence, trespass and strict liabilityactions. Statutory liability can arise under the federal Canadian Environmental Protection Act (“CEPA”) orany of a number of provincial statutes. Under CEPA, a director may incur liability for offences committed by the corporation that the director“directed, authorized, assented to, acquiesced in or participated in”. Provincial environmental legislationDoing Business In Canada 22
  • 33. often goes beyond CEPA’s provisions and imposes a stricter standard. In Ontario, for example, directorsand officers have a statutory duty to “take all reasonable care” to prevent the corporation from committingenvironmental offences. The penalties imposed under environmental statutes are particularly onerous. InOntario, whether or not the corporation itself has been prosecuted or convicted, the fines can reach as highas $4,000,000 on a first conviction and/or imprisonment for up to five years less a day. Directors mayalso face civil liability for damages suffered by third parties as a result of an environmental offencecommitted by a corporation.The defence of due diligence (discussed below) is available to directors and officers and, under certaincircumstances, is available as a statutory defense.E EMPLOYEE RELATED LEGISLATIONDirectors can be held personally liable where a corporation commits an offence under provincial pensionbenefits legislation, provided the director participated in the commission of the offence. An examplewould be failure by a corporation to submit payment to a pension fund or insurance company on behalfof employees. Directors can also be held liable where they have not directly participated in the commissionof the offence. However, in such a situation, they are entitled to a due diligence defence (discussed below).In most provinces, directors can also be held liable for unpaid employee wages and vacation pay, and fora corporation’s failure to remit source deductions, such as Canada Pension Plan and Employment Insuranceon behalf of its employees. In practice, a director’s liability for wages is only relevant in cases of corporateinsolvency, as an employee must first attempt to satisfy his or her claim out of the assets of the corporation.Directors can only be held liable where they were a director when the employee services in questionwere performed.In most provinces, directors can also be held personally liable for a corporation’s failure to comply withprovincial occupational health and safety legislation requirements. Directors of corporations that fall underfederal jurisdiction can be held liable under similar provisions of the Canada Labour Code.F TAX LEGISLATIONPersonal liability arises for directors as a result of a variety of offences under federal and provincial taxstatutes, including a corporation’s failure to remit any prescribed amounts under the federal Income TaxAct (Canada) and Excise Tax Act (Canada) (covering the Goods and Services Tax) held in trust for theCrown. Furthermore, there is a general liability section in the Income Tax Act (Canada) which applies whena corporation has committed an offence, whether or not the corporation has been prosecuted or convictedof an offence. Essentially, a director or officer of the corporation “who directed, authorized, assented to,acquiesced in, or participated in commission of the offence is a party” to it. Both the Income Tax Act and theExcise Tax Act provide a due diligence defence (discussed below).Duties Specific to Public CorporationsDirectors of public corporations are subject to additional potential liabilities not present in privatecorporations. Where a corporation has issued securities to the public, directors are responsible forensuring that their actions are consistent with the duties listed above, as well as the requirements ofprovincial securities regulators.Doing Business In Canada 23
  • 34. Directors can be held liable for: incorrect information (written or oral) distributed by the corporation tothe public; failure to comply with continuous disclosure requirements; and failing to file certain documents,such as financial statements, or for misrepresentations in such documents.The securities regimes of certain provinces have recently extended this liability for directors (and officers)of public companies to inaccurate or untimely secondary market disclosures. According to these rules,anyone who buys or sells securities of a public company can file an action against the directors and officersof the company (as well as the company itself, influential persons, experts and company spokespeople),and need not prove reliance on the misrepresentation.Directors can also be held personally liable for insider trading (trading in securities of their corporationwith knowledge of material information that is not generally disclosed) where they pass on such undisclosedmaterial information to another party who trades with knowledge of the information, or even where theyacquiesce to another director’s trading offences.The incidence of regulations that allow directors and officers to be found personally liable for decisions andactions of a corporation, has increased significantly in recent years. Though Canadian securities regulatorshave not been as eager to adopt new regulations exposing directors and officers to increased liability, ashave the Securities and Exchange Commission and the federal government in the U.S. (largely on accountof Sarbanes-Oxley), directors and officers should still be aware that recent changes to Canadian securitiesregulation and an increased sensitivity to corporate malfeasance, do impose a higher standard of care ondirectors and officers, and potentially expose them to liabilities that did not previously exist.Officer LiabilitySenior officers have the same fiduciary relationship to the corporation as the corporation’s directors.The minimum standard of care applies equally to directors and officers. As such, much of what is discussedin the context of director liability applies equally to officer liability. However, since most of an officer’s pow-ers and responsibilities are derived from delegation by the board, the corporate statutes impose far fewerspecific liabilities on officers.It is sometimes difficult to determine whether a particular employee is an officer in the legal sense.This determination is, generally, linked not to an individual’s job title but to his or her role in the company.Employees who occupy positions involving the power and ability to direct and guide the affairs of thecompany are considered fiduciaries, and face the same liability as senior management and directors.Shareholder, Stakeholder and Regulatory RemediesThere are a variety of options for shareholders and stakeholders who want to bring an action againstdirectors and officers of a corporation. The most important of these options are: i. the oppression remedy - for parties who believe that management or the board have acted in a manner which was oppressive and prejudicial to their interests; ii. a derivative action - for parties seeking redress on behalf of the corporation for a breach of the corporation’s rights; and iii. compliance orders - for parties seeking to compel a certain action of the corporation or its directors or officers, or seeking to restrain a breach of a duty owed to the corporation.Doing Business In Canada 24
  • 35. Orders made as a result of successful actions can include: i. forcing a director or officer to give up any benefit gained in the course of wrongful conduct; ii. appointing directors in place of the directors then in office; and iii. forcing the corporation to set aside a transaction, issue or exchange securities, or compensate an aggrieved party.In the case of an oppression action, the court has exceptionally wide latitude to make any order it considersreasonable to remedy the prejudice suffered by a complainant. This includes orders apportioning liabilityto directors in their personal capacity.Directors can also be held liable to third parties for actions taken in their directorial capacity. In certaincases, courts have held directors personally liable for: (i) a breach of trust by the corporation where theyhad full knowledge of a breach of trust by the corporate trustee; and (ii) their own tortious conduct,even though they pursued the conduct on behalf of the corporation.Regulators can take action when directors or the corporation fail to meet the standards of corporategovernance set out by a variety of regulatory agencies. Many of these agencies have the power to takeaction against officers and directors directly. These enforcement powers can lead to large fines andimprisonment. Currently, a conviction for an offence under the Securities Act (Ontario) can lead to finesof up to $5,000,000 and imprisonment for up to five years less a day, or both. The Securities Act (Ontario)also specifies that a director or officer who authorizes, permits or acquiesces in the non-complianceof Ontario securities law, shall be deemed to not comply with Ontario securities law.In addition to the rules imposed by statutory-based regulatory regimes, directors and officers are alsoincreasingly subject to the corporate governance standards imposed by non-statutory based organizations.For example, public companies that trade on a recognized Canadian stock exchange (such as the TSX),are required to comply with the standards imposed by the exchange, in order for their securities to continueto be traded and to remain listed.Risk Management: Protection from LiabilityApart from the diligent discharge of their duties, there are of number of ways that directors and officerscan manage the risks associated with their personal liability.A unanimous shareholder agreement can be used to shift some or all of the directorial responsibilitiesand liabilities to the shareholders of a corporation. Trust accounts and letters of credits can also be set upto ensure that the corporation does not default on payment of sums for which the directors and officersare personally liable. As well, resignation can protect directors and officers from liability for any eventsthat occur subsequent to departure.In some provinces, corporations are also permitted to indemnify their directors and officers for variousactions taken on behalf of the corporation, provided that such director or officer was acting honestly andin good faith, with a view to the best interests of the corporation and, in the case of a criminal or administra-tive action or proceeding that is enforced by a fine, that the director or officer had reasonable groundsfor believing that his or her conduct was lawful. Corporations, however, are prohibited from indemnifyingdirectors or officers against breach of the fiduciary duty owed to the corporation. Indemnification can alsoDoing Business In Canada 25
  • 36. be prohibited in any circumstances where the court determines it is inappropriate. In those cases, courtscan find indemnities unenforceable for reasons of public policy. Although indemnities provide significantprotection to directors and officers, it is important to remember that, in the context of insolvency, anindemnity is only as good as the corporation’s ability to honour it.In general, a corporation may also obtain liability insurance for a director or officer against any liabilityincurred, so long as he or she acted honestly and in good faith, with a view to the best interests of thecorporation. While insurance provides important protection, there are many exclusions from typicalinsurance policies, including: i. actions involving fraud, conspiracy, criminal acts, human rights violations or other intentional acts; ii. the obtaining of a personal profit or advantage to which the recipient was not legally entitled; iii. claims arising out of statutory liabilities; iv. claims for fines or penalties imposed by law, punitive or exemplary damages; and v. matters which the law may determine to be uninsurable.For some corporations, the premiums for such policies may be prohibitive.DefencesThe due diligence defence is the most common defence available to officers and directors. This defence is,generally, established where the individual can establish, on a balance of probabilities, either that he or she: i. reasonably believed in a mistaken set of facts that, if true, would render the conduct innocent; or ii. that all reasonable care was taken to avoid the event giving rise to the liability.In certain jurisdictions, this defence may be available under specific provisions of the myriad of legislationthat governs corporate activity. Note, however, that such legislation may qualify or limit the applicationof this defence, and may require certain actions to have been taken by the person to avail himself or herselfof it. For example, the due diligence defence is only available to a director under the Income Tax Act if heor she exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudentperson would have exercised in comparable circumstances.Some statutory provisions, however, expressly preclude the use of a due diligence defence. In Ontario,for example, liability for employee wages and vacation pay is an area where directors are not afforded thisdefence. In addition, the Business Corporations Act in Ontario prevents directors and officers of Ontariocorporations from relying on the defence of due diligence in the case of a breach of their basic fiduciaryduty and/or standard of care.There will be instances where the range of defences available to an officer diverges from those availableto a director. In some cases, an officer will not have access to a due diligence defence due to his or her closeconnection to the day-to-day management of the corporation. Officers are considered to be better informedthan directors, and are held to a higher standard in their reliance on false or inaccurate information.There are a number of other situation-specific defences that may be available to directors and officers.These defences are often outlined in the statutory provisions that create the liability.Doing Business In Canada 26
  • 37. Income Tax ConsiderationsIntroductionCanada imposes corporate and personal income tax on its residents and on non-residents who carryon business in Canada, are employed in Canada or sell property situated in Canada. Canadian residentindividuals and corporations are taxable on their income, including capital gains earned anywhere in theworld. Non-residents of Canada are generally only taxable on their income from Canadian activities andinvestments, including gains on the sale of certain types of Canadian investments.All of the provinces of Canada also impose income taxes on corporations and individuals residing or carryingon business within the province. Most of the provinces, including Ontario and Quebec, but excluding BritishColumbia, New Brunswick, Saskatchewan and Alberta, impose a capital tax on corporations. Ontario’scapital tax is currently being phased out and will be eliminated on July 1, 2010, while Quebec’s capitaltax will be abolished on January 1, 2011.Canada also imposes a withholding tax on non-residents who receive dividends, interest, rents, royaltiesor management fees from Canada. The Canadian payor of any such amounts is liable for withholding andremitting this tax on behalf of the non-resident recipient. The applicable tax rates are subject to the changescontained in the recent protocol to the Canada-U.S. Tax Treaty, which are noted below.Canada has entered into tax treaties with numerous countries, in order to prevent double taxation of thesame income in two countries. Generally, tax treaties set out which country is entitled to tax particularforms of income in a variety of specific situations.The Fifth Protocol (the “Protocol”) to the Canada-U.S. Income Tax Convention (the “Treaty”), which cameinto force on December 15, 2008, introduced changes to the Treaty, including the following: • eliminating the withholding tax on cross-border arm’s length interest payments, effective February 1, 2009 • reducing the withholding tax on interest paid between related persons to 7% after January 1, 2008, 4% after January 1, 2009, and eliminating it after January 1, 2010 • allowing U.S. residents who derive Canadian source amounts through a U.S. LLC to obtain treaty benefits • denying, under certain rules, the Treaty benefits with respect to certain hybrid entities that are disregarded in one country and not in the other. These include Canadian LLP’s with U.S. corporate partners and unlimited liability companies paying dividends, interest or royalties to a U.S. parentFederal tax rates are uniform across the country, with certain reductions and credits intended to encouragethe development of business activity and employment in certain industries of the economy, and in economi-cally depressed regions of Canada. For example, businesses engaged in manufacturing and processingoperations currently enjoy a reduction in Canadian federal tax rates on their profits from these activities.Tax incentives are also available to encourage research and development in Canada. The provinces establishtheir own rates of tax and, in some cases, rules for the computation of taxable income. For 2010, thecombined federal and provincial tax rate (including surtax) for corporations ranges between 28% and 34%,depending on the province.Doing Business In Canada 27
  • 38. Individuals pay taxes in accordance with a progressive rate structure which imposes higher rates of tax onhigher levels of taxable income. For 2010, the maximum combined federal and provincial rate for individualsranges between 39% and 48.25%, depending on the province.Canadian Subsidiary CorporationA subsidiary incorporated in Canada will be considered to be a Canadian resident for income tax purposes.It will be subject to Canadian income tax on its income earned anywhere in the world from any source,subject to a credit for foreign taxes paid on non-Canadian income.The income of the Canadian subsidiary that will be subject to Canadian income tax is generally calculatedin accordance with generally accepted accounting principles. There are, however, certain inclusions anddeductions which are specifically required or disallowed. The Canadian tax rules treat capital gains morefavourably than ordinary business or trading income. Under the current provisions of the Income Tax Act(Canada), taxable income includes one-half of realized capital gains net of capital losses. A net capitalloss of a given year can, subject to certain restrictions, be used to offset the capital gain of another year.Business losses incurred by a subsidiary in a year may, subject to certain restrictions, be used to reducetaxable income in other years.Where a corporation carries on business through a permanent establishment in a province, the rateof federal tax imposed on a corporation’s taxable income (including surtax) is 18%.In addition, the subsidiary generally will be subject to provincial income taxes on income earned in eachprovince in which it carries on business through a permanent establishment. The rate of provincial taxvaries among the provinces from 10% to 16% (10.5% in British Columbia, 10% in Alberta, 13% in Ontarioand 11.9% in Quebec). Certain of the provinces provide lower tax rates for companies which qualify forthe federal small business deduction. In general, the taxable income on which provincial tax is imposedresembles the taxable income computed for federal purposes, but special rules in provincial corporateincome tax legislation can result in a different measure of taxable income in certain circumstances.There are reductions and exemptions available to corporations based on total assets and total gross revenue.Taxable paid-up capital generally includes the subsidiary’s paid-up capital for corporate purposes and mostforms of surplus, reserves and indebtedness of the subsidiary. It generally excludes over-valued goodwill,and debt and equity investments in other corporations.Provincial capital tax is also imposed annually on corporations subject to income tax in the provinces ofManitoba, Nova Scotia, Ontario and Quebec. The capital tax is based on the taxable paid-up capital of thecorporation. In British Columbia, only banks, trust companies and credit unions are subject to the provincialcapital tax. In Quebec, capital tax is levied at the rate of 0.36% of taxable paid-up capital for corporationsother than a bank savings and credit union, a loan corporation, a trust corporation or a corporation tradingin securities, although certain types of companies are exempt from this tax. This rate will be reduced to0.24% in 2009, 0.12% in 2010 and 0% in 2011.In Ontario, as of January 1, 2010, capital tax is levied at the rate of 0.074% of taxable paid-up capital (thereis an exemption for a corporation’s first $15,000,000 of net paid-up capital). The Ontario Governmenthas announced that the capital tax rate will be reduced yearly and will be fully eliminated by July 1, 2010.Doing Business In Canada 28
  • 39. The government also retroactively eliminated the capital tax for Ontario companies primarily engaged inmanufacturing and resource activities, effective January 1, 2007. The 2007 capital tax elimination applies toa qualifying corporation or successor corporation whose employees reported to a permanent establishmentin Ontario on March 25, 2008.The fact that a foreign business enterprise has a Canadian subsidiary carrying on business in Canada, willgenerally not subject the foreign entity itself to Canadian income tax. For that reason, a Canadian subsidiarycan be useful when a partnership or joint venture is to be entered into with a Canadian participant. (Seealso the discussion below under the subheading “Joint Ventures and Partnerships”.) However, after-taxprofits of the Canadian subsidiary distributed to the non-resident parent organization by way of dividendwill be subject to Canadian withholding tax. The withholding tax rate is reduced to 10% or 15% under mostof Canada’s tax treaties. In addition, the Canada-U.S. Treaty, and other treaties, provide that the rate will befurther reduced in certain circumstances to 5%.Particular consideration should be given to loan transactions between the Canadian subsidiary and itsforeign parent, and to interest charged in respect of such loans. Under the current “thin capitalization rule”,a portion of any interest which the Canadian subsidiary might pay to its foreign parent on amounts owing byit to the parent, may be disallowed as a deduction in computing the subsidiary’s income. In general terms,if the ratio of the debt (owing to the parent or other non-resident affiliate) to the equity (paid-up capital,surplus and retained earnings) of the Canadian subsidiary does not exceed two-to-one, no amount ofinterest expense will be disallowed. On the other hand, if the debt to equity ratio exceeds two-to-one, theinterest on the excess debt will be disallowed. The subsidiary could borrow from Canadian lending institu-tions without offending the thin capitalization rule.Because the profits of a Canadian subsidiary or branch can be affected by the cost at which it buys fromor sells to related parties, the Income Tax Act (Canada) provides detailed rules governing the accountingof such transactions for tax purposes. In general, transactions between non- arm’s length persons (such asa parent and its wholly-owned subsidiary) are deemed to take place at fair market value, without regard towhat is in fact paid. For instance, if a parent sells goods or provides services to its subsidiary at more thanthe fair market value of the goods or services, or if the subsidiary sells goods or provides services to itsparent at less than fair market value, the subsidiary is deemed to have paid or received fair market valuefor income tax purposes.The rules relating to Canada’s transfer pricing regime conform with the OECD’s (Organization for EconomicCo-operation and Development) arm’s length principle, which, in general, requires that each transactionbetween parties that are not dealing at arm’s length be carried out under terms and conditions that onewould have expected, had the parties been dealing with each other at arm’s length. Pursuant to this prin-ciple, requirements in the Income Tax Act (Canada) obligate taxpayers who are parties to such non-arm’slength transactions, to contemporaneously document their transfer pricing transactions and the steps takento ensure that the terms and conditions of such transactions satisfy the arm’s length principle. A penaltywill be imposed for failure to comply with the arm’s length principle.Doing Business In Canada 29
  • 40. Canadian Branch OperationA foreign company that is not resident in Canada is subject to Canadian income tax on income earnedfrom any business carried on in Canada. If a business is carried on in Canada through a branch operation,the income attributable to that branch will be subject to income tax in much the same way as if it had beenearned by a subsidiary. The method of calculating income subject to tax and the rates will be as outlinedabove. However, the majority of Canada’s bilateral tax treaties provide, generally, that the business profitsof a foreign enterprise carrying on business in Canada will only be taxable in Canada if they are attribut-able to a permanent establishment situated in Canada. “Permanent establishment” is defined to includebranches, offices, agencies and other fixed places of business of an enterprise.An additional tax, commonly referred to as “branch tax”, will also be payable. Branch tax is payable at therate of 25% of the after-tax profits of the branch operations not being reinvested in Canada. Branch taxis roughly equivalent to the withholding tax, which would be payable on dividends paid by a Canadiansubsidiary to its foreign parent organization. The rate is reduced under certain tax treaties to 10% or 15%.Under the Canada-U.S. Treaty, the rate has been further reduced in certain circumstances to 5% of after-taxprofits. In addition, certain treaties, such as the Canada-U.S. and Canada-U.K. treaties, provide for an ex-emption from branch tax. Under the Canada-U.S. Treaty, the exemption is in respect of the first $500,000of branch profits net of prior years’ losses. Under the Canada-U.K. Treaty, the exemption is in respect of thefirst $500,000 or GBP250,000, whichever is greater, of branch profits net of prior years’ losses.A foreign entity should determine whether its own jurisdiction will permit a foreign tax credit in respectof Canadian income tax payable, including branch tax.Choosing Between Subsidiary and Branch OperationIf business is to be carried on in Canada through a branch operation having a permanent establishment,it will be subject to income tax in much the same way as if it had been earned by a subsidiary, as outlinedabove. However, it is important to note that, in the case of a resident of a country with which Canada hasa tax treaty, generally, that person may carry on business in Canada without attracting Canadian incometax, provided no permanent establishment is maintained in Canada. (See also the discussion below underthe subheading “Canadian Distributors and Selling Agents”.) In addition, whether a non-resident decidesto carry on business in Canada through a subsidiary or through a branch, appropriate federal and provincialincome tax returns will need to be filed and, in support of these filings, the Canadian operation will berequired to keep appropriate books and accounting records in Canada.On a long term basis, the use of a subsidiary is often found to be preferable, if for no other reason than theexistence of a separate legal entity in Canada encourages and facilitates the separate accounting neces-sary for Canadian purposes, and the determination of acceptable cross-border pricing. On the other hand,the ability of the non-resident to use Canadian source start-up losses may encourage the use of a branchoperation, until the Canadian business becomes profitable. Subsequently, branch assets, other than realproperty, can be transferred to a Canadian subsidiary on a tax-free basis for Canadian purposes, providedthe appropriate tax elections are made. Before a foreign corporation transfers assets to a Canadian subsid-iary, caution should be taken since it could trigger taxes in the foreign corporation’s country of residence.Whether a business comes to Canada as a branch or subsidiary could impact the valuation of importedDoing Business In Canada 30
  • 41. goods. For customs purposes, it is generally the transaction value (being the value at which goods aresold to the Canadian importer) that forms the value for duty (i.e. the base upon which customs duties arecalculated). However, where goods are transferred to a Canadian branch, a sale has not taken place and,consequently, the transfer price may not form the value for duty and another value, such as the selling pricein Canada less certain adjustments, may become the value for duty. Likewise, since the federally imposedGoods and Service Tax (GST), Québec Sales Tax (QST) or Harmonized Sales Tax (HST) is payable on theduty-paid value of imported goods, the tax payable depends on the customs valuation of the goods. (Formore information regarding these taxes, see the discussion below under the section “Commodity TaxConsiderations”.)Joint Ventures and PartnershipsA foreign business enterprise may choose to enter into a joint venture with a Canadian to carry on abusiness or a particular activity in Canada. The structure of such a joint venture may be accomplishedin a number of ways and the Canadian tax consequences will depend upon the particular structure chosen. The Canadian joint venture may take the form of a Canadian corporation, the shares of which are owned by the Canadian and foreign participants in agreed proportions. In such a case, the Canadian corporation will be taxable on its income as a Canadian resident corporation, as outlined above under the heading“Canadian Subsidiary Corporation”. If the Canadian participants are at least equal partners in the Canadian joint venture corporation, it may qualify for a reduced rate of tax (a combined federal and provincial rate in Alberta of 14%, 19% in Quebec, 13.5% in British Columbia and 16% in Ontario). The portion of taxable income eligible for the small business rate is reduced, however, on a straight-line basis for corporations that have more than $10,000,000 of taxable capital employed in Canada. No portion of the taxable income of corporations with more than $15,000,000 of taxable capital employed in Canada is entitled to the small business rate. Taxable capital is generally the sum of shareholders’ equity and long term or secured debt, less debt and equity investments in other corporations.Alternatively, the joint venture may take the form of a partnership between the Canadian and foreignparticipants. Canada taxes the profits of partnerships at the partner level and does not tax the partnershipdirectly. Each of the partners of a partnership carrying on business in Canada is considered, for tax purposes,to be carrying on the business of the partnership in Canada. Accordingly, if the foreign enterpriseis a partner and the partnership has an office, factory or other permanent establishment in Canada, theforeign partner will generally be taxable in Canada on its share of the partnership profits, as if it carried onthe partnership business directly as a Canadian branch of the foreign enterprise. The tax consequences ofa branch operation are set out under the subheading “Canadian Branch Operation”, above. If, on the otherhand, the foreign enterprise has its Canadian subsidiary corporation enter into the partnership, the taxconsequences would be as set out above under the subheading “Canadian Subsidiary Corporation”.Canadian Distributors and Selling AgentsA foreign business which is resident in a country with which Canada has a tax treaty can have an indepen-dent sales representative organization in Canada by way of distribution arrangements, or can enter intosales contracts to supply goods or services to Canadians, without being liable to Canadian income tax on itsprofits from such sales. Care must be taken to ensure that the foreign entity does not maintain a permanentDoing Business In Canada 31
  • 42. establishment in Canada. In addition, its Canadian broker or agent must be independent of the foreignbusiness organization, and not devote all or almost all of its efforts to representing the foreign business.A foreign business will be liable for Canadian income tax if it has a dependent agent or broker in Canada,with authority to negotiate and conclude contracts in its name.In addition, certain bilateral tax treaties provide that a foreign business can store its products in Canadafor purposes of display or delivery, or to maintain an office in Canada solely for the purpose of purchasingCanadian goods, or for collecting information without becoming liable for Canadian income tax.Non-Resident TrustsA non-resident trust can be used to carry on business in Canada. A non-resident trust carrying on businessin Canada will be subject to ordinary Canadian income tax on any trading profit, as if it were an individualwith the highest marginal tax rate. The advantage of using a non-resident trust is that, unlike a corporation,there is no Canadian branch tax or withholding tax on the distribution of after-tax profits by a non-residenttrust to its beneficiaries. A trust is not subject to federal or provincial taxes on capital. However, a non-resident trust does not qualify for certain withholding tax exemptions that are available to corporations.Withholding TaxesAmounts paid by a Canadian to a non-resident as interest, dividends, rents, royalties or most any other formof income from property, are subject to Canadian withholding tax. The rate is 25% but may be reducedunder an applicable tax treaty. However, in the case of rents in respect of Canadian real property, the ratemay remain at 25%. Canada has eliminated withholding tax on interest payments to non-residents who dealat arm’s length with the payor, to the extent that the interest does not constitute “participating debt inter-est”, as defined in the Income Tax Act (Canada).Amounts paid to a non-resident for services rendered in Canada (other than in the course of regular andcontinuous employment) are subject to a withholding tax of 15% of the gross payment. The payor mustdeduct and withhold 15% for federal income tax and 9% for Quebec income tax, whether or not they areresident in Canada.A non-resident who owns certain types of Canadian real property has the option under the Income Tax ActCanada of paying tax on rental income, as if the non-resident were a resident taxpayer. This alternativemethod of payment may result in a lower tax rate, since the non-resident is thereby allowed to deducthis or her expenses, including permitted depreciation costs connected with earning rental income. Thenon-resident would not otherwise be allowed to deduct expenses, since withholding tax is payable on grossamounts received as interest, dividends and other income from property, without deductions. This specialalternative to payment of withholding tax also applies to tax on royalties paid to the non-resident for theuse of timber resource properties.Withholding taxes will be payable in respect of income earned by a non-resident on its investments inCanadian property, whether the Canadian payor is a subsidiary or is unrelated to the non-resident receivingthe payment. The tax is imposed on the non-resident, but is required to be collected by the Canadian payorand remitted by it to the Canadian authorities. Property or investment income which would normally besubject to withholding tax, but which is attributable to a Canadian business carried on by the non-residentDoing Business In Canada 32
  • 43. directly, is generally included in the branch’s business income and is not subject to withholding tax, althoughthe Canadian payor is required to obtain the consent of Canada Revenue Agency not to withhold.In addition, Ontario indirectly levies a 5% withholding tax on management or administration fees, andon rents, royalties and similar payments when paid to a related non-resident, such as a parent company.Dividends and interest are not subject to this rule.Payment of withholding tax usually will allow the non-resident to claim a foreign tax credit for its ownincome tax purposes, although this should be confirmed by a foreign entity’s domestic tax advisors.Personal Income Tax ConsiderationsIf a foreign enterprise finds it necessary to transfer an individual to Canada, the individual’s Canadiantax consequences will depend upon whether or not he becomes resident in Canada for tax purposes.Canadian residents are taxable on their income from all sources earned anywhere in the world. Incomeincludes one-half of realized capital gains net of realized capital losses, subject to an exemption for a capitalgain realized on the sale of a principal residence. Employment income includes the value of most employeebenefits, including housing, automobiles, low-interest or interest-free loans, stock options, profit sharingplans and insurance benefits. If an individual becomes or ceases to be resident in Canada part way througha year, he or she will only be taxed in Canada on worldwide income earned while resident in Canada in thatyear. Upon ceasing to be a resident in Canada, the individual may also be taxed on unrealized capital gainsarising from an increase in values of certain capital property while the individual was a resident.A non-resident of Canada, on the other hand, is taxed only on employment, business and investmentincome sources in Canada. However, certain exemptions may be available under an applicable tax treaty.If an individual is subject to Canadian tax, he or she will pay income tax at rates which increase with theamount of taxable income. Basic federal income tax rates range from 15% to 29%. In addition to federalincome tax, each province levies its own income tax. Combined federal and provincial income tax rates varyfrom 39% to 48.25% of taxable income, depending on the province. Provincial income taxes are not deduct-ible in computing taxable income for federal purposes.Doing Business In Canada 33
  • 44. Commodity Tax ConsiderationsIntroductionIn addition to an income tax, both goods and services are taxed in Canada. A consumption tax is generallylevied at each of the federal and provincial levels, although some provinces levy this tax through a harmo-nized structure. In addition, most provinces levy a tax when land is transferred. In all circumstances, eachprovince has its own regime by which taxes are levied. This section provides a broad overview of the federaland provincial regimes.Goods and Services TaxThe federal goods and services tax (the “GST”) is a value-added tax imposed on the final domestic con-sumption of virtually all goods and services supplied in Canada.The GST applies at a rate of 5% on taxablesupplies of goods and services (and at a rate of 0% for “zero-rated” supplies) made in Canada. Specificplace of supply rules exist to determine whether a supply is deemed to be made in Canada. Goods exportedfrom Canada are not subject to the GST.Commercial entities that are involved in making taxable supplies in Canada are required to register for andcharge, collect and remit GST on such supplies. As the GST is intended to be a consumption tax, which isultimately borne by the final consumer, each registrant that makes taxable (including zero-rated) supplies isgenerally entitled to recover any GST paid on its inputs by means of the input tax credit (“ITC”) mechanism.Entities involved in making exempt supplies are not entitled to claim ITCs with respect to those supplies.Non-residents are required to register for GST purposes if they are making supplies in the course of abusiness carried on in Canada. For GST purposes, a non-resident with a permanent establishment inCanada is deemed to be a resident of Canada with respect to its activites carried on through the establish-ment. Only the final consumer will not be eligible for the refund, and it is this person who will ultimatelybear the full cost of the tax.Current federal proposals advocate a combined federal-provincial national value-added sales taxsystem. As of the date of writing, the provinces of Quebec, New Brunswick, Nova Scotia, and Newfoundlandand Labrador, have harmonized their provincial sales tax systems with the federal GST. The provinces ofOntario and British Columbia will harmonize their provincial sales tax systems with the federal GST effectiveJuly 1, 2010.Harmonized Sales TaxOn April 1, 1997, the existing provincial sales taxes in Nova Scotia, New Brunswick, and Newfoundlandand Labrador, were replaced by a harmonized sales tax (the “HST”), which combined the GST with aprovincial sales tax component. The HST has the same basic operating rules as the GST, and applies ata rate of 13%. However, each HST province has the ability to increase the provincial component of HST.Currently, the province of Nova Scotia expressed its intention to increase the provincial component of HSTfrom 8% to 10% effective July 1, 2010, thereby resulting in a combined HST rate of 15% in that province.All GST registrants who provide taxable supplies to customers in one of these HST provinces, includingsupplies shipped or mailed from outside these provinces to recipients in one of these provinces, are requiredDoing Business In Canada 34
  • 45. to collect and remit the 13% HST. A taxable supply made in any of the other provinces will continue tobe subject to the 5% GST, as are supplies shipped or mailed from any of the HST provinces to recipients inone of the other provinces.Effective July 1, 2010, British Columbia and Ontario will harmonize their provincial sales taxes with thefederal GST. This new HST is to be federally administered and will use the same tax base and structure asthe federal GST, with certain exceptions. Thus, effective July 1, 2010, HST at the rate of 12% (made up ofthe 5% federal component and the 7% provincial component) will apply to taxable supplies made in BritishColumbia, and HST at the rate of 13% (made up of the 5% federal component and the 8% provincial com-ponent) will apply to taxable supplies made in Ontario – subject to the zero-rating provisions. Transitionalrules have been announced dealing with the implementation of the HST and the wind-down of the provincialtaxing systems in these provinces.Once it is determined that a supply has been made in Canada, it then must be determined whether itis made in a harmonized province and, accordingly, subject to the provincial component of the HST.On February 25, 2010, proposed amendments to existing HST place of supply rules were announcedby the federal Department of Finance. These place of supply rules contain general and specific rules, whichdepend on the nature of the supply. If a supply made in Canada is not deemed, under the place of supplyrules, to be made in a harmonized province, the supply will be subject to GST (rather than HST).The proposed place of supply rules also provide expanded rules with respect to the self-assessment andrebates for the provincial component of HST, on property or services brought into a province, or areacquired for consumption, use of supply outside that province, as well as the imported taxable supply rulesrelated to the provincial component of the HST.Registered suppliers who make taxable and zero-rated supplies will be entitled to recover the HST they payin British Columbia and Ontario on their business inputs, through the ITC mechanism. However, in contrastto GST, there will be temporary restrictions on the ability of large suppliers (those with annual taxable salesof more than $10,000,000) to claim ITCs for energy, telecommunications (other than internet-access andtoll-free numbers), certain road vehicles and fuel for same, as well as food, beverages and entertainment,with respect to the 8% provincial component of the HST. These temporary restrictions will be fully in effectfor the first five years of the implementation of the new single sales tax and phased out in the subsequentthree years.Provincial Sales TaxCurrently, the provinces of British Columbia, Saskatchewan, Manitoba, Ontario and Prince Edward Islandimpose a provincial sales tax (“PST”), which is a single incidence sales tax imposed on end-users orconsumers of tangible personal property as well as certain services in the province. General rates of thePST vary from 5% to 10%. The province of Alberta does not impose a separate sales tax. The province ofQuebec imposes the Québec Sales Tax (“QST”), a 7.5% value-added tax, which for the most part, althoughnot entirely, is harmonized with the federal GST.As noted above, effective July 1, 2010, British Columbia and Ontario’s PST systems will be replaced by theHST. The provinces of Saskatchewan, Manitoba and Prince Edward Island will continue to impose the PST.Doing Business In Canada 35
  • 46. Relief from these taxes is available in certain circumstances. For example, most provinces provide taxexemptions for goods, such as basic groceries, medicines and books. In addition to exemptions for speci-fied goods and services, most provinces also provide exemptions for certain purchases made by identifiedclasses of purchasers, such as production machinery and equipment purchased by manufacturers, andcertain purchases made by farmers, diplomats and hospitals.Quebec has, to a great extent, harmonized its provincial sales tax with the GST. The Québec Sales Tax(QST), like the GST, is a consumer-level tax not borne by businesses, aside from the administrative costs.Most of the concepts existing under the GST have been adopted by the government of Quebec in theadministration of its provincial sales tax. The QST rate is currently 7.5% on both goods and services, andis calculated on top of the GST. As of the date of writing, the government of Quebec has expressed itsintention to increase the QST rate from 7.5% to 8.5%, effective January 1, 2011.Provincial Land Transfer TaxA transfer tax is payable in most provinces on any acquisition of real property. There is no such tax inAlberta. In British Columbia, the general rate is 1% on the first $200,000 of the fair market value of theproperty and 2% on the balance of the fair market value of the property, subject to possible exemptionsfor first time home buyers.In Manitoba, the general rate is 0% on the first $30,000 on the fair market value of the property, 0.5%on the fair market value of the property that exceeds $30,000 without exceeding $90,000, 1% on the fairmarket value of the property that exceeds $90,000 without exceeding $150,000, 1.5% on the fair marketvalue of the property that exceeds $150,000 without exceeding $200,000, and 2% on the fair market valueof property that exceeds $200,000.In Ontario, the general rate is 0.5% on the first $55,000 on the value of consideration of the property, and1.0% on the value of consideration that exceeds $55,000 without exceeding $250,000. An additional tax of0.5% (i.e. 1.5%) is payable on that portion of the value of consideration that exceeds $250,000. If the valueof the consideration exceeds $400,000, and the land contains at least one and not more than two singlefamily residences, an additional 0.5% tax (i.e. 2%) applies to the value of the consideration that exceeds$400,000. It should be noted that there are exceptions available for first time home buyers. The City ofToronto levies an additional land transfer tax, also subject to possible exemptions for first time home buyers.In Quebec, the rate is 0.5% on the first $50,000, 1% on the amount exceeding $50,000 without exceeding$250,000 and 1.5% on the excess. The tax in Quebec is computed on the highest consideration paid, theconsideration agreed for, or the fair market value of the property. This tax is payable upon the registrationof the transfer of the property.In Nova Scotia, the land transfer tax (called a “deed transfer tax”) payable depends on the municipalityin which the property is located.In New Brunswick, the land transfer tax payable is 0.25% of the assessed value of the property or consider-ation for the transfer, whichever is greater. The tax is payable at the time a deed is tendered for registration.Doing Business In Canada 36
  • 47. Canada’s Trading RegimeCanada, by necessity, facilitates one of the most liberal trading environments in the world. Although anardent supporter of the World Trade Organization (the “WTO”), recently, as the Doha Round of negotia-tions at the WTO have faltered, Canada has pursued an ambitious strategy to expand its network of bilat-eral and regional trade agreements. Thus, Canada offers an ever expanding positive trading environment,presenting market access and other trade liberalizing opportunities that can be exploited. However, certainobligations undertaken in various trade agreements also place limits on the laws and regulations governingnot only Canada’s trading regime, but also many domestic laws and regulations.Implementation of Canada’s International ObligationsCanada is a dualist nation. International obligations entered into by Canada, such as those contained intrade agreements, are not automatically incorporated into domestic law. Canada’s international obligationsare incorporated into the domestic legal structure by the passage of specific implementing legislation, whichwill contain provisions to amend existing legislation as required. Individuals can only enforce obligationsin Canada as they are implemented into domestic law.Implementation of international obligations may require the cooperation of the provinces. Canada is afederal state where treaty-making power is vested in the federal government. Although the power to enterinternational treaties is exclusive to the government of Canada, the ability to implement obligations under-taken is necessarily limited by the division of powers between the federal government and the provinces,as set out in the Constitution Act (Canada) (see the discussion under the heading “Canadian ConstitutionalSystem”). If an obligation affects a matter that belongs exclusively to the provinces, compliance will requirethe province to pass implementing legislation. Given the wide breadth of powers that the provinces have,compliance with international obligations may not be within the federal government’s control. Regardlessof whether failure to adhere to an international obligation occurs at the federal or the provincial level,only the federal government can defend Canada in an international forum.The World Trade OrganizationCanada, in addition to the majority of other nations in the world, is a member of the WTO. The purposeof the WTO is to foster a multilateral trading environment by establishing global rules to ensure that tradeflows as smoothly, fairly and predictably as possible. The basic premise of the WTO is non-discrimination.Thus, most of the agreements administered by the WTO are founded on the core principles of mostfavoured nation status (MFN) and national treatment.The agreements that the WTO administers, and to which Canada is a party, cover many areas relatedto trade and investment in a member’s territory. In addition to the more commonly known agreementscovering trade in goods and services, Canada has undertaken certain obligations related to such things asthe procurement process, protection of intellectual property rights, subsidies, standards and agriculture.As the WTO is a multilateral institution where consensus by exceedingly diverse members is required,the obligations created by it are limited. To facilitate further trade liberalization, the WTO permits membersto depart from the core concept of MFN and enter into regional preferential agreements.Doing Business In Canada 37
  • 48. The North American Free Trade AgreementThe North American Free Trade Agreement (the “NAFTA”) defines Canada’s most comprehensivetrading relationship. It complements and expands upon the overriding international trade rules establishedunder the WTO and governs trade relations as between Canada, the U.S. and Mexico. The NAFTA was builtupon the framework of the Canada-U.S. Free Trade Agreement by adding Mexico to the trading area, creat-ing new specialized rules of origin and content requirements, ensuring protection for intellectual propertyrights, and linking environmental and labour market regulation to trade issues. The NAFTA also facilitatesthe trading relationship by providing privileged access to each member’s country by businessand professional persons.Although the NAFTA covers many areas of trade and investment, the bulk of the Agreement is focusedon trade in goods. Rules of origin particular to the NAFTA are established for each specific good. Theserules ensure that preferential tariff treatment is only accorded to goods wholly produced, substantiallytransformed or whose major component is produced in the free trade area, inducing economic activitywithin the area.In addition to dealing specifically with trade in goods, the NAFTA also addresses trade in services, customsprocedures and specific obligations related to such matters as energy, the automotive sector, agriculture,textiles, technical barriers to trade, government procurement, intellectual property and investment. Further,the Agreement provides preferential status for NAFTA parties in anti-dumping and safeguard proceed-ings. In addition, Chapter Nineteen of the NAFTA contains a mechanism for private parties involved inanti-dumping and countervailing duty investigations, to bring a party’s decision in front of a bi-nationalreview mechanism. NAFTA’s Chapter Eleven contains investment rights and protection for investors fromboth discrimination and government measures that are tantamount to expropriation. This Chapter providesrights that are enforceable by investors directly through international arbitration.It is important to note that this tri-parte relationship has become even more integrated in the post 9/11era, as countries turn their resources to security and pandemic concerns. While the NAFTA is, from atrade perspective, extremely comprehensive, Canada, the U.S. and Mexico also participate in the SecurityProsperity Partnership, an initiative aimed directly at ensuring that North America is secure and continuesto integrate and prosper.Bilateral and Regional Trade AgreementsAlthough a proponent of free trade, Canada has, until recently, lagged behind its trading partners innegotiating a network of bilateral and regional trade agreements. In 2007, Canada enunciated a “GlobalCommerce Strategy”, which signalled a re-invigoration of its efforts to engage in bilateral and regionaltrade negotiations as a means of securing Canada’s growth and prosperity. This strategy continues tobe a key plank in the current government’s economic plan to maintain Canada’s comparative global advan-tage. In addition to the NAFTA, Canada is currently a party to preferential trade agreements withthe following countries;Doing Business In Canada 38
  • 49. a. Peru (in force as of August 1, 2009); b. the European Free Trade Association (in force as of July 1, 2009); c. Costa Rica (in force as of November 1, 2002); d. Chile (in force as of July 5, 1997); and e. Israel (in force as of January 1, 1997)Canada has signed agreements with both Jordan and Colombia, but these agreements are not yet in force.What is more telling than the agreements that are currently executed, are the countries with which Canadahas entered into negotiations or exploratory discussions. Canada is currently at various stages of pursuingpreferential trading arrangements with Panama, Morocco, Korea, the Andean Community, the CaribbeanCommunity (CARICOM), the Dominican Republic, the Central Four American Countries (El Salvador,Guatemala, Honduras and Nicaragua), Singapore and India. Canada is also actively engaged in negotiationsfor a comprehensive trade agreement with the European Union.The scope of Canada’s trade agreements and negotiations vary from comprehensive to merely incorporat-ing the substantive obligations of the WTO with laudatory language regarding future negotiations. Whileall of Canada’s recent trade agreements address such issues as investment, the environment and labourstandards, the manner by which these obligations are imposed, differ from agreement to agreement.Negotiations with the European Union are aimed at increasing the scope of Canada’s trade agreementsbeyond traditional market access issues to include areas such as competition, mutual recognition ofprofessional services, small and medium-sized enterprises, and science and technology. As a result of thelarger scope of these negotiations, at the request of the European Union, for the first time, the provinces andterritories will be direct participants in the negotiations where they relate to areas under their competencies.Foreign Investment Protection and Promotion AgreementsIn addition to entering into and negotiating free trade agreements, some of which, like the NAFTA, containspecific obligations pertaining to investor protection, Canada has also been very active in negotiatingagreements that specifically promote and protect foreign investment through legally binding obligations.Canada has executed Foreign Investment Protection and Promotion Agreements (“FIPAs”) with 25 coun-tries. In addition, there are seven FIPAs whose status is pending and three more where the negotiationshave recently been concluded. Although Canada’s original FIPAs are based on the OECD model, the bulk ofCanada’s FIPAs were entered into after 2003 and are modeled on the more comprehensive NAFTA model.These later agreements include a more mature and comprehensive investor-state dispute mechanism.Doing Business In Canada 39
  • 50. Import-Export ConsiderationsIntroductionIn addition to the various forms of commodity taxes previously discussed, foreign firms importing goodsinto Canada are required to pay customs duties, as well as abide by a number of federal laws which regulatecustoms procedures, quotas, product standards and labelling requirements within Canada. (See also thesection titled “Federal Consumer Product and Labelling Standards”.)Companies contemplating locating in Canada for manufacturing/exporting purposes are also subject tocertain regulations, including reporting requirements. Further, certain goods are subject to export controls,including all goods imported from the U.S. that are not substantially transformed in Canada. There arequasi-criminal offences for failure to comply with these obligations.In addition to specific long standing legislative deterrents, Canada has implemented the AdministrativeMonetary Penalty System (AMPS). AMPS is a civil penalty regime designed to secure compliance withCanada’s import and export obligations. AMPS provides for a monetary penalty to be levied for a violationof obligations related to either importing to, or exporting from, Canada, as set out in three pieces of federallegislation: the Customs Act, the Customs Tariff and the Special Import Measures Act, and the regulations pro-mulgated thereunder. The scheme is designed so that the level of penalty increases each time an importeror exporter repeats an infraction.Customs DutiesThe amount of customs duties levied on the importation of goods into Canada is calculated by referenceto their classification and applicable duty rate set out under the List of Tariff Provisions in the Schedule tothe Customs Tariff. The duty rate is calculated upon the value for duty, which is determined in accordancewith the Customs Act.ClassificationAs a signatory to the International Convention on the Harmonized Commodity Description and CodingSystem, the classification of goods for customs duty purposes in Canada mirrors the classification and rulesused by most countries. The List of Tariff Provisions in the Schedule to the Customs Tariff is divided into 99chapters and contains a comprehensive list of goods intended to cover the range of all possible productsthat could be imported into Canada (the “Tariff Schedule”). The correct classification of goods is a criticalfirst step in determining the amount of customs duties payable upon importation.Origin – The Applicable Rate of DutyCanada applies different duty rates (preferential and non-preferential) to the same goods on the basis oftheir origin. The origin of goods is usually determined by reference to where they are manufactured, grownor extracted. For goods originating from most countries, the Most Favoured Nation (“MFN”) rate of duty willapply. For goods that qualify as originating from a country with which Canada has a trade agreement, therules and rates arising from that specific agreement will apply. Where goods qualify as “originating goods”under such agreements, lower duty rates typically apply. Preferential and non-preferential duty rates are setout for each tariff item in Tariff Schedule.Doing Business In Canada 40
  • 51. Valuation The valuation of goods imported into Canada is governed by the Customs Act and regulations passed thereunder. Value for duty determinations establishes the base upon which customs duties are levied. In the vast majority of cases, customs duties on goods imported into Canada will be calculated on the basis of their“transaction value”. The “transaction value” is the price paid or payable for the goods that are exported to a purchaser in Canada, subject to a number of adjustments, which take into account factors such as royalties, the costs of shipping, transportation and commissions. Where a price cannot be determined, the Customs Act provides for other methods of valuation to be used, including the transaction value of identical or similar goods, or deductive or computed (“cost-plus”) value.Anti-Dumping and Countervailing DutiesCertain products may be subject to anti-dumping or countervailing duties at the border. These duties arelevied pursuant to the Special Import Measures Act (SIMA), which establishes certain procedures for theimposition of anti-dumping duties for goods exported to Canada at prices below home market prices, orbelow the total cost of production, and for countervailing duties where goods sold to Canada are subsidizedby the exporting country. These procedures are available to domestic producers to protect them from unfairimport competition. Anti-dumping and countervailing duties are additional charges imposed on the goods,over and above standard tariffs. These additional duties can only be imposed once a proper inquiry hastaken place.SIMA is administered by the Canada Border and Services Agency (CBSA), which investigates complaints,makes dumping determinations and enforces duties imposed under the legislation, and by the CanadianInternational Trade Tribunal, an independent quasi-judicial tribunal that adjudicates the question of whetherdumped or subsidized imports have materially injured or will materially injure Canadian producers.Customs Duty ReliefRelief from the payment of customs duties is available through a number of mechanisms designed topromote trade and to support Canadian industries. CBSA’s drawback, duties relief and remission programsmay be used to reduce, eliminate or defer the payment of customs duties on certain goods.The drawback program allows certain importers to obtain full or partial drawback (refund) on customsduties paid on goods that were imported for use in the manufacturing of goods in Canada, that are subse-quently exported. Additional drawbacks are available in respect of goods imported for specified purposes.There is additional relief in respect of imported goods that are damaged, and goods that are importedand used as manufacturing inputs.As well, numerous remission orders are granted in favour of specific goods or specific producers. Canadiancustoms law permits duties on certain imported goods to be refunded to specified businesses, on condi-tion that these firms meet certain performance requirements related, for example, to production, exportsor employment. These are known as “remissions”, which can be whole or partial waivers of duty and/ortaxes, on a permanent or temporary basis, and can be enacted to apply to particular products, industries orcompanies. In addition to pre-existing remission orders, there are various legislative provisions that allow animporter to apply for remission orders.Doing Business In Canada 41
  • 52. Excise DutiesPersons who produce, package, store, transport or sell spirits, beer, tobacco and related products, are regu-lated by the Excise Act, 2001, which levies a special form of tax called excise duties. Some of these goods aresubject to a duty under the Customs Tariff, in place of the excise duty, when imported to Canada. Exemptionsfrom excise taxes are available under certain circumstances.Packaging and LabellingPrepackaged goods sold in Canada are subject to federal and provincial packaging and labelling require-ments. The Consumer Packaging and Labelling Act sets out general obligations with respect to the type ofproduct company information that must be displayed, as well as bilingual labelling requirements. Additionalrequirements for goods, such as drugs, foods and textiles, are imposed under the Food and Drug Act andthe Textile Labelling Act. Issues relating to misleading consumer information are dealt with under the federalCompetition Act and various provincial consumer protection statutes. Finally, additional labelling and packag-ing obligations are imposed under the Hazardous Products Act, the Quebec Charter of the French Language andunder regulations passed pursuant to trade agreements, such as the NAFTA. (For more information, see thediscussion under the heading “Federal Consumer Product and Labelling Standards”.)In addition, there may be other product specific requirements that attach to specific imports. Theserequirements are administered by a variety of government departments pursuant to related statutesand are enforced at the border by the CBSA.Import PermitsThe importation of goods into Canada can be restricted for international reasons, such as human rights,embargoes, conservation or to protect domestic industries subject to Canada’s international obligations.In addition, certain goods require import permits for monitoring purposes. Pursuant to the Export and ImportPermits Act (the “EIPA”), goods that appear on the Import Control List may not be imported into Canadaunless an import permit is acquired. The goods on this List include clothing, textiles and footwear for whichCanada has entered into bilateral restraint agreements with certain countries. Such bilateral restraint agree-ments restrict the quantity of imports of these goods, usually through the establishment of export quotas.Import permits will only be granted if the exporter has an export quota and an export license. The importa-tion of certain other goods, such as alcoholic beverages, radiation emitting devices, hazardous products,explosives, offensive weapons, oil and gas, and animal and agricultural products, are also on the List, asa result of regulation pursuant to other specific legislation.Export PermitsRather than outright prohibitions, Canada’s export control policy is designed to limit the export of strategicgoods and technologies to unstable or unfriendly countries, or to countries where governments have a poorhuman rights record, through a permit system. Under the EIPA, the export from Canada of goods specifiedin the Export Control List, and all exports from Canada to certain countries specified in the Area ControlList, require an exporter to obtain a Canadian Export Permit to lawfully export. The relevant country forCanadian export control purposes is the country in which the exports will ultimately be consumed. ExportPermits are issued following a written application by the exporter or its agent, and satisfactory reviewDoing Business In Canada 42
  • 53. thereof by the Export Control Division of the Department of Foreign Affairs and International Trade.All goods originating in the U.S. that are exported from Canada, also require an Export Permit, in orderto prevent circumvention of U.S. export controls.The Export Control List consists primarily of: weapons and munitions; nuclear goods, high technology goods,goods having potential military applications and related technical information; cultural goods; lumber andcertain agricultural products; U.S. origin goods; and many chemical goods that could be used for eitherwarfare or the production of illegal drugs. The Area Control List consists of countries that Canada hasdetermined to be hostile. Currently, Myanmar and Belarus are the only countries on the Area Control List.Often, in order to export a good, a General Export Permit is available, which can be used without an applica-tion. If one is not available, then specific application for an Export Permit must be made. Depending on thestrategic importance of the controlled goods or the destination country, an Export Permit application maybe refused or granted, subject to a provision of an import or end use certificate, or a delivery verificationcertificate. In some instances, multiple shipment and multiple consignee Permits may be available.Controlled GoodsThrough the Defence Production Act and the creation of the Controlled Goods Directorate, Canada hasimplemented the Controlled Goods Program (the “CGP”). The CGP is a registration system designed tocontrol the examination, possession and transfer of goods and related technology defined as “controlledgoods” within Canada. Controlled goods are defined in relation to Canada’s Export Control List and includemilitary, nuclear weapon-related and missile technology-related goods. Failure to register under the CGP,where required, can result in civil or criminal penalties, including imprisonment.Economic SanctionsCanada, usually due to participation in an international organization, implements various international eco-nomic sanctions in an effort to bring about a change in behaviour of specific states or individuals. Canadaimplements these sanctions through two acts: the United Nations Act and the Special Economic Measures Act.The United Nations Act is the legislative vehicle by which Canada gives effect to decisions passed by theUnited Nations Security Council. Canada implements its specific United Nations (UN) obligations intoCanadian law by passing regulations pursuant to this Act. For the most part, the sanctions implemented aredirected towards specific countries, and may establish an embargo against certain goods or impose an assetfreeze. There are currently a number of countries against which Canada has imposed certain measures.These measures also impose restrictions against engaging in enumerated activities with designated persons.Further, following September 11, 2001, the UN implemented a resolution directed specifically at identifiedindividuals. The United Nations Suppression of Terrorism Regulations place a freeze on the dealing ofproperty with listed persons, and impose an ongoing duty on Canadian financial institutions to determineand report monthly whether they are in possession or control of the property of a listed person.The Special Economic Measures Act (“SEMA”) authorizes the Canadian Government to impose sanctions onforeign states, either of its own accord or as a result of an obligation undertaken in an international organi-zation other than the UN (for example, NATO). The sanctions imposed by SEMA can be very far reachingand go beyond merely the control of imports and exports. Currently, there are comprehensive restrictions inplace in regard to both Burma and Zimbabwe.Doing Business In Canada 43
  • 54. Foreign Extraterritorial Measures ActThe Foreign Extraterritorial Measures Act (FEMA) was enacted to counter certain countries’ attempts to applytheir export control laws extraterritorially. It is largely an enabling statute to protect Canadian interestsagainst foreign courts and governments. FEMA authorizes the Attorney General to make orders relating tomeasures of foreign states or foreign tribunals affecting international trade or commerce.The Attorney General has only issued one order (the “Cuba Order”). The Cuba Order is directed at theextraterritorial measures of the U.S. aimed at preventing trade and commerce between Canada and Cuba.More specifically, the Cuba Order was issued to address specific U.S. legislation which aims to prohibitthe activities of U.S.-controlled entities domiciled outside the U.S., as they relate to Cuba (e.g. Canadiansubsidiaries of U.S. companies).The Cuba Order requires every Canadian corporation, and every director and officer of a Canadian corpora-tion, to provide notice to the Attorney General of Canada of any directive, instruction, intimation of policy,or other communication relating to an extraterritorial measure of the U.S. in respect of any trade or com-merce between Canada and Cuba that the Canadian corporation, director or officer has received from aperson who is in a position to direct or influence the policies of the Canadian corporation in Canada. Beyondthe notice requirement, the Cuba Order prohibits any Canadian corporation from complying with anyextraterritorial measure of the U.S., or with any directive or other communication relating to such a measurethat the Canadian corporation has received from a person who is in a position to direct or influence thepolicies of the Canadian corporation in Canada.The result of these two jurisdictions’ competing legislation is conflicting and unless properly managed,can result in legal liability for both individuals and corporations.Doing Business In Canada 44
  • 55. The Competition Act -Canada’s Antitrust LegislationIntroductionCanada’s competition legislation is embodied in the Competition Act. Its purpose is set out in theAct as follows: The purpose of this Act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices.The Competition Act provides for the review of certain matters by the Competition Tribunal on application bythe Commissioner of Competition or, in some cases, by private parties. Reviewable matters include mergersand restrictive trade practices, such as refusal to deal, resale price maintenance, exclusive dealing, tied sell-ing, market restriction and abuse of dominant position. In addition, the Competition Act defines a number ofactivities which constitute criminal offences, including conspiracy, bid-rigging, deceptive marketing, decep-tive telemarketing, and serious instances of deliberate or reckless misleading advertising. These mattersare prosecuted by the Director of Public Prosecutions in the courts. Private parties may bring civil actionsto recover damages suffered as a result of conduct which violates the criminal provisions of the CompetitionAct, or which constitutes a failure to comply with an order of the Tribunal.The CommissionerThe Competition Act is administered by the Commissioner of Competition (the “Commissioner”), the headof the Competition Bureau, who has the power to receive formal and informal complaints and to conductinvestigative inquiries. The Commissioner also has the primary responsibility for initiating proceedingsbefore the Competition Tribunal.A INVESTIGATIVE POWERSOnce an inquiry has been commenced under the Competition Act, the Commissioner may use a numberof different investigative tools, including seeking court orders for oral examinations, production of records,written returns of information, search warrants and, in the case of deceptive telemarketing, bid-rigging andconspiracy, wiretapping. The Competition Act contains provisions that protect the identity of informants andmakes it an offence for an employer to take reprisals against employees who report conduct contraryto the Competition Act (“whistleblowers”).The Competition Act permits the Commissioner to seek ex parte judicial orders that authorize the oralexamination of individuals under oath or affirmation, the compulsory production of documents, and writtenresponses to questions on oath or affirmation. The Commissioner regularly uses these orders in inquiriesinto both alleged criminal and reviewable conduct, including mergers.Doing Business In Canada 45
  • 56. The Commissioner is also permitted to seek ex parte search warrants. Although the Competition Act permitsthe Commissioner to seek a search warrant for reviewable conduct, search warrants are generally reservedfor circumstances where the Commissioner believes that criminal conduct has occurred or is likely to occur.Similar to “dawn raids” in other jurisdictions, searches by the Commissioner are typically executed withoutwarning by staff of the Competition Bureau, who may sometimes be assisted by police.The Commissioner may seek ex parte judicial authorization to intercept private communications (wiretap-ping) to assist the Commissioner in investigating conspiracies with respect to prices, markets or customers,quantity or quality of production, or channels or methods of distribution, and in investigations of bid-riggingand deceptive telemarketing. In order to obtain such authorization, the Commissioner must convince thecourt that other investigative powers available to him or her are inadequate to obtain the necessary evi-dence. The Commissioner requires the consent of one party to wiretap as part of an investigation of allother suspected violations of the Competition Act.In addition to the powers listed above, the Commissioner may request that a party voluntarily respondto a “Request for Information”. A Request for Information is normally used where the Commissioner hasreceived a complaint and wishes to determine whether a formal inquiry is necessary. It may also be usedwhere an inquiry has been commenced.B WRITTEN OPINIONSPursuant to its Program of Compliance, the Competition Bureau provides its views on proposed actions bybusinesses in order to assist in compliance with the Competition Act through the use of specific instruments,such as written opinions. These written opinions are binding on the Commissioner if all the material factshave been submitted and these facts are accurate. Written opinions remain binding for so long as thematerial facts remain substantially unchanged and the practice is carried out substantially as proposed. TheBureau has established turnaround times and fees for written opinion requests. In the case of a request fora written opinion relating to the misleading advertising and deceptive marketing practices sections of theCompetition Act, the fee is $1,000 plus the Harmonized Sales Tax, and the maximum turnaround times aretwo weeks for “non-complex” and six weeks for “complex” requests. The fee for a written opinion requestrelating to provisions of the Competition Act dealing with conspiracy, bid-rigging, abuse of dominant posi-tion, or the new civil review provision relating to non-criminal competitor agreements, is $15,000 plus theHarmonized Sales Tax, and the maximum turnaround times are six weeks for “non-complex” and ten weeksfor “complex” requests. The fee for a written opinion request relating to notifiable transactions is $5,000plus the Harmonized Sales Tax, and the maximum turn-around times are 14 calendar days for “non-complex”and 28 calendar days for “complex” requests. The fee for a written opinion request relating to all otherprovisions of the Act is $5,000 plus the Harmonized Sales Tax, and the maximum turnaround times are fourweeks for “non-complex” and eight weeks for “complex” requests.The Competition TribunalThe Competition Tribunal (the “Tribunal”) is comprised of judges of the Federal Court and lay members.The Tribunal hears reviewable practice matters, generally on application of the Commissioner. The judicialmembers alone may determine questions of law, while lay members may join in the determination of ques-tions of fact, or mixed questions of fact and law. Appeals lie to the Federal Court of Appeal.Doing Business In Canada 46
  • 57. Any person may, with leave of the Tribunal, intervene in most proceedings before the Tribunal to makerepresentations relevant to those proceedings in respect of any matter that affects that person.Private parties may seek leave from the Tribunal to launch an application against a party for allegations ofrefusal to deal, resale price maintenance, exclusive dealing, tied selling and market restriction, where theprivate party demonstrates a reason to believe that he or she is directly, or substantially, affected in his orher business by the alleged conduct. The Competition Act contains several provisions designed to preventstrategic litigation, including a prohibition on cases proceeding where the Commissioner is investigating orhas settled a matter, as well as provisions setting out the ability of the Tribunal to award costs against anyparty, the right of the Commissioner to intervene in proceedings, and a one-year limitation on the com-mencement of proceedings from the cessation of the conduct being questioned. Private parties cannot seekmonetary compensation from the Tribunal.Merger LawA INTRODUCTIONThe definition of “merger” is very broad in the Competition Act. It means any “acquisition or establishmentof control over or significant interest in the whole or a part of a business of a competitor, supplier, customeror other person”. A merger may be effected by means of a purchase or lease of shares or assets, an amalga-mation or combination, or a joint venture.The Commissioner reviews mergers and may apply to the Tribunal for a remedy in respect of a mergerhe or she views to be anti-competitive. The Tribunal may prohibit a proposed merger, or order full or partialdivestiture or dissolution following a consummated merger, if it finds that the merger “prevents or lessens,or is likely to prevent or lessen, competition substantially” in a relevant market. In deciding whether compe-tition would be so affected, the Tribunal is entitled to consider several factors which include: • the extent of foreign competition faced by the merging parties; • whether the business of one of the parties has failed or is likely to fail; • the extent to which acceptable substitutes to the products of the merging parties are or are likely to become available; • any barriers to entry into a market (including tariff and non-tariff barriers to international trade, interprovincial barriers to trade and regulatory controls over entry) and the effect of the merger on such barriers; • the extent of effective competition remaining post-merger; • the likelihood the merger may result in the removal of a vigorous and effective competitor; and • the nature and extent of change and innovation in a relevant market.The Tribunal is also directed not to find a substantial lessening of competition based only on “evidence ofconcentration or market share”. This provision is designed to ensure that a mechanistic or arithmetical ruleis not developed by the Tribunal in deciding which mergers should be prohibited. Nonetheless, theDoing Business In Canada 47
  • 58. Merger Enforcement Guidelines1 issued by the Competition Bureau do set out certain presumptive safeharbours, based on percentage market share, that will influence its response to given mergers.There are two important exceptions to the authority of the Tribunal to prohibit a merger. Firstly, the Tribunalcannot make such an order if the merging parties can demonstrate that there would be efficiency gains fromthe merger sufficient to offset the effects resulting from any lessening of competition. Secondly, certain jointventures formed to conduct specific projects or a program of research and development, will also be exemptif certain criteria are met. The most important criterion is that the project or program would not otherwisehave been undertaken.Many of the substantive standards of the merger provisions are couched in economic language whichcan cause uncertainty in their practical application. Uncertainties arising from the merger criteria can bealleviated somewhat by the ability of merging parties to obtain a written opinion or an Advance RulingCertificate from the Commissioner, indicating that he or she would not have sufficient grounds to make anapplication to the Tribunal. In some cases, such requests may become the focus for negotiations betweenthe Commissioner and the merging parties involving conditions which will satisfy the Commissioner thatthe merger will not result in a substantial lessening of competition. These conditions may be embodied ina consent agreement registered with the Tribunal. As mentioned, the Commissioner has published MergerEnforcement Guidelines that describe the Competition Bureau’s enforcement policy with respect to mergers.B PRE-NOTIFICATION OF CERTAIN TRANSACTIONSThe Competition Act contains compulsory pre-notification requirements for transactions which exceeddefined financial thresholds. Similar requirements exist in the merger laws of many jurisdictions, such as theHart-Scott-Rodino Act in the U.S. The pre-notification requirements are designed to apply to only a relativelysmall number of mergers involving substantial business interests.The two notification thresholds, 2 both of which must be exceeded in order to trigger the notification requirement, are: i. Size of the Parties Test - The parties to the transaction, together with their affiliates, must have assets in Canada or annual gross revenues from sales in, from or into Canada, which exceed $400,000,000 ii. Size of the Transaction Test - Differing transactions thresholds apply depending upon the transaction method employed: • Acquisition of Assets - Where a proposed transaction involves the acquisition of assets of an operating business in Canada, notification is required where the aggregate value of the assets to be acquired, or the annual gross revenues from sales in or from Canada generated from those assets, would exceed $73,000,000. • Acquisition of Shares - Where a proposed transaction involves the direct or indirect acquisition of voting shares of a corporation carrying on an operating business in Canada, notification is required where the aggregate value of the assets of such corporation, or the annual gross revenues1 In June 2011, the Commissioner initiated a public consultation process to update the Merger Enforcement Guidelines. The revised Merger Enforcement Guidelines are expected to be published in the Fall of 2011.2 The stipulated thresholds are subject to annual revision to account for inflation.Doing Business In Canada 48
  • 59. from sales in or from Canada generated from those assets, would exceed $73,000,000, and the person or persons acquiring the shares, together with their affiliates, would own more than either 20% of the voting shares, in the case of a public corporation, or 35% of the voting shares, in the case of a private corporation. Where the acquiring party, together with its affiliates, already owns more than 20% of the voting shares of a public corporation or more than 35% of a private corporation, then notification is required only where the proposed acquisition would result in the acquiring party, together with its affiliates, owning more than 50% of the voting shares of the corporation. • Amalgamation - Where a proposed transaction involves a corporate amalgamation in which one or more of the corporations involved carries on, or controls a corporation that carries on, an operating business in Canada, notification is required if the value of the assets in Canada of each of at least two of the amalgamating corporations, together with its affiliates, or the gross revenues from sales in or from Canada generated from those assets, would exceed $73,000,000. • Combination - Where a proposed transaction involves a combination of two or more persons to carry on business otherwise than through a corporation, notification is required if the aggregate value of the assets in Canada that are the subject matter of the combination, or the annual gross revenues from sales in or from Canada generated from those assets, would exceed $73,000,000. • Acquisition of an Interest in a Combination - Where a proposed transaction involves the acquisition of an interest in an existing combination that carries on an operating business otherwise than through a corporation, notification is required if the aggregate value of the assets in Canada that are the subject matter of the combination, or the annual gross revenues from sales in or from Canada generated from those assets, would exceed $73,000,000 and where, as a result of the acquisition of the interest, the person or persons acquiring the interest, together with their affiliates, would hold an aggregate interest in the combination that entitles them to receive more than 35% of the profits of the combination or more than 35% of its assets on dissolution or, where the person or persons acquiring the interest are already so entitled, to receive more than 50% of such profits or assets.C NOTIFICATION PROCEDURE, ADVANCE RULING CERTIFICATE REQUESTS, WAITING AND REVIEW PERIODS AND FILING FEES.Where both the size of parties threshold and the size of transaction threshold are exceeded, all persons whoare proposing the transaction are required, before completing the transaction, to notify the Commissionerthat the transaction is proposed and to supply the information required under the Competition Act.In addition, in cases where the parties believe that there will be little or no adverse competitive impactresulting from the transaction, they may instead of, or in addition to, the notification filing, prepare andsubmit a request for an Advance Ruling Certificate from the Commissioner certifying that there are not suf-ficient grounds to apply to the Tribunal under section 92 of the Competition Act. The issuance of an AdvanceRuling Certificate by the Commissioner exempts the transaction from the notification requirements underthe Competition Act. However, regardless of the determination of whether there is significant overlapbetween the parties to a proposed transaction, the information that would be provided in an Advance RulingCertificate request would still commonly be provided in a brief or “white paper” accompanying a notificationfiling, to assist the Competition Bureau in analyzing the competitive impact of the transaction in Canada.Doing Business In Canada 49
  • 60. A notifiable transaction may not be completed until after the expiry of a 30-day statutory waiting period,unless the Commissioner grants an earlier termination. The Commissioner may, within the 30-day period,require additional information (commonly called a Supplementary Information Request (“SIR”)) from ap-plicants. In such an instance, the initial 30-day review period is extended to 30 days from the date on whichall the SIR information has been provided to the Commissioner.The Tribunal may issue an interim order of short duration (generally up to 30 days, with the possibility ofan extension to 60 days) prohibiting completion or implementation of a merger where the Commissionerrequires additional time to complete his or her inquiry, and where the Tribunal finds that action may betaken in the interim which would substantially impair the ability of the Tribunal to remedy the effect of theproposed merger on competition. The Commissioner’s review of a transaction may extend beyond the applicable waiting period, particularly where the transaction involves competitive overlap between the businesses of the parties. The Competition Bureau has published service standards for the review of notifiable transactions and preparation of Advance Ruling Certificates for mergers, with maximum turnaround times determined by the complexity of the trans- action. The maximum turnaround times are 14 calendar days for “noncomplex”, and 45 calendar days for“complex” transactions, except where a SIR is issued, in which case it will be 30 calendar days commencing the day on which the Commissioner has received a complete response to the SIR from all SIR recipients. The Bureau has provided definitions for these varying levels of complexity. At the same time, the Competition Bureau requires a $50,000 filing fee for notifiable transactions. Where an advance ruling certificate is requested, the fee is also $50,000. Where both a notification and an advance ruling certificate are submit- ted with respect to the same proposed transaction, only one filing fee of $50,000 is required. While parties to a transaction are not prohibited from closing after the expiry of the statutory waiting periods (unless the Tribunal has issued an interim order preventing closing), they do so at their own risk.Upon completion of the Commissioner’s review of a transaction, he or she may decide to: (i) challenge thetransaction, ultimately before the Tribunal if the parties insist on proceeding with the transaction withoutaddressing the Commissioner’s concerns; (ii) issue a “no-action” letter indicating that the Commissionerdoes not, at that time, intend to make an application under section 92 of the Competition Act in respect ofthe proposed transaction; or (iii) issue an Advance Ruling Certificate which bars the Commissioner fromchallenging the transaction, provided that the facts were accurately represented to the Commissioner bythe parties. While a no-action letter does not legally prevent the Commissioner from challenging a transac-tion, the receipt of a no-action letter is commonly considered a satisfactory closing condition in mergertransactions.It is common where an Advance Ruling Certificate is being requested without a formal notification, torequest, as an alternative, a no-action letter and a waiver of the obligation to notify the Commissioner andsupply information.It is important to note that, even if a transaction does not trigger the merger notification provisions underthe Competition Act, it may be reviewed by the Commissioner under the substantive provisions in the Act,referred to above, relating to mergers which substantially lessen competition, up to one year after closing.Doing Business In Canada 50
  • 61. D EXEMPTIONS FROM PRE-NOTIFICATIONThere are a number of exemptions from the pre-notification requirements. All transactions betweenaffiliated parties are exempt, as are those transactions where the Commissioner has issued an AdvanceRuling Certificate. Also exempt from the pre-notification requirements are: (i) acquisitions of real propertyor goods in the ordinary course of business, if the acquiring person or persons would not hold all or sub-stantially all of the assets of an operating segment of a business; (ii) acquisitions of voting shares or of aninterest in a combination solely for the purpose of underwriting the shares or the interest; (iii) acquisitionsof voting shares or of an interest in a combination where the acquisition would result from a gift, intestatesuccession or testamentary disposition; (iv) acquisitions resulting from foreclosures by a creditor in theordinary course of business; (v) acquisitions of certain Canadian resource property where the acquirerintends to carry out exploration or development activities; (vi) asset securitization transactions; and (vii)certain limited classes of joint ventures.Certain mergers in Canada may be subject to requirements outside the Competition Act provisions. Forexample, financial institution mergers may be subject to approval of the federal Minister of Finance, andtransportation sector mergers and acquisitions may be subject to merger review provisions in the CanadaTransportation Act.Doing Business In Canada 51
  • 62. Protection Of Intellectual PropertyIntroductionIntellectual property is protected in Canada under the laws relating to trade-marks, copyright, patents,industrial designs, integrated circuit topography and trade secrets.Trade-mark LawGeneralThe Trade-marks Act (Canada) defines a “trade-mark” as a mark that is used for the purpose of distinguish-ing wares or services manufactured, sold, leased, hired or performed by the owner of the trade-mark, fromthe wares or services of others.A trade-mark may take the form of a word or phrase, a picture or label, numbers, the shape of a product orits packaging, and take on aspects of get-up and colour, or anything which is capable of distinguishing waresand services from the wares and services of others, so long as it is used as a trade-mark.A trade-mark need not be registered, but an unregistered trade-mark can only be enforced by an action forpassing off. It is often difficult to establish all of the conditions required to prove a claim for passing off; it is,therefore, advantageous to register the mark, if it is registrable.RegistrationGenerally, a trade-mark is registrable if it is not: • primarily merely the name or surname of an individual; • clearly descriptive or deceptively misdescriptive of the character, quality or the place of origin of the related wares or services, or of the conditions of, or the persons employed in, the production of such wares or services; • the name in any language of the related wares or services; • confusing with a registered trade-mark; or • one of the marks specifically prohibited by the Trade-marks Act.An applicant is entitled to the registration of a (registrable) trade-mark if the applicant: • has used or made known the trade-mark in Canada; • has duly registered the trade-mark in his or her country of origin (includes WTO countries), which must be a member of the Paris Convention for the Protection of Industrial Property (the “Convention”) and has used the trade-mark; or • intends to use the trade-mark in Canada, and actually uses it after allowance of his or her application, but before registration.Where the applicant does not reside in Canada, an appointment of a representative for service in Canadamust be included in the application.Doing Business In Canada 52
  • 63. Rights Conferred by RegistrationValid registration of a trade-mark in Canada gives the owner the right to exclusive use of such trade-markthroughout Canada for 15 years in respect of the wares and services for which it was registered. Registrationmay be renewed indefinitely for further periods of 15 years.The owner of a registered trade-mark can bring an action for infringement and/or passing off against aperson who, without authorization, sells, distributes or advertises wares or services in association with aconfusing trade-mark or trade-name. The remedies available for infringement of a registered trade-markor for passing off include: an injunction; damages; or an accounting for profits, destruction of infringingmaterials and costs.Licensing of Trade-marksA third party may be licensed to use a trade-mark by, or with the authority of, the trade-mark owner, provid-ed that the owner retains under licence the direct or indirect control of the character or quality of the waresor services associated with the trade-mark. Such control will be presumed where public notice is givenregarding: (i) the fact that use of the trade-mark is a licensed use; and (ii) the identity of the owner. Subjectto any agreement to the contrary, the licensee may call on the owner to take proceedings for infringementof the trade-mark. If, within two months of being called on by the licensee, the owner refuses or neglects totake action, the licensee may institute proceedings for infringement in its own name, as if the licensee werethe owner. The owner must be made a defendant to proceedings commenced by the licensee and the ownermay be liable for costs.Marking Canada’s Trade-marks Act does not contain any marking requirements. However, trade-mark owners often indicate their registration through certain symbols, namely, “R” in a circle (registered), “TM” (trade-mark),“SM” (service mark), “MD” (marque déposée) or “MC” (marque de commerce). Although the Act does not require the use of these symbols, it is advisable to use them. The symbols TM, SM or MC may be used regardless of whether the trade-mark is registered. The R in a circle, or MD, on the other hand, may only be used if the mark is registered.Copyright LawGeneralIn Canada, copyright is governed solely by the Copyright Act, and means the sole right to produce or repro-duce in any material form, perform, or deliver in public, or publish a work or any substantial part of the work.Copyright arises upon the creation of a particular work and registration is not required to enforce copyright.Generally, copyright subsists for the life of the author and for 50 years after his or her death.Copyright subsists in Canada in every original literary, dramatic, musical and artistic work, if: • the author was, at the date of the making of the work, a Canadian citizen or resident of Canada, a citizen or subject of a foreign country that has adhered to the Berne Convention or universal copyright convention, Rome convention or a country that is a WTO member; orDoing Business In Canada 53
  • 64. • in the case of a published work, the work was first published in a Berne Convention country (see above conventions) in such a quantity as to satisfy the reasonable demands of the public having regard to the nature of the work; in general, “publication” occurs by making copies available to the public.The Minister of Industry Canada (formerly Consumer and Corporate Affairs) may extend copyrightprotection to nationals of other foreign countries. The Universal Copyright Convention provides copyrightin Canada to nationals of the U.S. and of other contracting countries. Nationals of certain countries donot have copyright protection in Canada pursuant to any of the foregoing.Computer software is considered a literary work and hence amenable to full copyright protection in Canada.The relationship between copyright and industrial design in Canada is complex. Advice should be soughtbefore relying on the assumption that copyright subsists in a work, where such work is applied to an articlemanufactured by hand, tool or machine.Rights Conferred by RegistrationAlthough registration is not a prerequisite to protection, it is deemed to give a potential infringerreasonable grounds for suspecting that copyright subsists in the material. This is important to a copyrightowner because if it can be shown that an infringer was not aware (or did not have reasonable grounds forsuspecting the subsistence) of the copyright, the owner can only obtain an injunction and damages maynot be recoverable.RemediesAn owner of copyright can bring an action for infringement against any person who, without the consentof the owner, does anything that only the owner of the copyright has the statutory right to do. In general,infringement involves copying the whole or a substantial part of a copyrighted work. Copyright is alsoinfringed by any person who sells, leases, distributes, exhibits by way of trade, or imports for sale or hireinto Canada, any work that to his or her knowledge infringes copyright, or would infringe copyright if it hadbeen made in Canada. Remedies to which the owner of a copyright may be entitled for infringement of thecopyright include an injunction, an order for the detention of imported infringing copies, damages, account-ing for profits, recovery of infringing copies and costs.MarkingAlthough marking is not required in Canada, it is advisable to mark a protected work with the © symbolor the word “copyright”, followed by year of first publication and the name of the copyright owner.Patent LawGeneralUnder the Patent Act (Canada), an inventor or an assignee of the inventor may apply for a patent. It is the firstperson to file an application (not the first person to invent), in respect of an invention, who would be entitled,subject to certain qualifications, to the grant of a patent. “Invention” is defined as any new and useful art,process, machine, manufacture or composition of matter, or any new and useful improvement thereof. To bepatentable, the invention must be novel and not have been obvious to a person skilled in the art or the scienceDoing Business In Canada 54
  • 65. to which the invention relates. Public disclosure of the invention bars the grant of a patent, but is subject to aone-year grace period for the applicant. A patent application is laid open to the public 18 months after filing.Foreign and Convention ApplicationsAny inventor who has applied for a patent in any other country may not obtain a patent in Canada for thesame invention, unless his or her application in Canada is filed either: (i) before the issue of any foreignpatent; or (ii) if a patent has been issued in any other country, within 12 months of the filing date of the firstsuch foreign application. Canada is party to patent treaties and conventions with other countries, includingthe Patent Cooperation Treaty and the World Trade Organization Agreement, which may give priority toapplicants from such countries with respect to the effective date of filing, and for some countries, may allowthe 12-month period for the filing of an application in Canada (from the date of filing of the first application)to be extended to 30 months. Any applicant for a patent who does not reside or carry on businessin Canada must appoint a representative in Canada.Rights Conferred by a PatentA patent confers on the patentee, for 20 years from the date of filing the application, the exclusive right ofmaking, constructing, using and selling the invention. A patent is non-renewable. The remedies available forinfringement of a patentee’s rights include an injunction, damages or an accounting for profits, destructionof infringing materials and costs. In addition, certain remedies may be available after the application hasbeen laid open to the public.MarkingNo marking of any kind is required to indicate that an article is patented. In addition, if an unpatented articleis falsely marked as patented, there are penalty provisions.Industrial Design LawGeneralUnder the Industrial Design Act (Canada), an original “design” of an article (“features of shape, configura-tion, pattern or ornament and any combination of those features that, in a finished article, appeal to andare judged solely by the eye”) may be registered as an industrial design. Registration does not extend tomethods or principles of construction or to the mere configuration of the article; there must be some formof ornamentation to which the protection of this statute may apply.RegistrationIn order for an industrial design to be protected, the design must be applied for within one year from the dateof first publication in Canada. Offering or making the design available to the public constitutes publication.Rights Conferred by RegistrationRegistration gives the proprietor the exclusive right to apply an industrial design to an article for purposes ofsale. The duration of an exclusive right for an industrial design is 10 years from the date of registration, subjectto the payment of such periodic maintenance fees as may be prescribed (presently, at the fifth anniversary).Doing Business In Canada 55
  • 66. If any person without authorization applies or imitates any design for the purpose of sale, an action fordamages may be maintained by the registered proprietor. A court may also award an injunction, recoveryof infringing material and an accounting for profits. In addition to civil actions, fines may be imposed forcriminal offences under the Industrial Design Act.MarkingIn the event that a design is applied to an article or imitated by a third party without the consent of theproprietor, the proprietor’s remedy will be limited to an injunction (in other words, no damages will berecoverable), unless all or substantially all of the proprietor’s articles to which the industrial design registra-tion pertains, or the packaging or labels for such articles, were marked with the capital letter “D” in a circleand the name or the usual abbreviated name of the proprietor.Integrated Circuit Topography LawCanada has specialized legislation for the protection of integrated circuit topographies which provides forthe registration of original topography designs. The three-dimensional configuration of electronic circuits(contained in an integrated circuit product) is known as a topography. An integrated circuit product is aproduct intended to perform an electronic function and in which the electronic circuits are integrated.The protection under the legislation does not extend to the functions performed by the integrated circuits.Trade SecretsIn Canada, there is no legislation which protects trade secrets. At common law, information maybe protected as a trade secret if: • it is not publicly available or otherwise generally known within the relevant industry or trade; and • it is treated as secret or confidential at all times by its owner, and adequate steps are taken for this purpose.To make an effective claim, the plaintiff must show that there has been unauthorized use of the informationto his or her detriment.Employees have an implied obligation not to divulge their employers’ trade secrets. After terminationof employment, employees may not use confidential information acquired during such employment.Senior management also have a fiduciary duty to their employer or former employer, which increasestheir accountability for improper use of confidential information.Doing Business In Canada 56
  • 67. Privacy Laws In CanadaIntroductionFor many years, Canada has had public sector legislation applicable to federal and provincial governmentsregarding privacy of an individual’s information, and access to his or her personal information. In 2001, thefederal government enacted legislation known as the Personal Information Protection and Electronic DocumentsAct (“PIPEDA”) that regulates how the personal information held by organizations in the private sector iscollected, used and disclosed.PIPEDAThis legislation attempts to balance the needs of organizations to collect, use and disclose information fromand about individuals in Canada, with the obligation to respect the individual’s privacy. The law applies toorganizations that engage in the collection, use or disclosure of such information in the course of commer-cial activity.What is Personal Information?“Personal Information” is information about an identifiable individual. This includes, but is not limited to, information such as home address, telephone number, age, sex, marital status, education, social insurance number, credit history, race and ethnic origin. It must be noted that an individual’s name, business address, business title and business phone number, are not considered to be personal information and are therefore excluded from protection under PIPEDA. An individual’s business email address, however, has been deter- mined to be Personal Information.Application of PIPEDAPIPEDA came into force in two major stages over a three-year period commencing January 1, 2001 andwas fully implemented as of January 1, 2004. PIPEDA initially applied only to federally regulated organiza-tions (January 1, 2001).On January 1, 2004, PIPEDA was extended to apply to all provincially regulated organizations in all provinc-es involved in the collection, use or disclosure of Personal Information in the course of commercial activity,unless provincial privacy legislation exists that is substantially similar to PIPEDA.General Principles of PIPEDAIn addition to its provisions, PIPEDA sets out a list of general principles that form part of the legislationand with which organizations are required to comply. These ten fair information principles are based onthe Canadian Standards Association’s Code on the Protection of Personal Information.PIPEDA applies the following fair information principles to the collection, use and disclosure of PersonalInformation: i. Accountability: An organization involved in the collection, use or disclosure of Personal Information is responsible for the information it controls, and shall appoint an individual or group of individuals to ensure compliance with the established principles.Doing Business In Canada 57
  • 68. ii. Identifying the Purpose: Before an organization obtains an individual’s consent to use Personal Information, that organization must identify (and obtain that person’s consent relating to) the purpose(s) for which the information is being collected and used. iii. Consent: Collection, use or disclosure of an individual’s Personal Information without that person’s consent is prohibited. However, PIPEDA provides for exceptions to the general rule of informed consent. The exceptions are generally related to information that is necessary to be disclosed in the event of an emergency and/or legal investigation. iv. Limiting Collection: The Personal Information collected must be limited to that which is needed to satisfy the identified purposes originally agreed to. v. Limiting Use, Disclosure and Retention: The Personal Information collected must not be used or disclosed for purposes other than those for which it was originally collected, unless the organization obtains the consent of the individual in relation to the new purpose or as required by law. Organizations are also required to implement policies for the retention and destruction of that information when it becomes no longer required to fulfill the purposes identified to the individual at the time of collection. vi. Accuracy: Organizations must ensure that the Personal Information they retain is both accurate and recent, as is necessary for the purposes for which that information will be used.vii. Adequate Security: Organizations involved in the collection, use, or disclosure of Personal Information are required to adopt security measures to protect Personal Information against loss, theft, unauthorized access, disclosure, use, modification or copying.viii. Openness of Policies: An organization’s practices and policies with respect to the management of Personal Information should be made accessible to those individuals providing information. ix. Individual Access: An individual who provides Personal Information shall, upon request, be provided accurate information as to the existence, use and disclosure of their information. In addition, that individual must be given access to that information, as well as the opportunity to correct any inaccuracies that may exist. x. Contesting Compliance: An individual must be afforded the opportunity to challenge an organization’s compliance or lack thereof, of the principles, by addressing the person(s) appointed by that organization for ensuring such compliance.Consent as a Key PrincipleOne of the key principles of PIPEDA is consent. The informed consent of an individual is required for thecollection, use and disclosure of his or her Personal Information. There are, however, a few exceptions tothe requirement to obtain consent. An organization may not be required to obtain an individual’s consentif collecting the information is of benefit to that individual and cannot be obtained in a timely fashion (e.g.health related emergency). If Personal Information is needed by a law enforcement agency for investigativepurposes, and obtaining consent to disclose such information would clearly jeopardize the information’saccuracy, the collection and use of Personal Information without consent is permitted.Employee Personal InformationPIPEDA applies to federally regulated employers with respect to their collection, use and disclosure ofemployee personal information. PIPEDA does not apply to or regulate provincially regulated employerswith respect to their employee personal information.Doing Business In Canada 58
  • 69. Business Transactions ExceptionThere is currently no exception in PIPEDA for collection, use and disclosure of personal information inrelation to a business transaction. On February 22, 2007, the Privacy Commissioner of Canada (“PCC”)presented a submission to the Standing Committee on Access to Information, Privacy and Ethics, recom-mending amendments to PIPEDA. PCC submitted that PIPEDA contains no provision allowing an organiza-tion to disclose Personal Information (such as client lists) to prospective purchasers or business partners,without the consent of the individual affected. Prospective purchasers or partners may need to review thisinformation as part of their “due diligence” and it may not be feasible to obtain the consent of the affectedindividuals. PCC recommended an enhanced version of the model set out in the Alberta Personal InformationProtection Act (discussed below). As of the date of this publication, no amendments have been made toPIPEDA and there is no draft legislation to address this issue. However, there is continuing consultationand discussion regarding the review of PIPEDA in respect of this issue.Provincial LegislationCurrently, Alberta, British Columbia and Quebec are the only provinces in Canada that have enactedlegislation that is “substantially similar” to PIPEDA. Alberta, Ontario and Saskatchewan have also enactedlegislation to regulate personal health information.Alberta and British ColumbiaThe privacy principles of PIPEDA are reflected in both the British Columbia Personal Information ProtectionAct (“British Columbia PIPA”) and the Alberta Personal Information Protection Act (“Alberta PIPA”), but thereare some notable differences.In both the British Columbia PIPA and the Alberta PIPA, a “grandfathering” provision permits organizationsthat collected information prior to January 1, 2004, to continue to use or disclose the information withoutobtaining new consent, provided that the use or disclosure is consistent with the original purpose for whichthe personal information was collected.Both the Alberta PIPA and British Columbia PIPA differ from PIPEDA, with the inclusion of a businesstransaction exception to the need for consent. The parties to a business transaction, such as a purchase,sale, lease, merger or amalgamation, may collect, use and disclose Personal Information about individualswithout their consent, when the parties involved require the information in their decision to purchase or sella business. However, if the transaction is completed, the information must be returned or destroyed and, ifit is completed, the person to whom the Personal Information relates must be given notice that theirPersonal Information was disclosed.Another important exemption pertains to employee Personal Information, which may be collected, usedor disclosed without the employee’s consent, provided that the personal information is necessary forestablishing, managing or terminating the employment relationship. An employee must, however, be givennotice that his or her personal information has been collected, used or disclosed.Doing Business In Canada 59
  • 70. QuebecIn November 2003, Quebec’s private sector privacy law, An Act Respecting the Protection of PersonalInformation in the Private Sector (the “Quebec Act”), was deemed substantially similar to PIPEDA. As a result,Part 1 of PIPEDA will not apply to organizations in the province of Quebec that are subject to the private sec-tor privacy legislation for the collection, use and disclosure of personal information within the province. TheQuebec Act governs the Quebec private sector’s collection, use and disclosure of personal information, andprovides individuals with the right to access such information. There is still debate as to whether provisionsof PIPEDA that exceed the scope of the Quebec Act will apply in Quebec (for example, provisions relating toelectronic documents or the collection of information outside the Province of Quebec by a Quebec-basedentity).Doing Business In Canada 60
  • 71. Electronic Commerce LawIntroductionLike many other countries and jurisdictions around the world, all of the provincial and territorial legislaturesin Canada, with the exception of the Northwest Territories (although such legislation is being contemplated),have enacted e-commerce legislation to address certain contractual formalities and procedural aspects ofthe formation of contracts. In Canada, it is generally considered that electronic commerce legislation is amatter of provincial jurisdiction. There is federal legislation dealing with electronic documents and relatedelectronic filings, however, these generally apply to matters dealing with the federal government. Althoughthere are certain central features of electronic commerce legislation, there are some differences betweenthe provincial statutes, and it is therefore necessary to refer to the legislation of the province in which oneis doing business in order to ascertain the specific requirements applicable in that province. While mostprovincial e-commerce legislation is in force, Part 2 of Manitoba’s Electronic Commerce and Information Acthas yet to be proclaimed in force.Companies doing business in Canada should also be aware that, in addition to e-commerce legislation,other federal and provincial laws, for example those relating to privacy, advertising, language and consumerprotection, also apply to on-line businesses. In Ontario, certain provisions of the Consumer Protection Act(Ontario) apply to internet agreements with consumers. For example, the legislation imposes stringentdisclosure obligations on vendors and provides various cancellation rights for consumers. Vendors willhave to disclose certain information to consumers in a manner that enables it to be printed. If the requiredinformation is not disclosed, the consumer will be able to cancel the agreement within seven days afterreceiving a copy of the agreement from the vendor. The Ontario legislation applies if either the business orthe consumer is in Ontario. On October 16, 2009, the Canadian Competition Bureau issued an InformationBulletin on the application of the Competition Act (Canada) to representations on the Internet, to assist thosewho are making representations on the Internet in understanding their obligations under Competition Actprovisions dealing with misleading advertising and deceptive marketing practices.Canadian E-Commerce LegislationIn an attempt to resolve the legal uncertainties that surround many aspects of electronic commerce,the Uniform Electronic Commerce Act (Canada) was developed by the Uniform Law Conference of Canada(“ULCC”) and, in September of 1999, the ULCC recommended it for adoption by provincial legislatures.The Uniform Electronic Commerce Act was modeled on the United Nations Model Law on Electronic Commerce.Uniform Electronic Commerce ActThe Uniform Electronic Commerce Act attempts to expand some of the basic rules of law to cover documentationand transactions that exist or occur in electronic form. As the UN’s Model Law on Electronic Commerce servedas a platform for the Uniform Electronic Commerce Act, the Uniform Electronic Commerce Act has served as itsown platform for corresponding provincial legislation. As a result, electronic commerce legislation in Canadais similar in each province and territory, with the exception of Quebec’s An Act to Establish a Legal Framework forInformation Technology, which is considerably different than the Uniform Electronic Commerce Act.Doing Business In Canada 61
  • 72. Central Features of E-Commerce LegislationA central feature of the e-commerce legislation in Canada is the principle of “Electronic Equivalence”.E-commerce legislation aims to provide both businesses and consumers with peace of mind that on-linetransactions and contracts will be as legally enforceable as ordinary paper based equivalents, providedthat specific requirements are met.A FUNCTIONAL EQUIVALENCY RULESThe e-commerce legislation establishes several rules that provide the means by which electronic informa-tion and documentation will be considered functionally equivalent to their respective paper counterparts: i. Legal recognition of electronic information and documents: information or documents, including contracts, are not invalid or unenforceable by virtue of their being in an electronic format. ii. Legal requirement that information or documents are in writing: if the document or information is in electronic format, this legal requirement will be satisfied so long as that information or document is accessible so as to be usable for subsequent reference. In addition, where information is required to be provided to another person in writing, it must be capable of being retained by that other person. iii. Legal requirement to provide information or document in specified non-electronic form: this requirement will be satisfied when the information in electronic form is accessible, capable of being retained by the recipient and organized in the same or substantially the same form as its paper-part. Essentially, the display of the information should be recognizable as being the form required by law. iv. Legal requirement to provide original documents: if there is a reliable assurance as to the integrity of the information (complete and unaltered) contained in the document, and that the information is accessible and capable of being retained by the person for whom the document was intended, an electronic document will satisfy this requirement. v. Legal requirement of original signature: if, at the time an electronic signature 3 is affixed to a document, it is reliable to identify the person making it, and there exists a reliable association between the electronic signature and the relevant electronic document, then this method of signing will satisfy the legal requirement. Certain statutes require compliance with any prescribed electronic signature requirements as to methods or information technology standards. To date, there are no regulations prescribing such methods or standards. In certain provinces, there are additional requirements if the document signed is to be presented to a public body.B FORMATION AND OPERATION OF CONTRACTS AND THE USE OF ELECTRONIC AGENTSE-commerce legislation confirms that valid contracts can be formed by means of electronic informationor electronic documents, and actions (i.e. clicking or touching a computer icon) to communicate intention(i.e. offer and acceptance). Electronic agents 4 are permitted to form contracts with individuals, however,such transactions will be unenforceable against the individual if: (i) the individual makes a material error3 “Electronic signature” refers to information in an electronic format that an individual has created or adopted in order to sign a document, and that is in, attached to, or associated with that document. The electronic signature does not have to “look like” an actual signature, but rather can exist as a sound or symbol, or as code, so long as the intention is clear.4 “Electronic agent” means a computer program or any other electronic means used to initiate an act or to respond to an electronic document or act without review by an individual at the time of the response or act.Doing Business In Canada 62
  • 73. in the electronic document or information used in the transaction; (ii) the electronic agent does not givethe individual an opportunity to prevent or correct that error; (iii) the individual promptly notifies the otherperson on becoming aware of the error; and (iv) where consideration is received as a result of the error, theindividual takes reasonable steps to return such consideration or destroy the consideration (if so instructed),and the individual has not used or received any material benefit or value from the consideration.Although there may not be a legal requirement that an electronic contract be in writing or that it be signed,in order to enforce the contract against the other party, the traditional requirements for enforceable con-tracts (e.g. offer, acceptance, consideration) will have to be satisfied and, in particular, it will be necessaryto ensure that the terms of the contract are clear and unambiguous (and unaltered), and that the signaturesare reliable to identify the parties and to indicate a clear intention to be bound.C SENDING AND RECEIVING ELECTRONIC INFORMATIONElectronic information or documents are considered sent when they enter an information system outsidethe sender’s control, or if the sender and addressee use the same information system, then the informationis sent when it becomes capable of being retrieved and processed by the addressee. Electronic informationor documents are presumed to be received by an addressee when: (i) the information or documents enterthe addressee’s information system (used to receive the type of information or documents sent) and theyare capable of being retrieved and possessed by the addressee; or (ii) the addressee does not have sucha system, but becomes aware of the information or documents in his or her information system, and itbecomes capable of being retrieved and possessed by the addressee.D EXCLUSIONSIt is important to note that certain documents and contracts cannot be formed electronically, such aswills, and contracts for the purchase and sale of real estate..ca Domain NamesCanada’s country code top level domain is “.ca”. Registrations for .ca domain names are administered bythe Canadian Internet Registration Authority (“CIRA”). In order to secure the registration of a .ca domain,the Canadian Presence Requirements established by CIRA must be satisfied. Only certain specified indi-viduals and entities are permitted to apply to CIRA (through a CIRA certified registrar) for the registrationof, and to hold and maintain the registration of, a .ca domain name.These specified individuals and entities include: a Canadian citizen or permanent resident (or legal repre-sentative); a corporation incorporated under the laws of Canada or any province or territory of Canada; apartnership registered under the laws of any province or territory of Canada (more than 66% of whosepartners meet one of the preceding requirements); certain associations, trade unions and political parties;and the owner of a trade-mark registered in Canada (in this case, registration is limited to a .ca domainname consisting of, or including, the exact word component of the registered trade-mark).Where an entity does not have any physical connection to Canada, one of the most effective ways for it tosecure a .ca top level domain name is for the entity to secure a trade-mark registration for the mark that willcomprise the Internet domain name. Because of the relatively low cost of securing and maintaining a .cadomain name registration, it may be wise to secure a .ca domain name registration, if possible, rather thanDoing Business In Canada 63
  • 74. risk that the domain name will subsequently be unavailable. An up-to-date list of CIRA-certified registrarscan be obtained at the CIRA website located at www.cira.ca. The .ca top level domain is often used byCanadians searching the Internet for information, services, products and prices specific to the Canadianmarket and/or in Canadian dollars. In June 2008, CIRA released a Domain Name Dispute Resolution Policy (“DNDRP”). The policy provides for mandatory arbitration of disputes relating to .ca domain name registrations. It is intended to be a relatively low-cost and quick administrative process for cases where apparently bad faith .ca domain name registrations can be adjudicated. The process is not binding upon the courts and recourse to formal legal proceedings remains available for bad faith registration and other domain name related disputes. While the spirit of the CDRP is the same as the Uniform Dispute Resolution Policy (“UDRP”) which governs .com, .net,.org and other top-level domain disputes, there are several procedural and substantive differences between the CDRP and the UDRP.Other top level domains such as .com, .net, .org and .biz are available as well to Canadian businessesand foreign businesses operating in Canada. Registration of those domain names must be done throughthe appropriate registrar or registration authority.Doing Business In Canada 64
  • 75. Immigration Restrictions OnNon-Canadians Working In CanadaIntroductionThere are restrictions on the employment in Canada of citizens of another country. Subject to very limitedexceptions, for such persons to be able to work in Canada, they must either obtain permanent residentstatus by satisfying the requirements for immigrating to Canada, or obtain a written authorization to workin Canada, also commonly referred to as a “work permit”.Work is defined in the Immigration and Refugee Protection Act as any activity for which wages are paid orcommission is earned, or that is in direct competition with the activities of Canadian citizens or permanentresidents in the Canadian labour market. An individual need not be paid in Canada (e.g. if remuneration ispaid by a foreign entity) for the activity to be considered work. The policy underlying the legislation is tomake any work opportunities in Canada available to Canadians first, and to prevent any adverse impact onwork opportunities for Canadians by the hiring of foreign workers. While a foreign company may own orcontrol a Canadian business, such ownership or control does not give it the right to staff that business, evenin part, with citizens of the country of its origin. Although some greater flexibility is provided to companiesfrom the U.S. and Mexico as a result of the North American Free Trade Agreement, U.S. and Mexicancitizens, as well as other foreign nationals who hope to work in Canada, must still satisfy a number ofspecific criteria.Temporary WorkerWork PermitsMost foreign nationals wishing to work in Canada for a temporary period will require a work permit. Usually,such written authorization will be issued for periods ranging from a few months to three years. Renewals areavailable in appropriate circumstances.Certain classes of persons (known as “business visitors”) carrying on certain types of limited businessactivities, do not require a work permit. Such persons include the following: • individuals coming into Canada to purchase goods for their country or corporation carrying on business outside of Canada, including individuals coming to Canada for the purpose of acquiring training or familiarization with the goods or services purchased; • representatives of a foreign business or government coming to Canada for the purpose of selling goods, but not directly to members of the public; and • individuals coming as trainees to a Canadian parent or subsidiary corporation, where the trainee will not be actively engaged in the production of goods and services.In most other cases, where a work permit will be required, a visa officer located outside of Canada pro-cessing such an application must consider the opinion of a foreign worker officer at a Human Resourcesand Skills Development Canada (“HRSDC”) office in the province where the employment is to take place.Doing Business In Canada 65
  • 76. Employers who wish to hire a foreign worker must apply for a job offer confirmation, which is also calleda labour market opinion, by submitting a Labour Market Opinion application to HRSDC. In order to obtainthe job offer confirmation, employers must demonstrate to an HRSDC officer: (i) the efforts made torecruit and/or train willing Canadians/permanent residents; (ii) that they are unable to find Canadians/permanent residents with the necessary training and experience available to fill the job; and (iii) that as aresult of employing the foreign worker, some potential benefits to the labour market in Canada will occur.Once HRSDC confirms the job offer, a foreign worker must apply for a work permit at a Canadian HighCommission, consulate or embassy, or at the port-of-entry. The initial work permit cannot be obtained fromwithin Canada, though extensions to the work permit are available in Canada. Extensions to work permitsthat were issued pursuant to a positive labour market opinion, would require a new job offer confirmationby HRSDC.There are exemptions, however, from the requirement for employment confirmation by the HRSDC.Employees of a related business outside Canada who are transferred on a temporary basis to a Canadianbranch, parent or subsidiary, to work at a senior executive or managerial level, will be exempt from therequirement of obtaining HRSDC job confirmation, but will still require a work permit. If the documentationis in order, certain work permits may be issued by the Immigration Officer at the port of entry, upon pay-ment of a regulated fee. For most other “foreign workers” of all categories, it is necessary to obtain the workpermits in advance, before the employee leaves for Canada, by attending at the Canadian High Commission,embassy or consulate that serves the employee’s country of nationality, or the country in which the em-ployee is present and has been lawfully admitted.Visa Requirements, Medical & Security ChecksDepending on their citizenship, persons entering Canada for a temporary period for the purpose of engagingin employment or as a tourist or business visitor, are required to make an application for and obtain a visa,before appearing at a port of entry into Canada. There are, however, numerous exemptions from this entryvisa requirement. The Immigration and Refugee Protection Act and its Regulations list some 50 countries, thenationals of which are not required to obtain a visa prior to entering Canada, including the U.S., the UnitedKingdom, Western European countries, Japan and Australia.Foreign nationals may be refused entry into Canada if they are found inadmissible on criminal, securityor medical grounds. Individuals coming to Canada to work in an occupation in which protection of publichealth is essential, and those individuals coming for more than 183 days who have previously resided in anarea in which there is a high risk of communicable disease, must submit to an approved medical examina-tion before entry into Canada. Individuals coming from the U.S., the United Kingdom and most countriesin Western Europe, who are not about to work in any of the designated health-sensitive fields, are notcurrently required to undergo medical examinations.Accompanying Family MembersAn individual coming to Canada on a temporary work permit may be accompanied by his or her spouse,common-law partner and dependant children. The spouse or common-law partner of such an individualplanning to attend school in Canada will need a study permit, but such permit may be obtained after entryinto Canada. Although, generally, a spouse cannot work in Canada unless he or she obtains a work permitDoing Business In Canada 66
  • 77. in the manner discussed above or below, legislation allows spouses to work in Canada if the other spousehas a work permit.The North American Free Trade AgreementThe North American Free Trade Agreement (the “NAFTA”) between Canada, the U.S. and Mexico, containsreciprocal provisions intended to facilitate the temporary cross-border movement of business persons betweenthe three countries. In order to gain entry to the other country as a business person pursuant to the NAFTA, busi-ness travellers must: meet normal public health, safety and national security requirements; be either a Canadian,U.S. or Mexican citizen; and qualify in one of the following four categories of business persons: • business visitors; • intra-company transferees; • entrepreneurs and investors; and • professionals.All business persons covered by the NAFTA are exempt from employment confirmation so that a Canadianemployer does not, for example, need to have a job offer confirmed by HRSDC for a NAFTA businessperson, in order to obtain a work permit for such an individual. Moreover, business persons who fall withinthe business visitor category can engage in business activities temporarily in Canada, without being issueda work permit, provided that they do not receive remuneration in Canada, although the remaining threecategories must still obtain a work permit. Most NAFTA business persons who are citizens of the U.S. canapply to work in Canada at a port of entry. Mexican citizens must apply to work in Canada at a CanadianHigh Commission, embassy or consulate abroad, before departing for Canada. Those in the entrepreneuror investor category must apply at a Canadian High Commission, embassy or consulate abroad, beforedeparting for Canada.A business visitor must be entering Canada to engage in a prescribed occupation or business activity.The listed occupations involve some degree of skill and, in most cases, the type of activity carried out inCanada must be limited either in its nature or in that the principal beneficiary must be foreign-based.The category of intra-company transferees includes managerial and executive personnel and personnelutilizing “specialized knowledge” (e.g. proprietary knowledge of a firm’s product, service, research, tech-niques, etc.), who are not managers of any kind. The total term of a work permit for intra-company trans-ferees is seven years for senior manager/executives, and the total term of a work permit for intra-companytransferees with specialized knowledge is five years.The entrepreneur and investor classification under the NAFTA covers entrepreneurs carrying on a substan-tial trade in goods or services principally between Canada, the U.S. or Mexico, who are seeking temporaryentry to Canada in a capacity that is supervisory or executive, or involves essential skills. The classificationalso covers a treaty citizen who would enter Canada on a temporary basis solely to develop and direct theoperations of an enterprise in which the person, or his or her current employer, has invested or is in theprocess of investing, a substantial amount of capital. In both the entrepreneur and investor classifications,the enterprise or firm in Canada to which the individual is coming must have affiliations with the individual’scountry of origin.Doing Business In Canada 67
  • 78. Pursuant to the fourth classification, citizens of a treaty country who are engaged in professions of akind described in the NAFTA, and who possess the qualifications as enumerated therein, may enter theother country on a temporary basis for a term of three years. This does not mean, however, that they wouldthen be entitled, as of right and without holding any relevant federal or provincial certification, to carryout professional activities of such a nature and duration as to constitute professional practice in aCanadian jurisdiction.Permanent Admission Into CanadaAnyone can apply to immigrate to Canada. However, there are eligibility criteria that have to be met.Although the overall number of immigrants that Canada can absorb is set by the government, there is noquota on the number of immigrants admitted from any particular country or area of the world. Upon arrivingin Canada as a permanent resident, the individual and members of his or her family are free to engage inemployment without the necessity of obtaining employment authorization or other special authorization.In the case of married applicants, both spouses are required to complete the application for permanentresidence from which points will be assessed. Any dependent son or daughter of the applicants, and anychildren of the applicant’s dependent children, may be included in the application. However, all dependants19 years of age and over must complete and file a separate application. All adult applications must alsoremit a “settlement tax” of $490, in addition to their processing fees.Immigrants to Canada are selected under general admissible classes namely: “family class”, “skilled workersand professionals”, “Canadian experience class”, “provincial nominees” and “business immigrants”.Family ClassPeople wishing to come to Canada as members of the family class must have their applications sponsored bya close relative who is at least 19 years of age and currently living in Canada as a permanent resident or citizen.Sponsors who are Canadian citizens do not have to live in Canada at the time of the application, but have toundertake to reside in Canada after the application has been approved in order to support the sponsoree.Individuals in the family class will not be assessed under the point system described below, but will haveto satisfy immigration officers that they meet the basic standards of good health and character. In addition,the sponsoring relative in Canada must sign an undertaking of support for a period of three to 10 years, andmust establish that he or she has the financial means to provide for the lodging, care and maintenance ofthe applicant and accompanying dependants. The family class includes close relatives of the sponsor, suchas a spouse, common-law partner, dependent children, parents, grandparents, any brother, sister, nephew,niece, grandson or granddaughter, who is an orphan (as defined by regulation under the federal immigrationlegislation), and children under 18 years of age who the applicant intends to adopt.Skilled Workers and Professionals Class - The Point SystemApplicants in this class are assessed against a detailed point system based on education, training,arranged employment or experience in one or more of approximately 38 occupations open for immigration,age, knowledge of the English and French languages, and personal adaptability. In order to be admitted toCanada as a permanent resident, every independent immigrant selected according to the point system mustreceive a minimum number of assessment points. Entrepreneurs and investors (see below) must earn 25Doing Business In Canada 68
  • 79. points, while all other applicants rated under the point system must earn 67 points before theycan be issued immigrant visas.Immigrants to Quebec are required to meet similar selection criteria set by that province. These criteriaplace added emphasis on the economic, social and cultural aspects of residence in Quebec.The Government of Canada has established more strict processing criteria designed to put more emphasison the job skills, work experience and education of applicants with less emphasis on family sponsorship.The point system is designed to favour those applicants who have considerable post-secondary or special-ized education, and are therefore more likely to possess the necessary flexibility to adapt to changingemployment and economic circumstances. The Government of Canada is seeking skilled, highly trainedindividuals who can immediately begin to contribute to the Canadian economy with a minimum adjustmentperiod, and who are likely to contribute to Canada’s ongoing efforts to enhance its international competi-tiveness and productivity.Canadian Experience ClassForeign workers with two years of skilled work experience in Canada and foreign students who graduatedin Canada with one year skilled work experience in Canada, can apply under this class.Business ImmigrantsBusiness immigrants are a special category of “economic” class of immigrants and come within one of thecategories set out below. Business immigrants will receive priority processing by Canadian visa offices.1 ENTREPRENEURSEntrepreneurs are described as persons who have the intention and ability to establish, purchase or makea substantial investment in a business venture in Canada, which they shall manage on an active and ongoingbasis. The venture must make a significant contribution to the economy and must result in the creationor maintenance of employment opportunities for one or more Canadian citizens or permanent residents,other than the entrepreneur and his or her dependants. This category accommodates experienced businesspersons whose background is oriented towards the management of small to medium-sized enterprises.A three-year condition will be imposed on the immigrant’s permanent residence status, obliging suchimmigrant to provide evidence to Citizenship and Immigration Canada, which demonstrates satisfactionof the above criteria within three years of becoming a permanent residence in Canada. Failure to satisfy theconditions could lead to loss of status for the principal applicant and all accompanying family members.2 INVESTORSInvestors are described as persons who have accumulated the required net worth through their ownendeavours, and are prepared to commit their funds in a manner which will contribute to the creation orcontinuation of employment opportunities for Canadian citizens or permanent residents, other than theinvestors and their dependants. The investor need not participate actively in the operation and managementof the business enterprise. Currently, qualified investors may be eligible under the investor programif they have a net worth of $800,000 and make a minimum investment of $400,000 locked in for five years.Quebec has certain similar opportunities which are only in effect in that province.Doing Business In Canada 69
  • 80. 3 SELF-EMPLOYED PERSONSSelf-employed persons are described as foreign nationals who have relevant experience, and have theintention and ability to be self-employed in Canada and to make a significant contribution to specifiedeconomic activities in Canada.Medical and Background ChecksIn addition to meeting the selection criteria described above, medical and background checks are madeto determine whether there are any security, criminal or health grounds that would prevent appli-cants from being admitted to Canada as permanent residents.Canadian CitizenshipBefore being eligible to apply for Canadian citizenship, an individual must have resided in Canada withvalid status for a total period of three years within the four years immediately before his or her applicationfor citizenship. The individual must have been a permanent resident of Canada for a minimum term of twoyears before applying for citizenship. Absences from Canada are permitted provided that the individualhas retained valid immigration status, notwithstanding such absences.One of the privileges of Canadian citizenship is the right to travel outside Canada on a Canadian passportand the right to re-enter Canada.Canadian law permits dual citizenship. When an individual becomes a Canadian citizen, the laws of his orher former country of citizenship may allow him or her to continue to hold his or her previous citizenship.Doing Business In Canada 70
  • 81. Labour And Employment Law ConsiderationsJurisdiction In Canada, labour and employment relations are, for the most part, governed by the laws of the province in which an employee works. The term “labour relations” is used to refer to the union context, while“employment relations” is a general term covering employment laws and practices which are not specific to trade unions. Federal jurisdiction in the labour and employment field is limited to federal works or undertakings, including interprovincial transportation, telecommunications, broadcasting and banking. All other businesses are provincially regulated. A manufacturing operation, for example, with plants in different provinces may, therefore, find itself subject to the laws of several jurisdictions.Notwithstanding the different jurisdictions, as a general rule, all Canadian jurisdictions are consistentin overall direction. However, the specifics of legislation and the administering agencies vary greatly fromprovince to province.In some jurisdictions, directors and officers of a corporation may be held personally liable for a varietyof matters relating to labour and employment law. For example, in Ontario, directors of a corporation maybe jointly and severally liable to the employees of the corporation for up to six months’ unpaid wages and12 months’ vacation pay. Directors may also be exposed to liability under occupational health and safetylegislation for failure of a corporation to comply with safety regulations. In Quebec, they can be jointly liablefor up to six months unpaid wages (including vacation pay).Basic Employment StandardsEach province in Canada enacts comprehensive minimum standards which are the basis for all labour andemployment relations, including the employment of salaried managers. These standards generally cannotbe lowered or contracted out of by private negotiation.British Columbia, Alberta, Ontario and Quebec all have employment standards legislation. These Actsare long and complicated by numerous exceptions, and important details are found only on review of thecompanion Regulations. The key areas covered are the following:A PAYMENT OF WAGESWages must be paid regularly (at least semi-monthly and within eight days after the end of the pay periodin British Columbia, at intervals of not over 16 days in Quebec and monthly in Alberta), at the workplace orotherwise, if mutually agreed, such as by direct deposit in a bank. Unilateral deductions are only permitted asrequired by law, such as income tax, Canada Pension Plan and Employment Insurance, or as otherwise agreedto by the employee, generally, to pay in whole or in part for such benefits as life insurance or a drug plan.B MINIMUM WAGEThe minimum hourly wage rates are set by regulation. The general minimum wage in Ontario is $10.25 perhour or $9.60 for students. In British Columbia, the minimum wage for all employees is $8.00 per hour, and$6.00 for employees who are new to the workforce and have worked less than 500 hours. In Alberta, theDoing Business In Canada 71
  • 82. minimum wages for all employees is $8.80 per hour. Some salespeople and professional employeesare entitled to a weekly minimum wage of $352.00. In Quebec, the minimum wage is $9.00 per hourand is rising to $9.50 per hour on May 1, 2010.C RECORD KEEPINGOften neglected by small businesses or with respect to salaried staff, it is nevertheless a requirement thatrecords be made and retained after the employee ceases employment (for two years in British Columbia,and at least three years in Ontario and Alberta). In Quebec, the register for a given year must be kept duringa three-year period. It is especially important to keep records of hours worked.D HOURS OF WORKGenerally, an employee cannot work more than eight hours in a day - to a maximum of 40 hours per weekin British Columbia, 48 hours per week in Ontario, or 12 hours per day to a maximum of 44 per week inAlberta. In British Columbia and Alberta, an employee may work longer hours if there is compliance withthe statutory requirements for the payment of overtime wages and the hours of work limitations. Certainprofessionals are exempt from the hours of work restrictions, including managers, residential care workersand high technology professionals. In Quebec, the regular work week is 40 hours per week, although anemployee may work longer hours if there is compliance with the statutory requirements for the payment ofovertime pay. Flexible work schedules may also be approved by employees and the Director of EmploymentStandards. In Quebec, flexible work schedules can be authorized by the Labour Standards Commission,or by the provision of a collective agreement or decree. Also in Quebec, employees may refuse to work inexcess of 50 hours per week or more than four hours over their regular daily schedule, or more than14 hours per 24-hour period. In Ontario, an employer may permit an employee to work up to 60 hours perweek by entering into an “excess hours agreement”, subject to approval by the Director of EmploymentStandards. Additional hours are permissible in the event of an emergency in Ontario, as well as Alberta,where employers may also seek a permit authorizing extended hours.E OVERTIMEIn Ontario and Alberta, overtime is payable for hours worked in excess of 44 hours in a week at one andone-half times the regular wage rate. In Alberta, it is also payable for hours worked in excess of eight in oneday. Ontario and British Columbia also allow employers and employees to enter into averaging agreements.In Quebec, any work performed in excess of 40 hours in a week is payable at one and one-half times theregular wage rate. In Alberta, overtime pay of one and one-half times the employee’s wage must be paidfor any hours worked in excess of eight in a day or 44 in a week, whichever is greater. In British Columbia,unless the employee is exempt from the overtime requirements or is otherwise subject to an approvedflexible work schedule, overtime is payable for hours worked in excess of eight in a day and 40 in a week,at one and one-half times the regular wage rate. Double the regular wage rate must be paid for all hoursworked in excess of 12 in a day and 48 in a week. Overtime may generally be “banked” and time taken off inlieu of payment subject to certain regulatory requirements. In each province, management employees andother designated employees are exempt from the overtime pay requirement. In Quebec, the employer maystill have to pay management employees their regular salary for all hours worked, including those in excessof the regular workweek, if they are paid by the hour or if an hourly rate can be determined.Doing Business In Canada 72
  • 83. F PAID PUBLIC HOLIDAYSEmployees are entitled to regular pay without working for certain statutory holidays per year (nine in BritishColumbia and Alberta, 10 in Ontario and eight in Quebec). As well, the summer civic holiday in Ontario isgenerally paid as if it were a statutory holiday.G VACATION WITH PAYAn employee in Ontario is entitled to at least two weeks’ vacation leave per year with vacation pay calcu-lated at 4% of the previous year’s wages. In British Columbia, Alberta and Quebec, an employee is entitled,after the completion of each year of employment, to at least two weeks vacation leave per year, with oneadditional week where the employee has completed five continuous years of employment. Vacation pay iscalculated at 4% of the previous year’s wages for the first four years of employment (five in British Columbiaand Quebec) and 6% thereafter.H BENEFIT PLANSIn Ontario, differentiation on the basis of age, sex or marital status is generally disallowed, but is subjectto numerous and, generally, actuarially-based exceptions. In British Columbia, differentiation on the basisof age, sex, marital status, physical or mental disability, is allowed only if it relates to the operation of a bonafide retirement, superannuation, pension or employee insurance plan or, in the case of age, a bonafide seniority system.I PREGNANCY/PARENTAL LEAVEPregnant employees are entitled to pregnancy leave (18 weeks in Quebec, 17 weeks in Ontario and BritishColumbia and 15 in Alberta) followed by parental leave (52 weeks in Quebec; 35 weeks if pregnancy leavewas taken, or 37 weeks if not in Ontario and British Columbia; 37 in Alberta) with the assurance of reinstate-ment in the same job, if it exists, or a comparable position. In Quebec, if the same position no longer exists,the employer must recognize all the rights and privileges to which the employee would have been entitled ifshe had been at work at the time the position ceased to exist. In Quebec, fathers are entitled to a five-weekpaternity leave. Parental leave is also available to fathers and adoptive parents. Both pregnancy and parentalleaves are unpaid by the employer, although employees may apply for government-paid EmploymentInsurance benefits. In Quebec, as of January 1, 2006, the pregnancy, paternity, parental and adoption ben-efits paid by the federal Employment Insurance Plan, have been replaced by the Québec Parental InsurancePlan, where parents may opt between a basic plan and a special plan, depending on the length of their leaveand the rate of income replacement. In Quebec, the benefits for pregnancy leave may vary from 15 to 18weeks, the benefits for paternity leave may vary from three to five weeks, while those for parental leave willvary from 25 to 32 weeks. The Plan is also available to self-employed individuals.J OTHER LEAVESIn British Columbia, employees are entitled to five days’ unpaid leave each year to attend to family respon-sibilities, as well as three days’ unpaid bereavement leave on the death of a member of the employee’simmediate family. In Ontario, employees whose employers employ 50 or more employees are entitled to10 days’ unpaid emergency leave each year for urgent circumstances, bereavement, personal illnesses orto attend to those of a family member. Compassionate care leave of up to eight unpaid weeks to attend toa dying family member is available in Ontario and British Columbia. In Quebec, employees are entitled toDoing Business In Canada 73
  • 84. 10 days’ unpaid leave per year to attend family responsibilities. Quebec employees can also be absent fromwork, without pay, for a maximum of 12 weeks per year, to care for a close relative who was the victim of aserious accident or a serious illness. Where the minor child of an employee has a serious and potentiallyterminal illness, the unpaid leave may be extended to 104 weeks. In Quebec, an employee can be absentfrom work for a period of up to 52 weeks, if his or her minor child has disappeared, or if his or her child orspouse commits suicide. If the death of the spouse or child of a Quebec employee occurs during, or resultsfrom, a criminal offense, he or she may be absent from work for a period of up to 104 weeks. In Quebec,employees are also entitled to four days’ unpaid and one paid day of bereavement leave on the death of an immediate family member.K TERMINATIONAbsent a serious fault (in Quebec) or just cause for dismissal, minimum statutory written notice or payin lieu of notice, is required for every terminated employee with more than three consecutive months (inBritish Columbia and Quebec), or three months (in Ontario and Alberta) of service on a scale increasingwith service up to eight weeks. Greater notice and administrative requirements exist in the event of groupterminations of 50 or more employees effected within short periods of time. In Quebec, an employer mustgive a notice to the Minister of Labour in case of collective dismissal of 10 employees or more.L REINSTATEMENTIt should be noted that in Quebec, the Act respecting Labour Standards provides for administrative complaintswhere an employee can specifically seek reinstatement. For example, employees credited with two yearsor more of continuous service may not be terminated without just and sufficient cause. Federally regulatedemployees can also be ordered to reinstate employees with at least one year of service that were dismissedwithout cause in certain circumstances.M SEVERANCE PAYIn addition to the statutory notice requirements in Ontario, severance pay is payable to terminated employ-ees with five or more years of service in certain group termination situations, and in individual terminationsif the company’s Ontario payroll is greater than $2,500,000 per annum. Severance pay is calculated as oneweek’s wages per year of service, to a maximum of 26 weeks. Statutory severance pay is not required in anyother province, but is payable in the case of federally regulated employees with one or more years of service.This amount is calculated as the greater of five days’ pay or two days’ pay per year of service.N COMMON LAW NOTICEAs the legislative requirements set minimum standards only, substantially greater notice periods may beexpressly set out in the employment contract or, in the absence of an express provision, an obligation toprovide “reasonable notice” will be implied by the courts. This period is assessed by the courts on a case-by-case basis, depending on an employee’s age, position, length of service and the availability of alternateemployment. For a long service managerial employee, the reasonable notice period can be as high as 24months. The Civil Code of Québec contains similar provisions.Doing Business In Canada 74
  • 85. O OTHER LEGISLATIVE REQUIREMENTS IN RESPECT OF REMUNERATION AND BENEFITS vi. Canada Customs and Revenue Agency: deductions at source are required for the federally administered Canada Pension Plan, Employment Insurance and income tax payable by individual employees. Employers are also required to pay Canada Pension Plan and Employment Insurance premiums.vii. Ontario Employer Health Tax (“EHT”) (a “medicare”-type plan; similar plans exist in some other provinces including Quebec, although the employer is not required to fund them in British Columbia or Alberta): employee health coverage is provided by revenues collected under the EHT, a tax on employers calculated as a percentage of payroll.viii. Workers’ Compensation: new employers in almost all industries must register immediately with the British Columbia or Alberta Worker’s Compensation Board, the Ontario Workplace Safety and Insurance Board, or la Commission de la santé et de la sécurité du travail in Quebec, as the case may be, and will thereafter be assessed a premium on payroll according to their industry group. An employee who is injured at work must then generally rely on the collective accident fund, and is prohibited from commencing separate legal action against his or her employer.P PSYCHOLOGICAL HARASSMENTIn addition to the existing protection against discrimination and harassment based on prohibited groundsin human rights legislation, employees in Ontario and Quebec will also benefit from new stipulationsprohibiting psychological harassment in the workplace.Employment ContractAn employer may enter into a written employment contract with an employee. This is often the case withsenior management personnel. Letters of hire, formal legal memoranda or even general policy bookletssetting out wages and benefits, will all form part of an employee’s contract of employment. As well asclearly identifying the terms and conditions of the employment bargain, written contracts can limit em-ployer liability in the event employment is terminated (although such terms may not be valid under the CivilCode of Québec, as an employee may not renounce his or her right to a reasonable notice in an employmentcontract), and include covenants limiting competition after dismissal and guarding against solicitation of theemployer’s customers. Without a written contract, the employer will be determined to have entered into anoral contract, generally of indefinite hire, which can be terminated only on provision of reasonable notice, tobe determined by the courts and, in Quebec, also by administrative tribunals if the claim is filed before theCommission des norms du travail. Pursuant to the Civil Code of Québec, a stipulation of non-compete maynot be enforceable where the employee is terminated without just and sufficient cause.The Organization and Operation of Trade UnionsAll Canadian jurisdictions have labour relations legislation, enacted to promote the practice of collectivebargaining between employers and trade unions as representatives of non-managerial employees. Althoughthe construction industry is organized along traditional craft lines, general industry and the provincial publicsector are typically organized on the basis of employees who may be in various classifications, but share acommunity of interest and who work in the same plant, or at least the same municipality, and for the sameemployer. An employer can have more than one bargaining unit in a single plant. As well, an employer withseveral plants may have different plants organized by different unions or not organized at all.Doing Business In Canada 75
  • 86. Organizing and CertificationTrade unions have considerable freedom to organize employees, with limited rights of employer interferenceor opposition. There are essentially three stages to an organizing drive, which are:A THE ORGANIZING CAMPAIGNThis stage consists of signing memberships, with a view to signing at least 45% of employees in BritishColumbia, 40% in Ontario and Alberta, and 35% in Quebec, thereby entitling the union to a vote. In Quebec,in the federally regulated sector and in the construction sector in Ontario, a union may be certified without avote if more than 50% of the employees have signed membership cards in the case of unfair labour prac-tices. Most jurisdictions are similar in procedure, including the ability to obtain certification without a vote.In British Columbia and Ontario, however, a union cannot be certified without a representation vote.B FILING THE APPLICATION FOR CERTIFICATIONOnce an organizing campaign has begun and particularly after an application is filed, the employer mustbe careful not to commit any unfair labour practices in communicating opposition to the union, and mustcomply with the legal procedures of the appropriate Labour Relations Board which is charged with certifyingunions as bargaining agents, and otherwise regulating labour relations in the province. It is considered anunfair labour practice to threaten, coerce or intimidate employees in an effort to influence their votes, or toparticipate in the formation of a trade union.C THE VOTEAs noted above, in Ontario, a vote is required where support for the union appears to be 40% or more in thebargaining unit proposed by the union. This vote is generally held five business days after the applicationfor certification is filed. In British Columbia, a vote will be ordered where 45% or more of the members ofthe proposed bargaining unit are members of the union. In the federal jurisdiction, a vote will be ordered ifbetween 35% and 50% of the employees in the proposed bargaining unit have signed membership cards.Upon an application for certification by a trade union, the Board must determine if the unit is appropriatefor collective bargaining. In making this determination, the Board must examine records and make otherinquiries it considers necessary, including the holding of hearings. Commission of an unfair labour practicemay lead to certification of a trade union without a vote, except in Quebec and Ontario where there is noautomatic certification in case of employer misconduct. If a simple majority of the employees cast a ballotvote for the union, the union will be certified. If a union is certified, the union has absolute and, generally,indefinite rights as the bargaining agent for all employees in the determined bargaining unit. The employerand the individual employees, therefore, lose their right to bargain individual contracts of employment.Collective BargainingIf a trade union is certified, the employer must bargain in good faith with the union as the representative ofthe employees in the bargaining unit, in an attempt to reach a collective agreement. Inadequate or obstruc-tive bargaining by the employer may result in further litigation before the Board. Where a first agreementis not negotiated, upon application to the appropriate division of the British Columbia, Alberta or OntarioLabour Relations Board, as the case may be, a collective agreement may be imposed through arbitration.A similar mechanism exists in Quebec.Doing Business In Canada 76
  • 87. Strikes, Pickets and LockoutsIn British Columbia, Alberta, Ontario and Quebec, except as specifically set out in the relevant legislation,work stoppages are strictly prohibited at all times during the currency of a collective agreement and duringnegotiations up to and beyond conciliation.In British Columbia and Alberta, if private negotiations do not result in a collective agreement, membersof the bargaining unit may commence strike action or the employer may commence lockout procedures. Avote must be conducted in accordance with the regulations prior to commencing a strike. If the vote favoursa strike, written notice of the strike must be served on the employer and on the Board. There is then aminimum 72-hour period before the union can legally strike or the employer can legally lockout employees.Quebec legislation is similar, except that the only notice required is a written notice to the Minister of Labourwithin 48 hours following the declaration of the strike. Ontario requires the parties to submit to a Ministry of Labour-supervised conciliation process if private negotiations do not result in a collective agreement. If conciliation is not successful, then there is a final“cooling off” period of two weeks before the union can legally strike or the employer can legally lock out employees. A vote must be conducted prior to commencing a strike.Peaceful picketing of a struck employer is permissible. In Ontario, it must be off the employer’s premisesand for the purpose of communicating information, rather than for the purpose of preventing access to thepremises. Replacement workers may generally be employed. In British Columbia and Alberta, picketing ispermissible at or near the site where a member of the trade union performs work under the control anddirection of the employer, if the work is an integral part of the employer’s operations and the site is thesite of the lawful strike or lockout. In British Columbia, replacement workers may not be employed in anycircumstances. In Quebec, replacement workers may not be employed, except in specific circumstances.Arbitration and Judicial ReviewDuring the term of a collective agreement, all disputes between the union and the employer, including em-ployee discipline and discharge, are submitted through a compulsory grievance procedure and, if not settled,to binding arbitration. Arbitrators, typically senior lawyers or professors, are either privately selected orappointed by the responsible Minister.Ontario, Alberta and Quebec do not provide for appeal of arbitral decisions. In British Columbia, the LabourRelations Code provides for a limited right of appeal to the Labour Relations Board. There is another parallelright of appeal to the British Columbia Court of Appeal for matters or issues of general law not covered by theright of appeal to the Labour Relations Board. Otherwise, in British Columbia, Ontario and Quebec, arbitraldecisions may only be judicially reviewed. Judicial review empowers a court to quash a decision and return thecase to arbitration, but only if an arbitrator has exceeded his or her jurisdiction, or interpreted or applied thecollective agreement in an unreasonable manner. It should be noted that Labour Relations Board decisions inBritish Columbia, Alberta and Ontario are also exempt from appeal and can only be judicially reviewed.Doing Business In Canada 77
  • 88. Occupational Health and SafetyThe existing Ontario and Quebec legislation concerning occupational health and safety provides informationto workers and allows for some worker participation in health and safety matters. As well, a worker has theright to refuse unsafe work. As a natural parallel, employers have a duty to provide safe work places, whichis enforced by administrative compliance orders and/or prosecution.British Columbia’s occupational health and safety legislation imposes a duty on employers to provide asafe workplace. Workplaces must meet requirements with respect to illumination, atmospheric conditions,heating, venting, cooling and exhaust systems, lunchrooms and washrooms.Alberta’s Occupational Health and Safety Act requires employers to ensure the health and safety of employ-ees. The Act is supported by the corresponding Regulation and Code. The Code specifies minimum healthand safety standards, including requirements that employers must conduct hazard assessments beforebeginning work, and develop policies and procedures respecting potential workplace violence. The Codealso provides a mechanism for identifying hazardous materials in the workplace.Regulations also provide for a mechanism for identifying hazardous materials in the workplace in BritishColumbia, Alberta, Ontario and Quebec.In egregious cases, corporations and individuals may be subject to criminal conviction for breach of healthand safety standards, with possible fines and imprisonments under the Criminal Code of Canada.Human RightsBritish Columbia’s Human Rights Code, Ontario’s Human Rights Code, Alberta’s Human Rights and Quebec’sCharter of Human Rights and Freedoms, each have detailed provisions prohibiting discrimination on the basisof a list of grounds, including race, creed, sex, sexual orientation, age, and physical and mental disability. InOntario’s Code, harassment, including sexual harassment and sexual solicitation, is separately prohibited. InAlberta, harassment is part of discrimination. Discrimination, in fact or in result, is prohibited, even thoughan improper intent may not be present. Qualifications in employment advertisements or written inquirieson application forms, which tend towards the possibility of a discriminatory result, are prohibited. In BritishColumbia, Alberta, Ontario and Quebec, this prohibition does not apply if it can be established that thequalification is based on a bona fide occupational requirement. In order to justify such a requirement, theemployer will be required to show that the needs of an individual cannot be accommodated without unduehardship.Human rights legislation is administered by a Human Rights Commission or Council, which both investi-gates and potentially litigates complaints before independent dedicated human rights tribunals. In BritishColumbia and Ontario, complaints now proceed directly to a tribunal for resolution.Pay EquityPay equity should not be confused with “equal pay for equal work” or with “employment equity”, the latterbeing legislation for large federal employers or contractors designed to break down barriers in the employ-ment of women, persons with disabilities and visible minorities. By contrast, pay equity requires equal payfor women who perform equal work of equal value, or of comparable worth, to work typically performed byDoing Business In Canada 78
  • 89. men, even though in an entirely different classification. In Ontario and Quebec, such legislation requires thatto identify inequities and to work towards pay equity, an employer must use a gender-neutral job evaluationsystem and, if inequities are identified, to gradually advance the wages of the underpaid predominantlyfemale classification until pay equity is achieved. Although the Ontario Pay Equity Act phases in compliancerequirements, new employers in Ontario with more than 10 employees are immediately bound. In Quebec,the Pay Equity Act only applies to employers with at least 10 employees. British Columbia and Alberta do notyet have separate pay equity legislation. In Alberta, the prohibition against discrimination on the basis ofgender serves to prohibit systemic gender-based or race-based pay inequity.Acquiring an Existing BusinessWhile the above summary outlines the various labour and employment law consequences of commencinga new business in Canada, and more specifically in the provinces of British Columbia, Alberta, Ontario andQuebec, purchasers of an existing business have an additional reason for being cautious and informed. Thesuccessor rights provisions, which are typical in labour relations legislation, create a very wide definitionof a “sale of business”, such that various types of dispositions may leave the purchaser in a bargainingrelationship with the vendor’s trade union or unions, and thereby a party to a current collective agreementor agreements. That is, a purchaser may, by virtue of a transaction such as a substantial asset purchase, alease or even a purchase from a trustee in bankruptcy, become indefinitely bound to the same collectivebargaining relationship to which the predecessor employer was bound, including the obligation to honourexisting collective agreement terms and, upon its expiry, to negotiate a new agreement.In addition, a purchaser in either a union or non-union situation must determine whether there are out-standing employee lawsuits, grievances, labour relations board complaints, human rights inquiries, workers’compensation board claims, or health and safety orders which could affect the ongoing business, and forwhich the purchaser should negotiate indemnification for damages and expenses, or a reduction in thepurchase price.Finally, due to employment standards legislation, an employee of the vendor who continues with the purchaserretains credit for his or her past service, which could become very important in the event of a subsequenttermination from employment. A purchaser must, therefore, fully investigate the nature of the vendor’s labourand employment relations and liabilities in the context of the applicable successor rights provisions.Doing Business In Canada 79
  • 90. Land Ownership In CanadaHow Land is ConveyedTransferring ownership or title to land from one person to another can be accomplished by a number ofdifferent methods, for example, registration of a transfer of land or deed of sale at a Land Registry Office,or by operation of law. A transfer or deed, in accordance with an agreement of purchase and sale enteredinto between a vendor and a purchaser, is by far the most common method of conveying ownership in land.Such agreements must be in writing to be enforceable, and should clearly set out the rights and responsibili-ties of those involved.Registered Interests in LandTwo different systems of registration for conveyances, mortgages and other rights and interests affectingland exist in the common law provinces: the Registry Act system and the Land Titles system. The RegistryAct was established in Upper Canada (now the Province of Ontario) in 1795, prior to Canada’s confedera-tion. Under that system, title to a specific piece of realty must be examined in the registry office where theproperty is located. To establish sufficient chain of title requires a review of instruments affecting title forat least 40 years.The Land Titles system is much simpler than the Registry Act system. It is predicated upon the issuance ofa certified statement of title that reveals the registered owner(s) of the land and all encumbrances to whichtitle is subject (subject to certain statutory exemptions).British Columbia, Alberta and Saskatchewan adhere exclusively to the Land Titles system, while NovaScotia, Prince Edward Island and Newfoundland continue to adhere to the Registry Act system. Ontario,Manitoba and New Brunswick maintain both systems in varying degrees, depending on the location of theland in question. In both systems, mortgages and other land charges are registered to establish the lender’spriority to the real property security. Lenders will typically require a legal opinion as to the borrower’s titleto the land, and the position of the lender’s mortgage against others claiming a registered interest in theland. If advances are to be made periodically under the mortgage security, the lender will generally requirean update as to the status of title by way of a subsearch or updated title search, before making the advance.If the lender advances knowing of a prior registration against title or knowing of a subsequently registeredbuilder’s lien, the lender’s priority against the prior registrant or lien claimant with respect to that advancemay be lost.In Quebec, the system of registration is governed by the Civil Code of Québec and is similar to the Registry Actsystem. The title to a specific piece of land must also be examined in the registry office where the propertyis located. However, all documents registered since January 1, 1973 (as well as any index of immovables)have been computerized and are now available online. In Quebec, purchasers and lenders rely upon titlesearches in the land registry office going back sometimes over more than 100 years. Hypothecs (mort-gages) must be registered as in common law provinces.Doing Business In Canada 80
  • 91. SecurityDue to Canada’s constitutional framework, real property security is primarily a matter of provincial concern.Accordingly, real property security is largely governed by the laws of the province where the real property issituated. With the exception of Quebec, the various land registration systems in place throughout Canadaand the types of real property security available to creditors are largely uniform. It is possible then to viewthe issue of real property security in Canada by looking at the common law provinces together.MortgageThe most common form of real property security in the common law provinces is the mortgage (orcharge). In this context, borrowers grant a mortgage of their real property and related assets to lenders assecurity for indebtedness, liabilities and/or other obligations. There are two general types of mortgages:conventional mortgages, which generally evidence the debt secured and include a repayment schedule, andcollateral mortgages, which secure a debt which is typically evidenced elsewhere (for example, by a promis-sory note), and may also secure other liabilities and obligations (such as guarantees). Should a mortgagor(borrower) fail to meet its obligations secured by a mortgage, the mortgagee (lender) has a number ofremedial measures at its disposal. The available list of remedies include both self-help remedies (such astaking possession or selling the property by power of sale procedures (which are not available in Alberta))and court proceedings (such as obtaining title to property by initiating a foreclosure action, or suing themortgagor(s) and any guarantor(s) on the covenant for payment). In British Columbia, the availability ofself-help remedies on default has been severely limited by court decisions, to the extent that virtually allrealizations proceedings under land mortgages now proceed by way of a court-sanctioned foreclosureprocess. In Quebec, the usual security given on immoveable property is the hypothec. The hypothecarycreditor has a number of remedies at its disposal should the borrower default, including taking the propertyin payment of the debt (in which case the debt is deemed to be repaid), bringing the property to judicial saleor selling it privately, all of which would require court proceedings.LeaseA lease of land results in the transfer of occupation rights in the land from a landlord (lessor) to a tenant(lessee) for a specified term. In the common law provinces and Quebec, notice of a lease (often in theform of a short form version of the lease, or a summary of its terms) may be registered on title. Under thecommon law, a tenant’s interest in leased lands is freely alienable (and may be mortgaged), unless a termin the lease provides otherwise. Commercial leases generally limit tenants’ powers of alienation without theexpress written consent of the landlord. Mortgages of leasehold interest are an attractive form of securityto creditors where the lease has particular value in itself or is of inherent importance to the operation ofthe borrower’s business. The landlord and the mortgagee of the tenant’s interest will typically enter into anon-disturbance agreement to give the mortgagee certain rights in respect of the lease, if the tenant shoulddefault under it. In Quebec as well, the tenant’s rights in immoveable property may be hypothecated.DebentureIn a security context, debentures are frequently used to provide combined security over real and personalproperty of corporate borrowers. They are also useful in taking security over assets located in several prov-inces. Where several lenders are involved, debentures are frequently issued for the benefit of each lenderDoing Business In Canada 81
  • 92. pursuant to a trust deed, which contains the charging provisions securing the debentures. Debenturestypically provide security through charges and security interests over all present and future property, andassets of the borrower and its undertaking or business. Security over existing real property is generally byway of a fixed charge, similar to a mortgage and providing similar remedies to the lender.Land Transfer TaxA Land Transfer Tax or Registration Fee is payable on any conveyance of land in all of the provinces inCanada. The rate of taxation varies in each province and is based on the value of the consideration, exceptin Alberta, Saskatchewan and Manitoba, where the fee is based on the value of the land and fixtures at thetime of the conveyance, and in Quebec, where the basis of imposition for transfer duties is the higher ofthe consideration, the municipal assessment value and the market value at the time of transfer. Similarly,the Property Transfer Tax Branch in British Columbia and the Ontario Ministry of Revenue will routinelyre-assess the tax payable based on the market value of the property on the date of transfer, where there isa significant discrepancy between the value of the consideration paid and the latest assessed value of thepropertyOntario is the most aggressive province in taxing transfers of land. Land Transfer Tax in Ontario has, since1989, been payable on any dealing in land, whether registered or unregistered. In Alberta, registration feesrather than a tax are payable. Significant fees are only payable with respect to transfers, the creation ofleasehold titles, and mortgages and encumbrances. In British Columbia, the tax is triggered by, among otherthings, registration of a transfer of an estate in fee simple, a life estate or a right to occupy land under eitheran agreement of purchase and sale, a lease, or a right to require a transfer of land under an agreement ofpurchase and sale. (Refer also to the section “Commodity Tax Considerations - Provincial Land TransferTax”.) Some provinces have implemented a higher rate of land transfer tax for non-residents.Doing Business In Canada 82
  • 93. Land Use Planning/Land DevelopmentIntroductionThe object of all planning legislation in Canada is to regulate the use and development of land in an orderlyand controlled way. Wide ranges of planning functions exist in the provinces involving the private sector,and both local and regional municipalities. To encourage maximum efficiency and output, plans of subdivi-sion and site and development plans are made with regard to the provision of municipal services, such aswater, transportation and emergency services. Municipal planning is constructed around a comprehensiveofficial plan and through the implementation of zoning by-laws, which are commonly based on communityand district plans containing a variety of uses. Through various forms of studies, planners examine changesin the population, the economic base and social characteristics of the community that may lead to the needto formulate new plans for revitalization, preservation or use change in urban areas.How Land Development is RegulatedThe legislative approach taken by the majority of the provinces has been to deal with planning in a separateact or regulation. Power to enact regulations or zoning by-laws is established in the planning statutes of allprovinces except Alberta, British Columbia and Quebec, where it is located in the general municipal enact-ment. In British Columbia, such powers can also be found in the Vancouver Charter and the CommunityCharter. The planning instruments, the procedure for their creation and enforcement, and the agenciesinstituted to administer policy and procedures, vary across the provinces. However, the vast majority ofplanning statutes are similar in that they provide for community planning and management over the subdivi-sion and development of land.In most provinces, implementation of a plan is in part carried out through zoning regulations, which stipu-late the ways in which the land included in the plan may or may not be used. Another way of effecting a planis through development control, whereby approval must be procured from the planning official before anydevelopment proposal can progress. Subdivision control is yet another method of ensuring that landownersproposing to subdivide and sell lots of land follow the plan.AuthorityPlanning is not purely a municipal function. The provincial government plays an important role in ensuringthat municipalities make proper plans. In order that local policies remain in line with central governmentpolicies, some provincial control is necessary. The degree and practices of central supervision vary acrossthe provinces, but provincial government policy is often considered in the formulation of local planningdecisions.In Ontario, the Minister of Municipal Affairs and Housing has broad supervisory jurisdiction in the areaof planning, although many of its powers under the Planning Act have been delegated to municipalities. InBritish Columbia and Alberta, planning has been left to the local authorities with very little interferencefrom the province. Except for specific aspects of official settlement plans, provincial approval of plans is notrequired. In Quebec, the provincial government does not play a material role, as most planning controls aredelegated to the municipal and regional authorities.Doing Business In Canada 83
  • 94. Legislation in all provinces, with the exception of Newfoundland and Quebec, has created a special agencyto advise on planning issues.Land use approvals may also be required from federal/provincial agencies (such as the National EnergyBoard, or the Alberta Energy and Utilities Board) where pipeline or oil and gas projects are beingcontemplated.Official PlanMost of the provinces establish planning areas for which planning commissions or boards are created toprepare a plan known as an “official plan”. An official plan is basically a proposal for controlling the use ofland, and typically involves a public process where input is received before the plan is approved. This planmust be proposed to the local municipal council(s) for approval. A plan must be approved by a provincialauthority or must at least have regard to provincial planning policy. Any person affected by such a planmay formally object to it, and any amendments to the plan must go through the same approval process asthe comprehensive official plan. The legislative approach common to most of the provinces is to providefor regional, district and local plans. In Quebec, the official plan is prepared at the regional level. In Alberta,these “statutory plans” (as they are referred to) are prepared by municipal or regional authorities.ZoningIn the majority of provinces, the official plan must be implemented through a zoning by-law before itbecomes effective in the control of development. Zoning is a means by which local governments regulatethe use of property. Specifically, zoning involves the division of a municipality into areas, and in each areaeither prohibiting certain uses and allowing others, or permitting the uses which may be carried on to theexclusion of all others. Zoning control allows local governments to regulate the use of land, and the erectionof buildings and other structures. The zoning by-laws must be consistent with, or conform to, the land useplanning vision expressed in the official plan. In Alberta, a zoning by-law should be consistent with themunicipality’s municipal development plan. In Ontario, Quebec and British Columbia, municipalities canenact zoning by-laws without an official plan being in place. However, if an official plan exists, the by-lawsmust adhere to it. Many of these provisions are standard across Canada, whereas others are tailored toaccommodate a particular province.Subdivision/Sale of LandBoth provincial and local level authorities have vast powers to control the subdivision of land. In the majorityof provinces, provincial authorities work in tandem with local authorities to determine the necessity foradditional roads, buildings, school sites and recreational facilities, and such matters will be addressed bythe authorities as part of the subdivision approval process. In some provinces, like Quebec and Alberta, landsubdivision is almost exclusively a job for local authorities.RedevelopmentBoth new development and redevelopment must be planned. Express provisions have been incorporated into theOntario Planning Act, authorizing redevelopment strategies and methods of fulfilling them. Generally, redevelopmentin Canada is undertaken by private developers. Before a local authority can designate an area for redevelopment, itmust first prepare a plan and have a public hearing to discuss the delineation of the area and the fitness of the plan.The redevelopment plan must also be in line with any official plan of the municipality or regional authority.Doing Business In Canada 84
  • 95. Energy LawOil and Gas Law in CanadaVolatility in energy prices, economic growth in Asia and other developing regions contributing to increasedoil demand, and geopolitical instability in some energy-producing countries, have led to increased interestin Canadian oil and gas resources. While Alberta continues to be the Canadian industry leader, explorationis proceeding across the country. In providing a brief overview of the applicable regulatory regimes, it ishelpful to discuss matters in the context of the primary regions of oil and gas activity being: (i) northernCanada; (ii) offshore the west and east coasts of Canada; (iii) conventional onshore in the provinces ofAlberta, British Columbia and Saskatchewan; and (iv) the oil sands in northern Alberta.Northern CanadaNorthern Canada, in particular the Mackenzie Delta region, has seen significant exploration. Currently,there is an ongoing application to develop the necessary pipeline and infrastructure necessary to bring theregion into production. There are currently three major areas of discoveries: Mackenzie Valley and onshoreYukon, the Arctic Islands and Mackenzie Delta/Beaufort. Under the Canada Oil and Gas Operations Act, theNational Energy Board has regulatory authority over oil and gas activities, and operating licences in theNorthwest Territories, Nunavut and Sable Island, and submarine areas in the internal waters of Canada, theterritorial sea of Canada and the continental shelf of Canada not within a province. The Northern Oil andGas Branch of the Department of Indian Affairs and Northern Development is responsible for the issuanceand management of Exploration Licences, Significant Discovery Licences and Production Licences under theCanada Petroleum Resources Act. The Government of the Yukon oversees oil and gas rights, and permittingand approval in the Yukon and adjoining areas. Approval from the Department of Fisheries and Oceans, theCanadian Environmental Assessment Agency and other government departments, may also be required. Inthe 2010 Budget, the Canadian government committed to streamline the regulatory regime and acceleratethe review process for resource projects in the North.Offshore British ColumbiaThe potential of the British Columbia offshore region is largely unknown, due to a moratorium on oil and gasactivities that has been imposed by both the federal and provincial governments since 1972. The moratori-um was imposed due to concerns regarding interference with fishery activities and the concerns of adverseenvironmental impacts. However, interest in the area remains high. While there have been no significantdiscoveries, there are areas within the British Columbia offshore region that are considered to be highlyprospective. In 2003, the federal government initiated a scientific review, a public review process and a FirstNations engagement process. The scientific panel found some scientific gaps needed to be filled prior tolifting the moratorium. Strongly held and widely polarized views were identified in the public review, and allparticipating First Nations expressed the view that lifting the moratorium would not be in their best interest,although some qualified their response with “not at this time”. In the 2007 BC Energy Plan, the governmentof British Columbia committed to offshore oil and gas exploration and development, and asked the federalgovernment to lift the moratorium. The BC government indicated the provincial moratorium would be liftedat the same time. Currently, the moratoria were still in place.Doing Business In Canada 85
  • 96. Offshore East CoastIn contrast to the west coast, the areas offshore of Newfoundland and Nova Scotia on Canada’s east coasthave seen significant exploration and production activities. In 1992, Nova Scotia’s first offshore project,Cohasset-Panuke, commenced oil production which continued until the reservoir was depleted in 1999.The facilities have been de-commissioned with environmental follow-up ongoing. Natural gas was foundin deeper reservoirs and production from the Deep Panuke. The nearby Sable Project continues to providenatural gas to Nova Scotia and the northeastern U.S. through the Maritimes & Northeast Pipeline.Newfoundland has also seen increased production activity in its offshore region. The Hibernia Project beganoperating in 1997 and currently reaches production volumes of 200,000 barrels per day from its largegravity-based concrete production facility. The Terra Nova Project, which began in 2002, and the WhiteRose Project, which began in 2005, each utilize large floating production storage and offloading facilities. In2008, Husky Energy’s North Amethyst Development Plan was approved by the Canada-Newfoundland andLabrador Offshore Petroleum Board. This is just one of a number of possible extensions to the White RoseProject. The Hebron Field is an undeveloped oil field located north of the Terra Nova Field and was discov-ered in 1981. Agreement was reached between the government of Newfoundland and Labrador through itsenergy corporation, Chevron Canada, ExxonMobil Canada, Petro-Canada and StatoilHydro Canada, regard-ing a new stand-alone project in the Hebron field in 2008.The regulatory regime applicable to the offshore east coast differs from that applicable anywhere else inCanada. After a number of jurisdictional disputes in the 1970s and 1980s, a series of Supreme Court ofCanada and lower court decisions established that jurisdiction and ownership of the offshore resourcesrested with the federal government. However, the governments of Newfoundland and Nova Scotia wereunwilling to accept this result, and eventually agreed to a compromise solution with the federal governmentto share jurisdiction and powers. The federal government thereby entered into two separate accord agree-ments (one each with Newfoundland and Nova Scotia), which provide for the bulk of the regulatory author-ity for offshore petroleum matters to be delegated to joint offshore management boards. For each province,this was enshrined in mirror legislation, which may not be amended without the concurrence of bothgovernments. The resulting entities, the Canada-Newfoundland and Labrador Offshore Petroleum Boardand the Canada-Nova Scotia Offshore Petroleum Board, continue exercising these powers to the present.The regulatory regime for each Board is modelled upon the federal legislation applicable in northern Canada.While these Boards were given broad regulatory powers, there remain a number of other federal statuteswhich apply, including, most notably, the Canadian Environmental Assessment Act, the Fisheries Act and theCanadian Environmental Protection Act.Conventional OnshoreOnshore exploration activities continue in every province in Canada, although the scale is relatively modestoutside of the provinces of Alberta, British Columbia and Saskatchewan. These activities are governed byprovincial legislation, except to the extent that a federal power might be invoked (for example, impactson navigable waterways). The majority of onshore oil and gas resources are located on government lands(referred to as “Crown” lands).Alberta is the clear leader, ahead of British Columbia and Saskatchewan, for onshore oil and gas activities.Doing Business In Canada 86
  • 97. However, activity in British Columbia and Saskatchewan has been increasing over the last few years aspetroleum rights acquisitions in British Columbia and Saskatchewan have hit record highs.Conventional onshore oil and gas in Alberta dates back to the first major discovery at Turner Valley in the1930’s. Unconventional developments, such as coalbed methane and oil sands, have gained momentum inrecent years. The Mines and Minerals Act, the Oil and Gas Conservation Act and the Gas Resources PreservationAct, provide the foundational governmental regulatory regime in Alberta. The Alberta Ministry of Energy isresponsible for overseeing the regime by providing the policy, administration and regulatory support. Twoquasi-judicial agencies of the government of Alberta are responsible for overseeing the regulatory regimein Alberta. The Energy Resources Conservation Board (ERCB) regulates the safe, responsible and efficientdevelopment of Alberta’s energy resources, including oil, natural gas, oil sands, coal and pipelines. TheAlberta Utilities Commission (AUC): regulates investor-owned electric, gas and water utilities, and somemunicipally-owned electric utilities; oversees the tolls, tariffs and service regulations of energy transmissionthrough natural gas pipelines, certain oil pipelines and electric transmission lines; and oversees the sitingof electric transmission facilities, electric power plants and natural gas transmission pipelines. The AlbertaLand Stewardship Act (ALSA), which came into effect in 2009, requires all activities to be in compliance withapplicable Land-Use Frameworks (LUF). If a LUF is in place in a region where a new development or activityis proposed, government departments and decision-making bodies such as the ERCB, must take the LUFinto consideration prior to approving the development. Six LUF are being developed for the province.Onshore oil and gas development in British Columbia is considered to have substantial potential, withnatural gas being the focal point. The northeast portion of British Columbia, bordering with Alberta, hasseen consistent activity and development since the early 1950’s. Recent focus has been on the significantshale gas and tight gas finds in the Montney play region and the Horn River Basin. The Petroleum and NaturalGas Act, and the Oil and Gas Commission Act, provide the foundational regulatory regime in British Columbia.The Ministry of Energy and Mines provides oversight of the regulatory framework, and the Oil and GasCommission regulates the crude oil, natural gas and pipeline activities in British Columbia.Saskatchewan, like British Columbia, has not developed its oil and gas resources at the same pace andscope as Alberta, although considerable development has occurred in the northwest and southwestparts of the province that border with Alberta. Oil production in Saskatchewan is second only to Albertaamong Canadian provinces, providing about 20% of all Canadian production. However, gas production inSaskatchewan is not yet as significant. Recent focus has been on the Bakken oil play, which is also thoughtto contain significant natural resources. The Department of Energy and Mines Act and the Oil and GasConservation Act constitute the primary regulatory regime governing oil and gas resources in Saskatchewan.The Ministry of Energy and Resources is responsible for the exploration, development, management andconservation of non-renewable resources and ensuring the orderly exploration, development and optimizedrecovery of those resources.Oil SandsAlberta’s oil sands contain one of the largest known proven crude oil reserves in the world, containing anestimated 175,000,000,000 barrels, second only to Saudi Arabia. Alberta’s oil sands are contained inthree major areas of northeastern Alberta: Peace River, Athabasca and Cold Lake, which comprise a totalarea of approximately 140,800 square kilometres. The world’s first oil sands production began north ofDoing Business In Canada 87
  • 98. Fort McMurray in 1967. It is only in the last few decades, as technology has improved, that production hasrapidly expanded. It is estimated that by 2015, Alberta’s oil sands production with rile to 2,700,000 barrelsper day, surpassing that of all current OPEC members, with the exception of Saudi Arabia.The primary legislation governing oil sands projects in Alberta are the Mines and Minerals Act and the OilSands Conservation Act. However, projects will often require approvals under other legislation as well, such asthe Environmental Protection and Enhancement Act and the Water Act. As of October 2009, any applicable LUFmust also be considered.Doing Business In Canada 88
  • 99. Environmental Law In CanadaJurisdictionIn Canada, environmental law is an area of jurisdiction shared between the federal government, the vari-ous provincial and territorial governments, and municipalities. This jurisdictional split arose because theCanadian constitution, which dates back to 1867, did not specifically allocate power over the “environment”,leaving instead a gradual evolution of powers. Broadly speaking, the federal government has jurisdictionover federally owned land and undertakings, fisheries waters, shipping, aviation (including airports),railroads, manufacturing, import and export of toxic substances, interprovincial and international trans-portation, as well as certain areas designated as being of national importance, such as ports, security andnuclear power. Provinces regulate everything else, including emissions from industry. Municipalities in mostprovinces have the delegated power to pass bylaws with respect to storm and sanitary sewer discharges,pesticide use, noxious weeds, noise and certain other nuisances. The Supreme Court of Canada has heldthat where more than one level of government has the authority to regulate, duplication is permissible aslong as there is a possibility of dual compliance, i.e. abiding by the stricter of applicable standards. In allother cases, and generally speaking, federal law trumps over the others and provincial law will be para-mount over municipal law.When doing business in Canada, it is important to keep in mind that the environmental laws are not uniformamong the provinces. Attempts have been made to harmonize certain standards and criteria; however, thereremain many differences with which companies operating in more than one province need to be familiar.The Environmental Permit SystemPermit RequirementsMost Canadian environmental statutes prohibit the release of any substance that can cause an “adverseeffect” into the natural environment, unless authorized by regulation or permit. As “adverse effect” isvery broadly defined and includes such things as dust and noise, virtually all industrial facilities require anenvironmental permit. These permits generally take the form of a “Certificate of Approval” issued by theprovincial regulator, which will set maximum discharge quantities, and impose conditions and monitoringand reporting obligations. Permits for federally regulated activities work on a similar basis.Environmental AssessmentsCertain types of large projects may trigger the need for an “Environmental Assessment” before a permitcan be obtained. Environmental Assessments are comprehensive studies of environmental effects thatinvolve scientific and engineering consultation, as well as public participation. First Nations (aboriginal)consultation is playing an increasingly important role in Canada, as there is a constitutional obligation on thefederal government to consult with First Nations prior to approving certain projects. Due to their complexity,Environmental Assessments have the potential to significantly delay planned projects. Certain aspects ofa project may trigger both federal and provincial environmental assessment legislation. In such cases, it ispossible to have the assessments conducted concurrently by the relevant federal and provincial authoritiesand, where necessary, to have these assessments reviewed by a joint panel consisting of representativesappointed by both levels of government.Doing Business In Canada 89
  • 100. Permit TransfersPermits are generally not transferable, but under certain circumstances, such as an acquisition in which the key technicalpersonnel and the environmental policies do not change, regulators have demonstrated a willingness to expedite theapplication process.Enforcement of ViolationsOverviewEnvironmental enforcement in Canada generally proceeds through three stages – voluntary abatement,mandatory rectification and, as a last resort, prosecution and penalties. Both federal regulators and pro-vincial environmental regulators have designated enforcement and abatement personnel, and some of theregulators have publicly available written policies setting out how abatement and enforcement are handled.Canadian regulators encourage a proactive and cooperative approach to environmental protection. It ispossible in the right circumstances to obtain a grace period and present a compliance plan, setting outdesignated plans of actions and timeframes to achieve compliance. Where there is no such cooperation,environmental regulators are empowered to issue mandatory administrative orders, directing that certainactivities cease and that steps be taken to implement remedial or abatement measures, or to conductfurther tests and studies. While these orders can be appealed, they are generally not stayed for the durationof the appeal, making immediate compliance mandatory. The time to file an appeal may be as short as 15days, so any order requires immediate attention and action.Inspection and Investigation Powers of RegulatorsBoth federal and provincial statutes invest regulators with broad inspection, and related search and seizurepowers, to determine and investigate environmental compliance. Such rights allow regulators to: enterproperty without a warrant or notice; seize items; take samples; conduct sub-surface investigations; require,inspect and seize documents; and make related inquiries. As these rights do not extend to buildings, aninspector needs either a court-issued warrant, or the consent of the owner or occupier, to enter and conductan inspection of, or within, a building. Failure to cooperate with an inspector is a separate offence punishableby a fine and/or imprisonment. This offence does not include a refusal to provide consent for an inspectorto enter a building.Canadian law draws a marked distinction between inspections and investigations. The purpose of inspec-tions is to assess regulatory compliance. Accordingly, inspectors also have the power to issue administrativeorders requiring a party to take steps to attain or maintain compliance. Investigations, on the other hand, arefor gathering evidence of an offence and a possible prosecution. A defendant in an investigation has rightsagainst self-incrimination and to legal counsel. It is unlawful for investigators to use the inspection powersto effectively conduct an investigation.Spill/Release ReportingSpills and releases (generally defined as discharges out of the ordinary course of events, includingexceedances of levels prescribed in permits) must be immediately reported to the regulator under mostenvironmental statutes and municipal by-laws. Off-site migration of a contaminant may trigger a reportingDoing Business In Canada 90
  • 101. obligation under certain circumstances. Some provinces do not impose a general obligation to reporthistoric contamination, even if migrating offsite. A number of provinces have reporting requirements forspecific types of discharges, such as leaks from old storage tanks. Contamination, regardless of characteris-tics, may also have to be reported if it poses a serious risk to human heath.A “spill” of a contaminant triggers an immediate obligation to investigate and remediate, as well as to report.Regulators have the power to issue administrative orders requiring remedial or mitigative action. Suchorders can compel a party to conduct tests or perform a site assessment to determine residual soil contami-nation or risk of migration, and to fashion an appropriate cleanup program.Whistleblower ProtectionFederal and most provincial environmental statutes contain whistleblower protection clauses.Whistleblower protection is also extended under Canadian criminal law, which makes it an offence, punish-able by up to five years imprisonment, to threaten, harass or dismiss a whistleblower.Penalties and DefencesDifferent provinces vary in the severity of environmental penalties. Ontario currently has the strictestregime, as it requires a minimum mandatory fine of $25,000 for corporations per count. Maximumpenalties can be as high as $1,000,000 and can be imposed for each day on which an offence continues.Imprisonment for up to six months for individuals convicted of environmental offences is also possible.Generally speaking, there is a “due diligence defence” available to polluters who can establish that they tookall reasonable steps in the circumstances to prevent the occurrence of the offence. Evidence of due diligenceinvolves a proactive approach to prevention and risk management at all levels of the corporation, andincludes, for example, regular training, auditing and reporting within the corporation, emergency responseprograms, compliance with internal protocols and appropriate disciplinary action. An exception to theavailability of a due diligence defence are the administrative penalties that now exist for certain offences inOntario and Alberta. There is also a common-law strict civil liability if a dangerous substance escapes fromsomeone’s property and harms another property.Ongoing LiabilityThe dissolution of a corporation does not provide a shield against environmental liabilities. Administrativeorders can be issued against a corporation, as well as anybody who had “charge, management or control”,including directors and officers, regardless of the status of the corporation. Regulatory fines and criminalsanctions (including imprisonment) against such parties similarly survive corporate dissolution. If, at thetime a corporation was dissolved, there was an outstanding environmental liability, shareholders would beliable to the extent they received funds out of the dissolution.Real Estate Transactions and Contaminated LandOverviewWhile there are no restrictions on allocating civil liability in a real estate transaction involving contaminatedland, it is not possible to contract out of regulatory liability. Canada applies a “polluter pays” principle, underwhich the original landowner that caused the pollution retains potential regulatory liability, even after aDoing Business In Canada 91
  • 102. property is transferred. While indemnification clauses are frequently used in agreements of purchaseand sale, the provisions of a civil contract do not affect this regulatory liability.Certain provinces have a system in place under which a landowner can clean up a property to designatedstandards (based on intended land use), have the clean-up approved by the regulator, and in doing so, receiveimmunity from possible future clean-up orders. Brownfield developers in Canada frequently avail themselvesof this system. It should be noted that the immunity does not extend to off-site migration of pollutants.A claim of civil common-law liability is a remedy available to adjoining landowners harmed by contamina-tion, pursuant to the law of negligence. In the case where a dangerous substance escapes from someone’sproperty, the law of strict liability provides the adjoining landowner with a remedy.Lender LiabilityLenders can assume environmental liability where they become involved in the financial management of acorporation, the day-to-day operational management thereof, or if they become owners by way of foreclo-sure. Two provinces, Ontario and British Columbia, currently have statutory exemptions from liability forsecured lenders, receivers and owners by foreclosure, for certain designated actions. This protection canbe set aside where these parties fail to disclose environmental non-compliance or harm, or where they aregrossly negligent in discharging environmental obligations.Disclosure of Known ContaminationDepending on the circumstances, land contamination may have to be disclosed by the vendor in a realestate transaction. Canadian law distinguishes between “latent” (hidden) and “patent” (readily observablethrough reasonable due diligence) defects in land. Where a vendor is aware of a latent defect, it mustdisclose it to a purchaser prior to closing. There is no similar duty for patent defects on the basis of caveatemptor (“buyer beware”).As part of most transactional due diligence, purchasers request disclosure of all environmental records inpossession of the vendor as a matter of course.AsbestosThe duties of owners and occupiers, with respect to asbestos on site, are set out in provincial occupationalhealth and safety statutes. There is generally no requirement to remove undisturbed asbestos, includingfriable asbestos. However, some provinces, like Ontario, require record-keeping with respect to the locationof materials above certain thresholds and implementation of risk management plans. Loose friable asbestoshas to be removed in all provinces. The precautions required for asbestos removal are extensive and are alsoset out in specific provincial regulations. Asbestos is also considered a hazardous waste and is subject tospecial disposal requirements.Regulatory Liability in the Context of Corporate AcquisitionsShare Transactions vs. Asset TransactionsSince it is not possible to contract out of regulatory liability, special environmental considerations apply in thecontext of corporate acquisitions. In a share transaction, both civil and regulatory liabilities of the corporationDoing Business In Canada 92
  • 103. survive closing, and are transferred to the new owner. This includes the risk of prosecutions for past environ-mental violation (for example, a spill resulting in contamination), as well as any latent or known contamination.In an asset transaction, on the other hand, liability of the corporation will not flow to the purchaser, unlesstied to the specific asset(s) acquired. For example, if a purchaser acquires real property that was contami-nated prior to closing, the purchaser remains liable for possible future remediation orders. However, thepurchaser would not be exposed to the possibility of prosecution with respect to the actual spill that causedthe prior contamination.Shareholder LiabilityGenerally, shareholders in Canada are shielded from liability, unless they actively participated in manage-ment or had charge, management or control of a contaminant, in which case they can attract liability in thesame way as directors and officers. Canadian courts will, however, “pierce the corporate veil” of a company,and hold shareholders liable where the company is merely a sham or is being used for fraudulent purposes.Generally speaking, a corporate parent may be sued in its national courts (subject to local law) for pollutioncaused by a Canadian subsidiary/affiliate.Environmental InsuranceMany umbrella liability policies or contractors’ general liability policies, contain absolute pollution exclusionclauses. However, a number of policies dealing with specific environmental risks are now underwritten inCanada. For soil remediation projects below a threshold clean-up cost, it is possible to obtain cost-cap poli-cies contingent upon the provision of a detailed cost estimate and environmental report prior to underwrit-ing. Environmental impairment liability policies are available to insure against the risk of third-party claimsdue to off-site migration. Policies are also available to insure against future pollution events on a propertyand for undiscovered contamination. Contractors’ pollution liability insurance is available to insure againstpollution caused by specific operations. This provides a useful supplement to umbrella liability policiescontaining pollution exclusion clauses.As the cost of performing environmental clean-ups to regulatory standards has increased substantially,the role of environmental insurance in Canada has expanded. While the market for environmental insur-ance in Canada is still developing, new products are being added in response to a variety of situations.Environmental insurance will soon become a feature of most corporate transactions.Corporate Disclosure of Environmental LiabilitiesSecurities law in Canada is an area of provincial jurisdiction (see the chapter on “Financing CanadianOperations”). Provincial securities laws require timely disclosure of “material facts” as part of any offeringof securities. A material fact is any fact that could have a significant impact on the value of the underlyingsecurities. Environmental liabilities are increasingly being assessed as material facts in this context, and theOntario Securities Commission in 2008 issued a notice indicating that it will no longer accept “boilerplate”disclosure of environmental liabilities. Other provinces are expected to follow suit.Doing Business In Canada 93
  • 104. Waste ManagementGeneration and TransportWaste management obligations are set out in various federal and provincial statutes. Transportation anddisposal of hazardous wastes in Canada is strictly regulated. Transport Canada regulates interprovincialtransport, as well as the import and export of hazardous waste. Provincial governments otherwise regulatethe generation, transport, storage and disposal of hazardous waste. Waste may only be generated, handled,stored, processed and disposed of pursuant to a permit, and at an approved facility (which may be an on-site facility). Collection of residential waste is a matter of municipal responsibility.All hazardous waste shipments require completion of a hazardous waste manifest and may only be trans-ported by licensed carriers. Certain categories of hazardous waste, such as asbestos waste and PCB waste,are subject to special requirements.There is a general duty on waste generators to ensure that waste is only transported and disposed of bya licensed party, pursuant to a properly issued waste manifest, and that a follow-up is conducted to ensurethe waste has arrived at the designated disposal site. Failure to do so can result in fines.Waste DiversionProvincial governments are responsible for the regulation of waste diversion, deposit return and otherrecycling programs under a variety of schemes, which increasingly shift the associated costs to the businessthat put the original item that generated the waste into the stream of commerce. Increasingly, Canadianprovinces are considering point-of-sale levies for electronics recycling. Mandatory vendor take-backprograms currently exist only for alcoholic beverage containers. Employers over a certain size must imple-ment mandatory waste separation programs.Environmental LitigationTo date, Canada has not seen large-scale environmental class actions, as found in the U.S., since theCanadian class action regime is more restrictive. Environmental class actions are available for claims involv-ing a reduction in property values as a result of pollution, but currently are not available for health claims.Provincial employment law in Canada is based on a workers’ compensation program under which workerscan recover for their injuries from centrally administered funds, but are prevented from suing their employ-ers for injuries or health problems sustained on the job. The funds can, in turn, commence subrogatedclaims in the names of the workers against the parties responsible for the injuries and health problems(as was done with asbestos claims).While civil litigation involving land contamination, health effects from pollution, or other environmentaldamages is available, the use of punitive damages in Canada is more limited than in the U.S., and tort claimsare often subject to court-imposed caps.Climate Change and Emissions TradingAs is the case with other environmental legislation in Canada, both the federal government and theprovincial governments claim jurisdiction over matters relating to greenhouse gas (GHG) emissions.Doing Business In Canada 94
  • 105. The Government of Canada has recently made a series of policy announcements setting out limited detailsof a proposed scheme to reduce GHGs under its existing environmental statute, the Canadian EnvironmentalProtection Act, 1999 (CEPA), but has yet to enact the regulations necessary to turn policy into law. The policyindicates that companies operating in certain sectors (i.e. oil and gas, electricity production from combus-tion, chemical production, smelting) will be required to reduce their “emissions intensity” (GHG emissionsper unit of production or output) from 2006 levels by 18% by 2010, with 2% annual reductions thereafteruntil 2020. Compliance mechanisms will be available to companies to help them meet their targets. Creditsissued or received under these mechanisms may be banked or traded and used for compliance purposes.The only province to enact mandatory GHG emissions reductions to date is Alberta. Regulations passedunder the Climate Change and Emissions Management Act came into effect in July, 2007 and require “largefinal emitters” (facilities that emit >100,000 tonnes of “carbon dioxide equivalent” per annum) to reducetheir emissions intensity by 12% below their respective baselines. To achieve compliance, emissions mustbe reduced or credits must be acquired to offset emissions in excess of the intensity target reductions.Another form of climate change legislation introduced at the provincial level is the carbon tax. Both theprovinces of Quebec and British Columbia have enacted such taxes, albeit in slightly different formats.The Quebec tax is paid by energy producers, distributors and refiners, and took effect on October 1, 2007.The B.C. carbon tax is applied to the purchase and use of fossil fuels and commenced July 1, 2008.The provinces of British Columbia, Manitoba, Ontario and Quebec, together with seven western Americanstates, are members of the Western Climate Initiative (WCI), an organization created to identify, evaluateand implement collective and cooperative ways to reduce GHG emissions in the region, focusing on amarket-based cap-and-trade system. In September 2008, the WCI announced the proposed design of aregional cap-and-trade program commencing in 2012, and intended to reduce GHG emissions to 15% below2005 levels by 2020. Member governments have committed to introduce legislation in their respectivejurisdictions to implement the program.Doing Business In Canada 95
  • 106. Federal Consumer ProductAnd Labelling StandardsIntroductionThe federal government has enacted a number of laws directed at preventing deceptive marketing practices,preventing health and safety problems, and generally improving fairness towards consumers in the market-place. The federal Competition Act, which governs a wide variety of activities, from misleading advertisingto mergers, is discussed separately in a previous section. This section reviews some of the more importantfederal product standard laws. It should be kept in mind that this review concentrates on consumer prod-ucts. Producers of industrial products, particularly products used in agriculture, and those involved in thetransportation of toxic or environmentally harmful chemicals and other substances, will generally have toreview other federal (and provincial) regulatory laws affecting the importation and sale of their specificproducts.Consumer Packaging and Labelling ActThe purpose of the Consumer Packaging and Labelling Act is to protect consumers from misrepresentationin packaging and labelling, and to assist the consumer in differentiating between products. The legislationapplies to dealers who are defined as retailers, manufacturers, processors or producers of a “product”.The Consumer Packaging and Labelling Act broadly defines “product” to mean any article that is, or may be,the subject of trade or commerce, including both food and non-food items.The Consumer Packaging and Labelling Act prohibits a dealer from selling, advertising or importing intoCanada any pre-packaged product, unless a label is attached declaring the net quantity of the product inthe form prescribed by the Consumer Packaging and Labelling Act and Regulations. Generally, the mandatoryinformation required on a label must be in both English and French, and the quantity must be expressed inmetric units. The label must also state the common name of the product and the principal place of businessof the person by whom, or for whom, the pre-packaged product was manufactured.The Consumer Packaging and Labelling Act also regulates the standardization of containers, to prevent con-sumers from being misled or confused by the undue proliferation of container shapes and sizes. Productsthat must be in standardized containers include peanut butter, wine, glucose syrup and refined sugar syrup.Food and Drugs ActThe Food and Drugs Act regulates the advertising, sale and importation of foods, drugs, cosmeticsand medical devices.The Food and Drugs Act prohibits the advertising of foods, drugs, natural health products, cosmeticsor medical devices for the treatment, prevention or cure of certain diseases listed in a Schedule of theFood and Drugs Act. This Schedule lists forty diseases, including alcoholism, cancer and heart disease.The Food and Drugs Act defines “food” to include any article manufactured, sold or represented for useas food or drink for human consumption, including chewing gum and any ingredient that may be mixedwith food for any purpose.Doing Business In Canada 96
  • 107. “Drugs” are defined to include substances or mixtures of substances manufactured, sold or represented for use in: • diagnosing, preventing or treating a disease in man or animal; • restoring or modifying organic functions in man or animal; or • disinfecting premises in which food is manufactured or kept.Any product may become a drug for the purpose of the Food and Drugs Act if therapeutic claims are made bya manufacturer through labelling or advertising. Any therapeutic claim must be substantiated through scien-tific study, and the product must be approved by the Health Protection Branch (“HPB”) of the Departmentof Health before a food can be marketed as a drug.With respect to pre-market control, foods and drugs are treated differently by the Food and Drugs Act.There is no pre-marketing approval required for any food, although certain foods require pre-marketingnotification. Drugs must be approved for importation and sale by the HPB and be given a Drug IdentificationNumber (“D.I.N.”), which signifies the drug’s compliance with federal regulations. The Food and DrugRegulations set out the information that is required in the application for a D.I.N., such as the name of themanufacturer as it will appear on the label, quantitative list of the medicinal ingredients, the recommendeddosage, a sample label and other information concerning testing.Canadian drug manufacturers, packagers, distributors and wholesalers, and drug testing laboratories,must hold an establishment licence that certifies that their facilities meet applicable Good ManufacturingPractices (GMP). For drugs manufactured by foreign manufacturers, the onus is on the Canadian importerto demonstrate that the drugs meet Canadian GMP standards. While not required, foreign manufacturershave the option of applying for Canadian certification of GMP compliance.The packaging, sale and production of drugs is regulated according to their nature and purpose. Drugregulation is tailored towards the two separate and distinct markets which exist, namely, the general publicand health professionals. Any over-the-counter drug which does not fall into a category of prohibited orrestricted drugs set out in the Food and Drugs Act, may be advertised and sold to the general public undercertain restrictive guidelines. Advertising to health professionals is governed by the Code of MarketingPractices of the Pharmaceutical Manufacturers Association of Canada. In both cases, labelling must beclearly and prominently displayed and readily discernible to the purchaser, in accordance with the Food andDrugs Act Regulations and Labelling Guide.“Natural Health Products” are regulated as drugs but are subject to less strict controls. This category includes supplements, herbal remedies, homeopathic medicines, traditional medicines, such as traditional Chinese medicines, probiotics and other products, such as amino acids and essential fatty acids. Product and site licences are required in order to market natural health products in Canada. These licences are obtained from Health Canada, and require the submission of detailed information about the safety and effectiveness of a product, as well as distribution, handling, storage and delivery methods.The Food and Drugs Act prohibits the sale of certain foods, unless they have been prepared according to verydetailed Canadian standards. The Act also prohibits misrepresentation and deception in relation to labelling,advertising and packaging of all food and drug products.Doing Business In Canada 97
  • 108. The Food and Drugs Act establishes detailed requirements for mandatory nutrition labeling, nutrition claimsand diet-related health claims. For example, most pre-packaged foods must carry a “Nutrition Facts” table,unless the food qualifies for an exemption. Exemptions include all fresh fruit and vegetables, raw meatand poultry (except when ground), raw fish and seafood, alcoholic beverages, foods served or sold inrestaurants, individual servings sold for immediate consumption, pre-packaged confections sold individually,and milk sold in a refillable glass container. While the format for nutrition labelling may be similar to U.S.requirements, companies cannot use a U.S. label to satisfy Canadian requirements. For example, some ofthe elements of the Nutrition Facts table, such as servings per container and calories from fat, are manda-tory in the U.S., but not in Canada.The Food and Drugs Act prohibits the sale of cosmetics containing substances that may be injurious tohealth. Cosmetics must be manufactured, labelled, packaged, stored and advertised pursuant to prescribedstandards. Notification of any new cosmetic must be made to the HPB. The Act also prohibits any mislead-ing labelling, packaging or advertising of medical devices. Medical devices that present substantial risks,such as invasive devices, must be approved for sale in Canada.A food, drug, cosmetic or medical device intended for importation into Canada, may have to be relabeledor repackaged if it does not comply with Canadian standards.Hazardous Products ActThe Hazardous Products Act regulates the advertising, labelling, sale and importation into Canada ofhazardous products and substances.“Hazardous products” include many products designed for household, garden, sports, recreational or personal use, as well as poisonous, toxic, flammable, explosive or reactive products intended for use at the workplace.Hazardous products are listed in the Schedules to the Hazardous Products Act. Part I of Schedule I listsprohibited products which may not be imported or sold in Canada. Examples of banned products are leadpigments in paint and asbestos in textiles. Part II of Schedule I lists “restricted products”, which may beimported or sold in Canada only if they comply with the safety standards for the product established underthe Hazardous Products Act. Products subject to safety regulations include certain children’s toys, furnitureand certain flammable textile products.Schedule II of the Hazardous Products Act lists “controlled products”, being products for use at the workplacewhich are toxic, flammable or corrosive, according to scientific tests set out in Regulations. The importa-tion of any controlled product intended for use in a workplace in Canada by a supplier is prohibited, unlessthe supplier or importer provides a Material Safety Data Sheet on the product, and labels the product asspecified in the Regulations. A Material Safety Data Sheet must contain details on the product’s hazard-ous ingredients, risks, injury prevention and treatment procedures. Suppliers, however, may apply to haveconfidential ingredient information exempt from disclosure to competitors or the public.Other Product-Specific LegislationThe federal government has also enacted legislation to regulate the marketing and sale of a number of otherproducts. For instance, the purpose of the Textile Labelling Act is to inform consumers as to which textilefibers are contained in fabrics and articles made from fabric and yarns.Doing Business In Canada 98
  • 109. A textile fibre is any natural or manufactured matter that can be made into yarn or fabric, including feathers,kapok, human hair and animal fur. Products such as clothing, floor coverings, towels, linens and draperies,are covered by the Textile Labelling Act. These types of articles must have a disclosure label setting outspecific information relating to the article.Consumer textile articles may be imported into Canada without a disclosure label, if certain productinformation is given by a dealer to a federal government inspector at the port of entry, on or before theimportation. Before the sale of the imported article, the dealer must then apply a disclosure label, notifythe inspector that this has been done, and give the inspector a reasonable opportunity to inspect the article.The Textile Labelling and Advertising Regulation exempt a number of articles from all labelling requirements.In addition, articles do not have to be labeled in certain transactions, such as sales to a Crown, education,religious or business entity, if the articles are made in compliance with specifications supplied by the buyer,and if the articles are not going to be re-sold.Similarly, the Precious Metals Marking Act (Canada) and the Precious Metals Marking Regulations establishrules for the sale of articles made from precious metals, by setting standards for quality marks. Morespecifically, the Precious Metals Marking Act provides for the uniform description and quality markingof precious metal articles (articles made with gold, silver, platinum or palladium) to help consumersmake informed purchasing decisions.The Precious Metals Marking Act also prohibits the making of false or misleading representations relatedto precious metal articles, and requires that dealers who choose to mark their articles with representationsrelated to the precious metal quality, do so as prescribed by the Act and the Regulations.The Canada Agricultural Products Act sets national standards and grades for agricultural products, andregulates the marketing of agricultural products in import, export and interprovincial trade. It providesfor the licensing of dealers in agricultural products; the inspection, grading, labeling and packaging (includ-ing standardized sizes) of regulated products; the registration of establishments; standards governingthe construction, maintenance and operation of establishments; and mechanisms to settle disputes overtransactions between dealers of fresh fruits and vegetables.The Seeds Act regulates the inspection, testing, quality and sale of seeds in Canada. Pursuant to thislegislation, seeds developed through biotechnology must meet the same requirements as those developedthrough traditional methods. The products regulated under the Act include new crop varieties producedby biotechnology with genes novel to the crop species.Pesticides imported into, or sold or used, in Canada, are regulated under the Pest Control Products Act andRegulations. The Pest Management Regulatory Agency (“PMRA”) is responsible for administering this leg-islation, registering pest control products, re-evaluating registered products and setting maximum residuelimits under the Food and Drugs Act. Companies that wish to have the right to sell a pest control product inCanada must submit detailed information and data to be evaluated by the PMRA. The Pest Control ProductsAct creates a Register of Pest Control Products that makes certain information, including certain pest controlproduct test data, available to the public. It is incumbent upon the registrant to request that any confidentialtest data or confidential business information be designated as such, and exempted from the access toinformation regime.Doing Business In Canada 99
  • 110. The NAFTA and Harmonization of Product StandardsThe North American Free Trade Agreement (the “NAFTA”) among Canada, the U.S. and Mexico, containsprovisions aimed at ensuring that product standards, certification and testing procedures, do not createunnecessary barriers to North American trade in goods and some services. The basic principle is that aNAFTA country is not to maintain or introduce any standards-related measures or procedures of producttesting, or certification that would create unnecessary obstacles to trade. Measures or procedures designedto protect health, safety, environmental or consumer interests, are deemed not to be unnecessary obstaclesto trade, as long as they do not operate to exclude products of a NAFTA country, where those productswould otherwise meet the permitted domestic regulatory objectives.The NAFTA does not require that Canadian, U.S. and Mexican standards be identical, only that domesticstandards and product approval procedures be applied equally to goods originating in any NAFTA country.Of great practical importance to the introduction of products into new markets are often a foreign country’srequirements for testing and approval of those products. Under the Canada-U.S. Free Trade Agreement,those two countries agreed not to require that testing facilities, inspection agencies or certification bodies,be located or established within the importing country. The NAFTA contains a similar provision, albeit morequalified, vis-à-vis Mexico.Doing Business In Canada 100
  • 111. French Language RequirementsIn The Province Of QuebecThe Charter of the French LanguageThe official language in Quebec is French. The Charter of the French Language (the “Charter”) guaranteesFrench language rights and requires the use of French in many business situations. Given the broad scopeof the Charter, this analysis will only touch upon some of the Charter’s highlights and it is not intended tobe exhaustive. Since there could be a language component in any Quebec business transaction, each suchtransaction merits an analysis of the Charter’s impact. Most of the Charter’s provisions are of public order.However, the Charter also provides certain exceptions to its general application.ContractsContracts pre-determined by one party and standard printed form contracts, must be drafted in French.However, they may be in another language exclusively at the express request of the parties (usually a clausewritten into the contract, except under certain specific circumstances). Thus, standard forms, such aspurchase orders and printed leases, must be in French, unless the parties have expressly requested thatthe contract be written in another language.Consumer contracts are governed by both the Consumer Protection Act (the “CPA”) and the Charter and, byvirtue of the CPA, must be drawn up in French. However, they may be drawn up in another language if theparties expressly agree. Where consumer contracts are drawn up in French and in another language, andthere is a divergence between the texts, the interpretation more favourable to the consumer prevails.Labour Relations and Collective AgreementsCollective agreements, including annexes and schedules to those agreements, must be in French. An Englishversion of the agreement is permitted (see “Francization of Business” below).Catalogues and BrochuresAs a general rule, catalogues, brochures, folders, commercial directories, and any similar written publica-tions (including websites) where the firm carries on business in the Province of Quebec, must be in French.Such documents may also be bilingual or they may be in two separate versions, one exclusively in Frenchand the other exclusively in another language, provided that the French version is available under no lessfavourable conditions of accessibility and quality than the version in the other language. It should be notedthat the version exclusively in another language may be inserted in a news publication published exclusivelyin that language.Computer SoftwareAll computer software, including games software and operating systems, whether installed or offeredseparately, must be available in French, unless no French version exists. Software can also be available inlanguages other than French, provided the French version is available on no less favourable terms and thatit has technical characteristics that are at least equivalent to the English version.Doing Business In Canada 101
  • 112. Product LabellingEvery inscription on a product, on its container or its wrapping, and all documents that accompanya product (warranties, directions for use, etc.), must be in French. The French inscription may be accom-panied by a translation or translations, provided that an inscription in another language is not given greaterprominence than the French text. Exceptionally, there are situations where product labels and the docu-ments accompanying a product do not have to be in French. For example, inscriptions relating to productsintended for a market outside Quebec, do not have to be in French; neither do the inscriptions relating toa publication, book, record, tape, film or any other similar cultural or educational product, to the extentthat such inscriptions are written in the language of the product or to the extent that the product has nolanguage content. Other exceptions are set out in the relevant regulations.Public Signs and Posters and Commercial AdvertisingAs a general rule, most public signs and posters may be both in French and in another language, providedthat French is “markedly predominant”, an expression defined by regulation.There are two circumstances provided by regulation in which commercial advertising must be exclusivelyin French. Commercial advertising displayed on billboards, signs or posters of 16 square meters or more,and visible from any public highway (unless the advertising is displayed on the very premises of an estab-lishment of the firm), and commercial advertising on or in any public means of transportation, and on orin accesses thereto, must be exclusively in French.Registered Trade-MarksRegistered trade-marks within the meaning of the Trade-marks Act may be used in Quebec as registered incatalogues and brochures, on product labels, public signs and posters, and in commercial advertising, un-less a French version of the trade-mark has been registered, in which case the French version must be used.Company NamesIn order to incorporate a company under the Companies Act (Quebec), a French corporate name is required.An English name may be used in addition to the French name, but an English name not accompanied by itsFrench equivalent is not acceptable.Every partnership and legal person carrying on an activity in Quebec must register in accordance withAn Act respecting the legal publicity of sole proprietorships, partnerships and legal persons. Every registrantwhose name is in a language other than French, must declare either a French version of the name or aFrench business name to be used in carrying on activities in Quebec.Under the Charter, the name of an enterprise must be in French, but it may be accompanied with a versionin another language, provided that the French version appears at least as prominently. However, on publicsigns and posters, and in commercial advertising, the use of a version of a name in a language other thanFrench is permitted to the extent that the other language may be used in such public signs and posters, orin such advertising, pursuant to the applicable regulation. In addition, in texts and documents drafted onlyin a language other than French, a firm name may appear exclusively in the other language.Doing Business In Canada 102
  • 113. Francization of BusinessA firm which employs fifty persons or more for a period of six months must register with the Office québécoisde la langue française (the “Office”). If the Office considers that the use of French in the firm is generalized atall levels of the firm (for example, written communications between employer and employees in French, andnew positions and promotions are offered in French), the Office will issue a “francization certificate”. If theOffice does not issue a certificate, it will notify the firm that it must adopt a francization program.The implementation of francization programs in head offices and research centres, may be the subject of spe-cial agreements with the Office to allow the use of a language, other than French, as the language of operation.For those firms employing one hundred or more persons, a francization committee composed of six ormore persons, must be formed. The francization committee is responsible for the monitoring of the firm’slanguage situation, as well as devising and implementing the firm’s francization program, and ensuring thatthe use of French remains generalized at all levels of the firm.Doing Business In Canada 103
  • 114. Financing Canadian OperationsDebt FinancingNew business ventures invariably need financing and, more often than not, require sources of fundingseparate and apart from the equity contributed by shareholders, partners or other owners. While debtfinancings can take a variety of forms, the sources of such financings for most Canadian businesses includebanks and other institutional lenders. To a lesser extent, debt financing is also sourced from parent com-panies or other shareholders or related persons, and even from trade creditors, which frequently offer theirproducts and services on customary trade or payment terms.Debt Financing by Banks and Other Institutional LendersMost banks and institutional lenders generate the largest portion of their revenues from interest, and feespayable to them on loans and other credit by their customers. Such lenders are in the business of investingin their customers and managing the risks of loan losses resulting from customer defaults. In recent yearsin Canada, banks and other institutional lenders have been experiencing an increase in competition forcorporate and commercial customers, and the investments they represent. To some extent, this increasedcompetition comes as a result of the banking and financial institution industry reforms adopted by theCanadian government, which may allow for new opportunities for foreign banks to acquire or set up financ-ing businesses in Canada. Perhaps to a larger extent, the level of competition here in Canada is a result ofeconomic factors, including a spillover into Canada of industry concentration and increased competitionoriginating in the U.S., Europe, Japan and elsewhere in the Far East. For whatever the reason, borrowers inCanada are generally well-advised to shop around for financing proposals from those lenders (or investors)that are willing to extend credit on the best available terms.Once the most attractive financing proposal is obtained from a particular bank or financial institution,and the requisite formal credit application has been submitted and accepted, a written offer to finance, inthe form of a term sheet or commitment letter, is normally prepared and delivered to the borrower. The termsheet or commitment letter will summarize the terms and conditions on which the bank or other financialinstitution will advance credit, including the list of the loan and security documentation required before anyadvance of the credit will be made. Once the borrower accepts the term sheet or commitment letterby signing it, a binding agreement is created (unless the document provides otherwise). In the case of largeror more complex loan arrangements, a formal loan or credit agreement is normally required which, whensettled and executed, will supersede the term sheet or commitment letter.Although a loan may either be secured or unsecured (generally determined based on a lender’s assessmentof the relative credit-worthiness of the borrower and the reduction in the interest rate and fee pricing, whichcan often result when security is made available), in most instances, security for borrowings will be requiredand, in certain cases, guarantees of the shareholders, subsidiaries or other related parties will be requested.The form of the required security will depend upon a number of factors, including whether the loan is pay-able on demand or in instalments over a specified term, or at a specified maturity date. Operating loans areusually payable on a demand basis, whereas term loans are usually paid in instalments over time, subject tothe lender’s right to accelerate the entire loan balance upon the occurrence of one or more specified eventsof default. Most credit facilities are secured by more than one type of security agreement and there canDoing Business In Canada 104
  • 115. often be overlapping security. In Canada, the tendency for banks is to take and hold a number of differentforms of security, even though one form of security may legally suffice. The following is a list of commontypes of security which banks and other institutional lenders in Canada may require: • a general assignment of accounts receivable or book debts; • a general security agreement creating a security interest in all of the borrower’s (or guarantor’s) present and after-acquired property, assets and undertaking; • a debenture charging all present and after-acquired property, assets and undertaking of the borrower (or guarantor), and which can include a specific mortgage and charge of real property; • a pledge of securities whereby ownership of the borrower or guarantor is taken as collateral; • security under Section 426 or 427 of the Bank Act (Canada), which provides for the creation and granting of special inventory security, which can only be taken by a Canadian chartered bank and which can only secure direct indebtedness (as well as certain contingent obligations in respect of bankers’ acceptances and letters of credit); such security can only be taken from specific classes of borrowers; and • in Quebec, security can also be taken on any type of asset, whether real (immovable) or personal (movable), tangible or intangible, in the form of a “hypothec”.Debt Financing by Shareholders and Other Business OwnersIt is generally recommended that shareholders or other owners of businesses, when making loan advancesto their company, obtain security for any and all such advances to the company. Where security is taken,the shareholders or owners who advance the loans will generally have claims that, in the event of aninsolvency or bankruptcy, will have priority over the claims of unsecured creditors (including most claimsof trade creditors). However, banks and other institutional lenders normally require that shareholders orowners holding security for shareholder advances, enter into agreements to postpone and subordinate theirsecurity in favour of the security held by the banks or institutional lenders.Non-Traditional FinancingsBanks and other financial institutions, in addition to the conventional types of credit facilities offered tocorporate/commercial borrowers, offer other less traditional forms of credit, including derivative or othertreasury products or services, to assist borrowers to hedge currency, interest rate or other market risks,to which they may be susceptible. In fact, now, many banks and institutional lenders often require as acondition of their loan or credit facilities, that their borrowers enter into these types of hedging facilitiesin order to manage their risk, and the risk which the bank or lender indirectly assumes through their invest-ment in the borrower.Since many of the Canadian banks now own or are affiliated with merchant banks and investment dealersactive in the capital markets, the types of credit and advisory products and services which are now availablefrom a single source have become quite broad. In Canada, as in other countries, this trend has translatedinto an increase in “hybrid” forms of financings, incorporating both debt and equity components, such asthrough the use of convertible debt instruments or warrants.Doing Business In Canada 105
  • 116. Participating DebtLenders may be persuaded to assume a greater degree of risk or to accept a lower assured yield on a loan, byusing a debt instrument which makes the lender’s return on investment dependent upon the success of the busi-ness. In addition to the interest on the loan, the lender would also share in the profits of the business when theyexceed a certain specified level. Alternatively, the lender may be granted the right to convert the debt instrumentinto shares of the corporation if the shares appreciate (for example, by way of a convertible debenture).Equity FinancingIntroductionA corporation seeking to raise capital may choose equity financing as an alternative to debt financing.Corporations seeking equity financing often cannot look to banks and other financial institutions to makeequity investments, in part due to the greater risk associated with equity investments. Instead, equityinvestments in “private corporations” are generally made by persons connected with the business andoperations of the corporation, or by certain investment corporations which are less “risk averse”, and whichhave been established to provide merchant banking, mezzanine financing or venture capital investments forstart-up and early stage corporate ventures. In the case of “public corporations”, equity financings are eithermade by way of an offering to the public using a prospectus, or pursuant to a private placement exemptionunder applicable securities legislation in Canada. In either case, corporations which issue securities arerequired to comply with the registration and prospectus requirements (or the exemptions therefrom)of applicable securities legislation in Canada.Securities Legislation in CanadaA FEDERAL LAWSGenerally speaking, there are no federal laws of general application governing securities transactions inCanada. Although corporations incorporated under the Canada Business Corporations Act (“CBCA”) aresubject to certain of its “securities” provisions relating to insider trading, the CBCA does not set forth a com-prehensive regulatory scheme for the distribution of securities by federal corporations. The federal Bank Actalso has requirements relating to insider trading, as well as the distribution of securities of chartered banks,as does the federal Trust and Loan Companies Act in relation to federally chartered trust and loan companies.Accordingly, in any transaction involving such federally regulated institutions, the special requirements ofthe governing legislation must be considered.B PROVINCIAL LAWSEach province of Canada has enacted its own securities legislation. Although such laws are not yet uniform,the basic regulatory concepts are common. Accordingly, a discussion of the Securities Act (British Columbia)(the “B.C. Act”), the Securities Act (Alberta) (the “Alberta Act”), the Securities Act (Ontario) (the “OntarioAct”) and the Securities Act (Quebec) (the “Quebec Act”), assists in understanding the securities legislationof the other provinces of Canada. Compliance with securities legislation is enforced by a securities commis-sion or equivalent regulatory body in each province. The provincial bodies coordinate regulatory initiativesthrough the Canadian Securities Administrators (“CSA”). In fact, the CSA, a voluntary umbrella organization,has made progress in pursing a national system of harmonized securities laws. The CSA has implemented anational passport system in every province other than Ontario, which allows issuers and registrants to dealDoing Business In Canada 106
  • 117. with only the regulator in their principal jurisdiction, and exempts such issuers and registrants from certainlegal requirements in other provinces and territories.Securities regulation in most provinces has the same broad objectives of protecting the investing public, theintegrity of the capital markets and the confidence of investors. This is accomplished through comprehen-sive sets of rules to ensure equal access to information, to provide for a level playing field for market partici-pants, and to set qualifications and standards of conduct for persons in certain fiduciary and other positions.Principal MechanismsThe principal mechanisms employed in each of the B.C. Act, the Alberta Act, the Ontario Act and theQuebec Act to achieve their respective objectives are the following: i. Registration: The requirement that participants in the capital markets who trade in securities, underwrite securities or advise with respect to investing in securities, be appropriately registered in order to do so. The definition of trading extends not only to original issues of securities, but also to secondary market activity. There is a limited list of exemptions from the registration requirements that are applicable to certain types of trades and to trades in certain types of securities. ii. Disclosure Requirements: Detailed rules governing information which must be made available to investors in order to ensure that they have adequate information available to them upon which to base their investment decisions. These disclosure requirements can be broken down into two categories: (i) prospectus disclosure requirements; and (ii) continuous disclosure requirements, each of which is discussed briefly under the corresponding subheading below. iii. Take-over Bid/Issuer Bid Requirements: A set of rules that governs the acquisition of significant interests in a public corporation and acquisitions by a corporation of its own securities. iv. Enforcement Powers and Remedies: Penal sanctions in respect of contraventions of the relevant securities laws, as well as certain enforcement powers which are granted to the relevant Securities Commissions, and civil remedies to investors who have suffered a loss because of a breach of the relevant Act.Prospectus Requirements and ExemptionsAn essential feature of Canadian securities laws is the requirement to prepare and have approved by the rel-evant Securities Commissions, a preliminary prospectus and a final prospectus in respect of a “distribution”of securities. Generally speaking, a distribution includes a trade in securities that have not been previouslyissued, a trade in previously issued securities from a “control block”, and trades in previously issued securi-ties that were originally issued in reliance upon an exemption from the prospectus requirements, and remainsubject to certain resale restrictions. A prospectus is a comprehensive disclosure document relating to theaffairs of the entity issuing the securities and to the particulars of the securities being distributed. It must beprepared in accordance with, and contain the information required by, the relevant securities laws and therules and regulations promulgated thereunder. In Quebec, the prospectus must be prepared in French only,or in French and English.Each of the B.C. Act, the Alberta Act, the Ontario Act and the Quebec Act, and the rules and regulationspromulgated thereunder, contain certain specific exemptions from this prospectus requirement. NationalInstrument 45-106 - Prospectus and Registration Exemptions (“NI 45-106”) - creates a national set ofDoing Business In Canada 107
  • 118. exemptions with only a few provincial differences. In the case of private placements of securities, someof the most commonly relied upon exemptions are as follows: • the accredited investor exemption: permits an unlimited number of purchasers to buy securities as principal if they fall within the definition of “accredited investor”, which includes, among other categories of investors: (i) an individual who owns, or together with a spouse owns, financial assets having an aggregate realizable value, that before taxes but net of any related liabilities, exceeding CDN$1,000,000; (ii) an individual whose net income before taxes exceeded CDN$200,000, or whose net income before taxes combined with that of a spouse exceeded CDN$300,000 in each of the last two years, and who in either case reasonably expects to exceed such net income level in the current year; (iii) a corporation, partnership, trust, fund and an association, syndicate, organization or other organized group of persons, whether incorporated or not (other than an investment fund) that has net assets of at least CDN$5,000,000, as shown on its most recently prepared financial statements; and (iv) certain banks and trust institutions, certain types of insurers, the Crown and Canadian municipal corporations, public boards and commissions; • the minimum amount investment exemption: permits a purchaser buying as principal, to acquire securities for an aggregate acquisition cost to such purchaser of not less than $150,000 paid in cash at the time of the trade; • the employee, executive officer, director and consultant exemption: permits an issuer to distribute its securities to its directors, executive officers, employees and consultants without a prospectus; • the private issuer exemption: permits a private issuer, that meets certain requirements, to make sales to purchasers in circumstances where each purchaser purchases as principal, and is not a member of “the public” in relation to such private issuer (e.g. directors, officers or employees of the company and certain of their relatives, close personal friends and close business associates, as well as any person who currently holds securities of the issuer) or to accredited investors; and • the offering memorandum exemption: permits an issuer to sell its securities to purchasers who are purchasing as principal, available in each of the provinces, except Ontario, if certain requirements are met, which vary depending upon the province, including at the same time or prior to entering into an agreement to purchase such securities, purchasers are delivered an offering memorandum and sign a risk acknowledgement form; an offering memorandum is a disclosure document similar to a prospectus, which must be prepared in accordance with a prescribed form; in British Columbia, there are no limits on who can purchase securities under this exemption; in Alberta and Quebec, unless the purchaser qualifies as an “eligible investor”, the issuer may rely on this exemption only if the purchaser’s acquisition cost does not exceed $10,000.It is also necessary to consider resale restrictions applicable under provincial securities legislation to securitiesissued in reliance upon an exemption. Under the “closed system” of securities regulation in Canada, the first tradein securities issued in reliance upon a prospectus exemption must generally either be made under a prospectus,pursuant to a further prospectus exemption or in compliance with the relevant resale restrictions (including holdperiod requirements) of provincial securities legislation. In contrast, when securities are distributed by way of aprospectus, they are thereafter freely tradeable, unless they form part of a “control block”.Doing Business In Canada 108
  • 119. If a corporation intends to seek the listing of its securities on a Canadian stock exchange, it is alsonecessary to comply with the additional requirements of such exchange, including initial and continuouslisting requirements.Registration Requirements and ExemptionsCanadian securities law requires that any market participant that conducts trading activity as a business,or holds itself out as being in the business of trading, comply with the dealer registration requirementsin National Instrument 31-103 - Registration Requirements and Exemptions (“NI 31-103”). The regulation re-quirements are intended to protect investors and ensure that market dealers have the necessary proficiency,insurance requirements, internal controls and meet the continuing compliance requirements for registrants.To determine whether registration is required, a market participant must assess whether its activitiesamount to trading and then consider whether it is carrying out the trading as a business. NI 31-103 outlinesa number of factors to be considered in determining whether this “business trigger” has been established.There are a limited number of exemptions from the registration requirements available to certain typesof market participants. The most commonly relied upon exemptions are as follows: • Trades Through a Registered Dealer – An exemption exists for a trade being conducted through a registered dealer. This exemption is only available where a trade is made solely through a dealer or if a registered dealer is purchasing a principal. • Mobility Exemption – This exemption is available to allow a registered participant to continue to deal with clients who move to a different jurisdiction without the requirement to register in that other jurisdiction. A registered firm may use this exemption for a maximum of 10 clients and an individual may use this exemption for up to five clients. • Northwestern Jurisdiction Exemption – The CSA has advised that British Columbia, Alberta, Manitoba, the Northwest Territories, Nunavut and the Yukon (the “Northwest Jurisdictions”) will establish a registration exemption for trades in securities that have been distributed under the following exemptions in NI 45-106: • the accredited investor exemption; • the minimum amount investment exemption; • the family, friends and business associates exemption; or • the offering memorandum exemption. A market participant wishing to rely on this exemption must: • not be registered in any jurisdiction (Canadian or otherwise); • not be in the business of providing trading suitability advice to the purchaser; • not provide financial services to the purchaser, except for in British Columbia; • have access to or hold the purchaser’s assets; • provide risk disclosure to the purchaser; and • file an information report with the appropriate securities regulatory authority.This exemption is not yet available in all of the Northwest Jurisdictions.Doing Business In Canada 109
  • 120. Continuous Disclosure RequirementsSecurities legislation applicable in each of British Columbia, Alberta, Ontario and Quebec, containsprovisions requiring public entities which are “reporting issuers” under such legislation, to promptly reportany material changes in their affairs, and to prepare quarterly interim and comparative annual financialstatements, with accompanying notes and management discussion, and analysis of financial condition andresults of operations. In addition, such legislation requires any person or company that solicits proxies fromvoting shareholders of reporting issuers to supply an information circular to such shareholders. Further,most reporting issuers are required to file an annual information form which provides supplemental analysisand background material relating to the issuer. As well, such legislation imposes obligations on “insiders” ofreporting issuers to report their shareholdings and to refrain from trading when having knowledge of mate-rial undisclosed information concerning an issuer’s affairs. Certain foreign reporting issuers which have a deminimis number of shares held by Canadian residents and are subject to foreign disclosure requirements ofcertain designated jurisdictions, as well as certain foreign reporting issuers which are registrants under U.S.securities legislation, are afforded relief from Canadian continuous disclosure requirements, provided thatthey comply with applicable foreign disclosure requirements. Reporting issuers are able to file “short form”or “simplified” prospectuses that incorporate their continuous disclosure documents by reference.Multijurisdictional Disclosure SystemThe CSA has implemented a multijurisdictional disclosure system which permits U.S. issuers that meetcertain eligibility criteria (which include market value, public float and U.S. reporting history tests, depend-ing on the nature of the offering) to distribute securities in Canada using disclosure documents preparedaccording to the requirements of U.S. regulatory authorities. In turn, the U.S. Securities and ExchangeCommission has implemented reciprocal measures which allow Canadian issuers meeting similar criteriato register securities in the U.S. using disclosure documents prepared according to the requirements ofCanadian regulatory authorities. The multijurisdictional disclosure system also facilitates compliance withproxy, insider reporting, third party, issuer, exchange and cash take-over bid/tender offer requirements,by generally recognizing the documentation of the “home” jurisdiction.Government AssistanceFederal, provincial and municipal government assistance is available to businesses in a wide variety of formsand can play a critical role in determining whether, when, where, and how to establish or expand a business.No financial or business development plan for a Canadian business should be regarded as complete, unlessthe opportunities for assistance from all three levels of government have been thoroughly explored.Government assistance at the federal and provincial level can take a variety of forms, including cash grants,cost sharing, forgivable loans, loans repayable in accordance with future sales or profits, equity participa-tion, tax exemptions or preferential rates, technical assistance (including specific expertise and work forcetraining assistance) and government procurement from the business. Municipal assistance can includereduced taxes or development fees (particularly for plant and office location in municipally-owned industrialand commercial parks) and amendment of existing land use controls.Government assistance programs at all levels of government are constantly evolving, and so are the typesof businesses and geographic areas targeted for assistance. Applicants should not be completelyDoing Business In Canada 110
  • 121. discouraged if an attractive proposal might appear not to meet stated eligibility criteria. Special exemptionsor related assistance programs may be found upon further exploration.Within the federal government, assistance programs are administered by a number of departments, withthe principal source of assistance and the general point of interdepartmental assistance program coordina-tion being the Department of Industry, Science and Technology.Applicants should generally be prepared to present to assistance program managers the same quality ofbusiness planning and skill necessary to persuade private sources of financing, plus a demonstration ofbenefits to Canada, the province or the municipality, as the case may be, such as increased employment,industrial linkages, technology transfer, use of domestically manufactured goods and expansion of exports.Finally, applicants should be prepared to demonstrate some long-term commitment to the area in question.Doing Business In Canada 111
  • 122. Security Interests In Personal PropertyIntroductionIn Canada, the power over the creation, perfection and priority of security interests in personal propertyprimarily rests with the individual provinces. This right arises from the provinces’ constitutional authorityto legislate in respect of property and civil rights. There are two basic regimes in Canada under which theprovinces maintain and regulate the protection of security interests in personal property.Security RegimesPPSA JurisdictionsAll of Canada’s provinces and territories (other than Quebec) have enacted specific Personal Property SecurityActs (each referred to as a “PPSA”). Generally, the PPSA in each of these jurisdictions is comparable in terms ofform and substance. Modelled after the original Article 9 of the U.S. Uniform Commercial Code, the PPSAs pro-vide defined rules with respect to all forms of security granted by debtors against personal property. Moreover,each PPSA uses a modern computer-based registration regime that provides notice of security interests topeople who deal with a debtor and his, her or its property. With specific exceptions, priority is measured bythe order of registration. This chapter focuses primarily on security taken in PPSA jurisdictions.Civil Code of QuébecThe Province of Québec, a civil law jurisdiction, permits security to be taken under the Civil Code of Québec(referred to as the “CCQ”). The CCQ came into force in 1994 and requires security to be taken over “mov-able” or personal property by way of an “hypothec”. The CCQ requires all hypothecs to be “published”or registered in order for the secured party’s interests to be effective as against, or “opposable to”, thirdparties. Although the terminology, concepts and procedures are somewhat different, the Quebec regimeoperates in a manner that is in many respects similar to the personal property security systems in placein other jurisdictions.Other Relevant LegislationThere is other legislation in force in all provinces that may also be relevant to lenders and other creditors.For example, fraudulent preference legislation deals with assignments and other transfers intended to de-feat, hinder, or delay creditors; repairers’ and storers’ lien legislation gives protection to repairers and storersof personal property; and consumer protection legislation may regulate borrowing charges and disclosure.Bankruptcy legislation is a federal responsibility that expressly recognizes the rights of secured creditorsunder provincial laws, but may alter unsecured creditors’ priorities from the pre-bankruptcy status.Bankruptcy legislation also sets out provisions regarding preferential or reviewable transactions, and theability of a trustee or affected parties to reverse such transactions.Bank Act SecurityIn addition to using the various types of security available to lenders generally, Canadian chartered banks(including Canadian branch operations of foreign banks which are licensed to carry on business in Canadaunder the Bank Act) have a special form of security they can take under the Bank Act (Canada). CanadianDoing Business In Canada 112
  • 123. banks may only take this special Bank Act security from specific classes of borrowers, such as wholesale and retail purchasers or shippers of, and dealers in, farm, mine, and sea products and manufacturers. This type of security is available to charge the borrowers’ inventory and certain other property, such as receivables generated from the sale of their products. Canadian Banks are also able to obtain special security rights under the Bank Act with respect to loans and advances made on the security of hydrocarbons and minerals- a form of security that may be useful in the oil and gas and mining sectors. Security taken in this context covers related rights, such as licences or permits, and equipment used in the extraction, mining, production or storing of such hydrocarbons or minerals.One of the big advantages which Bank Act security offers, is the ease with which the security can be takenand “perfected” throughout the entire country.Types of SecurityThe type of security taken in any given set of circumstances will depend on a number of factors, oftenrelating to the specific borrower, the nature of its assets or structure of the transaction. Personal propertysecurity can be taken over items specifically identified in the security document, or can cover all presentand future personal property of a debtor. Types of security agreements include, but are not limited to: • General Security Agreements (GSAs), which provide creditors with a security interest in the debtor’s personal property, including its undertaking (or business), inventory, equipment, accounts receivable and other property. While a GSA normally charges all present and after-acquired personal property, a GSA can easily be modified to charge or exclude specific items of personal property. The equivalent of the GSA in Quebec is the hypothec on a universality of movable property. • Debentures are frequently used to obtain security over real and personal property of debtors. Much like GSAs, debentures usually include security over all present and after-acquire property of the debtor. However, unlike GSAs, debentures are in a form which can readily be modified to be registered in real property title registry offices. In Quebec, security over real property (or “immovable property”) is taken by way of a notarial hypothec over immovable property. • Assignments of Accounts Receivable or Book Debts can be either general in nature or specific to a particular receivable. In Quebec, security over accounts receivable is taken by way of a movable hypothec. • Pledges require debtors to deliver specific assets to the creditor, such as securities (shares, bonds and other securities), or negotiable instruments, such as promissory notes. The creditor will ensure that the items pledged are negotiable and properly endorsed or accompanied by any necessary power of attorney to transfer. The creditor will retain possession of the pledged items for as long as the security is required, to the extent that the pledged securities are certificated. • Chattel mortgages, conditional sales contracts and leases are examples of specific security agreements. • In 2007, the Securities Transfer Act (Ontario) (the “STA”) came into effect in Ontario. Since then, most other provinces in Canada (including British Columbia, Alberta and Quebec) have adopted similar legislation. The STA is modeled after Article 8 of the Uniform Commercial Code (the “UCC”). The STA has modernized commercial practices regarding pledging of investment collateral as security for loan obligations. Although there are differences between the STA and the UCC, one of the mainDoing Business In Canada 113
  • 124. objectives of the STA was to make the laws regarding the pledging of investment collateral similar to comparable laws in the U.S., and other countries with advanced legislation regarding a pledging of investment collateral. At the same time as the implementation of the STA in Ontario and other provinces, various amendments were made to the PPSA in applicable provinces, so that the PPSA in such provinces would mesh with terms and concepts implemented by the STA.The PPSA - ApplicationSubject to specific exclusions, PPSAs apply to every transaction that, in substance, creates a security inter-est. A transaction will be within the scope of the PPSAs if it meets certain requirements: the transactionmust create a security interest or an interest in personal property and, in most provinces, the grantof a security interest secures the payment or performance of an obligation. The substance, not the formof the transaction, will determine whether a PPSA applies. Recent changes to the Ontario PPSA providethat it applies to a personal property lease for a term of more than one year (many of the PPSAs in otherprovinces already contain a comparable provision). The definition of debtor in the Ontario PPSA has alsobeen amended so that such term includes not only a person who owes payment or other performance ofan obligation, but also a person who owns or has rights in collateral, and makes the collateral available assecurity without assuming any obligation for the principal borrower’s obligations.Perfection and Attachment of Security InterestsEach PPSA requires the “attachment” of a security interest to the collateral, in order for a security interestto be enforceable against a third party. There are specific provisions in the PPSAs that enumerate therequirements of attachment and determine when attachment occurs. Once a security interest has “at-tached”, a creditor must ensure that its security interest is “perfected”, either by registration of a financingstatement or with certain types of collateral, or by possession or “control” of the collateral. Similarly, inQuebec, security by way of an hypothec is “perfected”: (i) by “publishing” (i.e. filing) a notice at the Personaland Movable Real Rights Registry Office maintained in the Province of Quebec, in the case of security overmovable property without possession; (ii) by publishing the hypothec at the land register in the jurisdictionwhere the immovable property is located, in the case of security over immovable property; or (iii) by pos-session of the collateral, in the case of movable property that is tangible (i.e. “corporeal”) or representativein nature, as the case may be.Personal Property Security Registration (PPSR)Each PPSA jurisdiction maintains a separate central security registry, which requires registration (andsearches) to be conducted in each province or territory in which the borrower has assets, or in which adebtor may be “deemed to be located” (i.e. chief executive office location). A “financing statement” is reg-istered in respect of the security agreement. The information is then recorded and maintained in a database,which is available for searching by potential lenders, other creditors or purchasers. Strict rules govern thecontents of a financing statement. Secured creditors are also required in a timely fashion to correct anyerrors in a registration, or file notices of changes to the essential elements of the registration. The registrysystem in Quebec is very similar to the PPSA jurisdictions in this regard.Doing Business In Canada 114
  • 125. Priorities within the PPSAsThe general rule under each PPSA is that the “first to perfect” will usually have priority over other securityinterests. This “first to perfect” rule, however, is subject to specific exceptions and super-priority for certaintypes of collateral in specified circumstances for a “purchase-money security interest” or “PMSI” or, in themajority of provinces, for perfection of a security interest by “control” in investment collateral. A PMSI isa security interest taken or reserved in collateral to secure payment of all or part of its price, or taken by acreditor who gives value for the purpose of enabling the debtor to acquire rights in or to the collateral, to theextent that the value is applied to acquire the rights. If a PMSI creditor strictly adheres to the rules set outin the applicable PPSA, the creditor will achieve priority over any other security interest in the same col-lateral granted by the same debtor, even though it is already registered in favour of another creditor. PMSI’s,however, may not have priority over Bank Act security. The “first to perfect” rule is also applicable in Quebec.Similar to the PPSAs, the CCQ also provides for certain exceptions to the rule.Rights and Remedies upon DefaultThe PPSAs and the CCQ also contain comprehensive rules dealing with rights and remedies of creditorsfollowing default by their debtors. The rights of a secured party include, but are not limited to, the right totake possession of the collateral, the right to retain the collateral or the right to dispose of the collateral.The PPSAs also enumerate rights and remedies of the debtor. These include, but are not limited to, the rightto redeem the collateral or a right to reinstate the security agreement, and the right to receive notice of thecreditors’ intentions upon default.Each PPSA also specifies that in addition to the rights and remedies enumerated in the PPSA, the principles oflaw and equity continue to apply, unless they are inconsistent with the express provisions of the legislation.The PPSAs have been in place in several jurisdictions in Canada for at least twenty-five years. There isconsiderably more certainty and consistency in commercial transactions, now that all jurisdictions (withthe exception of Quebec) are using essentially the same statutory provisions and principles. Despite thedifferences in terminology, practices and procedures between Quebec and the PPSA provinces, in mostcases, substantially the same or similar rights and remedies are available to creditors in Quebec, as thosethat apply in PPSA jurisdictions.Doing Business In Canada 115
  • 126. Corporate InsolvencyIntroductionThe primary federal legislation governing corporate insolvency in Canada is the Bankruptcy and InsolvencyAct (the “BIA”) and the Companies’ Creditors Arrangements Act (“CCAA”). Because Canada is a federationthough, both federal and provincial statutes may be relevant to corporate insolvencies in Canada.Under the Constitution Act, provincial governments have jurisdiction over property and civil rights within aprovince. As such, they have enacted statutes dealing with fraudulent conveyances and preferences, andthe perfection of security interests in property. All of these statutes impact upon bankruptcy and insolvencyin Canada, which is federally regulated.Notwithstanding this jurisdiction, provincial statutes often complement federal insolvency legislation. Forinstance, corporate statutes of the provinces provide for the dissolution or winding up of the affairs of com-panies having provincial objects, as well as the distribution of corporate assets. Yet, these provisions are notavailable to corporations in circumstances of insolvency. If a corporation is insolvent, the proper mechanismfor the distribution of its assets is through federal insolvency legislation. Whenever there is conflict betweenfederal and provincial enactments, federal legislation will be paramount.There are three main types of insolvency proceedings in Canada: proceedings under the CCAA; the appoint-ment of a receiver under provincial law and/or under the BIA; and proceedings under the BIA.InsolvencyA corporation may be insolvent without being bankrupt. By legal definition, a company is “insolvent” if: • it is unable to meet its obligations as they generally become due; • it ceases to pay its current obligations as they generally become due in the ordinary course of business; or • the aggregate of its property is not sufficient to enable payment of all of its obligations if disposed of at a fairly conducted sale under legal process.Arrangements under the Companies’ Creditors Arrangement ActA corporate debtor can seek protection from its creditors by making an application under the CCAA. TheCCAA is not a detailed code like the BIA, but is a relatively brief flexible statute that is driven by courtorders. Because of its flexibility, the CCAA has been used in most complex insolvencies for large Canadiancorporations.In order to qualify for protection under the CCAA, the debtor corporation must be insolvent and have atleast $5,000,000 of indebtedness (secured/unsecured). When a court grants the debtor corporationprotection under the CCAA, the court also appoints a Monitor to oversee the operations of the corporationduring CCAA protection and to report to the court on the corporation’s activities. The initial court order ina CCAA proceeding typically establishes a stay of proceedings against the debtor in order to maintain thestatus quo while the debtor formulates a restructuring plan. The CCAA may also be used to facilitate theDoing Business In Canada 116
  • 127. sale of a debtor company’s assets. However, its primary and overriding purpose is to allow a debtor com-pany to propose a plan of arrangement or compromise to its creditors. Any plan proposed by a debtor to itscreditors must be approved by all affected classes of creditors by a vote of 50% in number and 2/3 in valueof the indebtedness. The plan must also be sanctioned by the court.ReceivershipsReceivership is a remedy primarily used by secured creditors to recover collateral over which a securityinterest has been granted to them by the debtor. In the common law provinces of Canada (i.e. excludingQuebec), there are two types of receivers: privately-appointed receivers and court-appointed receivers.A privately-appointed receiver is appointed by a secured creditor pursuant to an appointment letter, inaccordance with the contractual rights granted to the secured creditor by the debtor in a security agreementwhich provides for the appointment of a receiver. A privately-appointed receiver is deemed to be agent ofthe secured creditor for the purpose of realizing on the collateral secured under the security agreementexecuted by the debtor, and an agent of the debtor for the purpose of operating the business. A privately-appointed receiver has the powers granted to it under the security agreement.A court-appointed receiver is appointed pursuant to a court application made, generally, by a securedcreditor, under provincial law where it is “just and equitable” to do so, or under the BIA. As court officers,receivers are required to act in a commercially reasonable fashion and in good faith. A court-appointedreceiver has only those powers granted to it pursuant to the court order under which it was appointed.Court-appointed receivers may seek directions from the court with respect to issues such as sales of assets.Proceedings under the Bankruptcy and Insolvency ActInvoluntary and Voluntary BankruptcyCreditors may force a company into bankruptcy by filing a “bankruptcy application” with the court. To besuccessful, the creditor must be owed $1,000 or more, and the debtor must have committed an “act ofbankruptcy” within the preceding six months. Once satisfied that the debtor should be adjudged bankrupt,the court may issue a “bankruptcy order”. However, the court retains the discretion not to grant a bank-ruptcy order if the court finds that the motivation of the applicant creditor is improper.Alternatively, an insolvent company may “assign” its property to a trustee in bankruptcy for the generalbenefit of its creditors. The board of directors of the debtor company must resolve to assign the companyinto bankruptcy, complete the prescribed form and file it along with the directors’ resolutions with the officeof the “Official Receiver”, which is part of the federal government.Administration of the BankruptcyOnce in bankruptcy, a debtor ceases to have the capacity to dispose of or otherwise deal with its property.Subject to the rights of secured creditors, the property of the debtor vests solely in the trustee in bankruptcy(the “Trustee”), who is charged with the administration of the estate.Doing Business In Canada 117
  • 128. The primary responsibility of the Trustee is to deal with the property of the bankrupt. The Trustee mustimmediately take possession of all books, records and other documents of the bankrupt, to create aninventory of property.At the meeting of creditors, the Trustee advises the creditors on the details of the causes of the bankruptcy,the assets of the bankrupt and the claims of creditors. The creditors who have filed a valid proof of claimwith the Trustee prior to the meeting, may vote whether to confirm or replace the Trustee and appointinspectors of the bankruptcy estate (the “Inspectors”), who instruct the Trustee in the administration of theestate on behalf of the general body of creditors.With few exceptions, all of the property of the bankrupt at the date of the bankruptcy, or that may beacquired before a discharge from bankruptcy, is divisible among its creditors. Generally, the Trustee may sellthe property of the bankrupt or, more rarely, lease property. A Trustee is also permitted to carry on the busi-ness of the bankrupt, bring legal proceedings, retain a solicitor, borrow money, compromise claims madeagainst the estate, and divide and distribute property to the creditors. However, to do any of these tasks,the Trustee must obtain the permission of the Inspectors or the Court.In order to participate in the administration of the bankruptcy estate and to receive payment of a dividend fromthe estate, a creditor must file a proof of claim with the Trustee in the form prescribed by the BIA. Subject toappeal to the court, the Trustee may disallow any claim in whole or in part. If the claim is approved, that credi-tor will share in the recovery from any realization on the property of the bankrupt. A scheme of distribution offunds realized from the disposition of the property of the bankrupt is set out in the BIA.Scheme of DistributionThe BIA allows very little flexibility in the distribution of any proceeds from the sale of assets of the bankrupt.Certain priority claims must first be dealt with in both a bankruptcy and a receivership (as discussed below).Subject to those priority claims, with limited exceptions, secured creditors are unaffected by a bankruptcy andare permitted to enforce their security over the assets of the bankrupt, once the Trustee and its counsel reviewthe security documentation held by the secured creditor to ensure it is valid and enforceable. The BIA providesthat some kinds of unsecured creditors are given priority in payment. These preferred creditors include thefees of the Trustee and its counsel, and some claims for rent. After preferred claims are paid in full, all otherunsecured claims provable in bankruptcy are paid proportionately to the amount of the indebtedness.Priority ClaimsThere are a number of claims in both a bankruptcy and a receivership which have priority over all othercreditors of a debtor company: • governmental claims against the debtor for certain tax liabilities; • employee claims for unpaid wages related to services rendered in the six months preceding the bankruptcy/receivership, up to a maximum amount of $2,000 per employee; • claims relating to unpaid employee pension plan contributions and the “normal” employer pension contributions; and • claims of unpaid suppliers to repossess goods that they have delivered to a debtor within the 30 days prior to the bankruptcy or receivership, which have not fully been paid for.Doing Business In Canada 118
  • 129. Unpaid suppliers must give notice in a prescribed form to the Trustee or Receiver within 15 days of thecommencement of the bankruptcy or receivership in order to qualify for this remedy. As well, the goodsmust be in the possession of the Receiver or Trustee, remain identifiable, and cannot have been altered fromthe state in which they were shipped.ProposalsA business debtor may also gain protection from creditors if it appears likely that it may create a viable pro-posal to deal with the debts. To do so, the company may file with the Official Receiver a “Notice of Intentionto Make a Proposal”. Upon filing the notice, the debtor is given a thirty-day stay against all proceedings byunsecured creditors and, in certain circumstances, secured creditors. The court may grant extensions onthis stay for periods of up to forty-five days at a time. These extensions, however, cannot exceed a totalperiod of six months. This allows the debtor to adequately prepare a proposal for its creditors. The notice ofintention names a Trustee to monitor the affairs of the debtor, and prepare a projected cash flow statementfrom which the creditors must ultimately base their decision whether or not to accept the proposal.Within twenty-one days of the filing of the proposal, the Trustee must call a meeting of all creditors. Atthis time, a further stay is imposed on all creditors to whom the proposal is made. A proposal is deemedaccepted by creditors if all classes of creditors vote in favour of its acceptance by a majority in numbersholding 2/3 of the indebtedness for such class of creditors. Moreover, one class of creditors voting againstthe proposal results in a deemed assignment into bankruptcy. Within five days of the creditors voting infavour of a proposal, the Trustee must apply to the court for a hearing of the application. A proposal will notbecome binding on the creditors in the absence of approval by the court. If a proposal is accepted by therequisite number of creditors and approved by the court, then those creditors affected by it are bound by itsterms, whether or not they voted in favour of the proposal.Reviewable TransactionsThe BIA gives the Trustee the right to examine certain transactions by a debtor prior to bankruptcy, and toset these transactions aside in certain circumstances. Insolvency legislation in Canada has recently beenamended to modify the reviewable transaction remedies and to also make these remedies available inproceedings under the CCAA.Any transfer of property or payment of money within three months of the bankruptcy in favour of a creditorby an insolvent person that prefers the payment to one creditor over other creditors, may be deemed void asagainst the Trustee. Where the transfer or payment is in favour of a creditor who is related to the bankrupt,the review period is extended back a year prior to the date of bankruptcy.The BIA also provides a Trustee with certain rights to attack transfers of property which were not made foradequate consideration, and seek redress against the recipient of the property or persons “privy” to thetransaction.In circumstances of preferences and fraudulent conveyances, provincial legislation may apply. For example,Ontario has the Assignments and Preferences Act and the Fraudulent Conveyances Act. In some instances, suchlegislation may provide alternatives to the provisions in the BIA. In other instances, such legislation may bethe only available mechanism to effect any recovery. Generally, it is more difficult to set aside a transactionunder provincial statutes than under the remedies provided for in the BIA.Doing Business In Canada 119
  • 130. The Assignments and Preferences Act applies to set aside transactions made by an insolvent person or a“person in contemplation of insolvency”, with an intent to give an unjust preference to a creditor. As a result, the transaction may be declared void. The Assignments and Preferences Act may also catch transactions that are outside the time periods of the BIA.The Fraudulent Conveyances Act provides that every conveyance of real or personal property made with in-tent to defeat, hinder, delay, or defraud creditors or others, can be set aside by the creditor. Insolvency of theparty transferring the assets is not a prerequisite to the application of this Act. The Fraudulent ConveyancesAct may be available in circumstances where the provisions of the BIA would not apply.Doing Business In Canada 120
  • 131. Regulation Of Specific IndustriesIn addition to certain laws of general application, which have been discussed above, the Canadian federaland provincial governments and, in some cases, the governments at municipal levels, have enacted anumber of regulatory laws directed at business practices within specific industries.For example, the federal government, through the Canadian Transportation Agency, regulates the airtransportation industry, by requiring companies in this industry to have licences to operate. Similarly, theprovinces directly regulate competition and trade practices in a variety of specific industries, such as truck-ing and travel agencies. In some cases, there are parallel federal and provincial regulatory laws affectingcertain industries, such as insurance. The securities and financial services industries are subject to specificenactments, as is the mining industry. Depending on the type of industry, there may also be administrativeagencies, boards or commissions which exercise control over its participants.The North American trend to restructure the telecommunications and electricity industries, as well asother traditional monopolies, has been a focus of much recent government activity. Long distance and localtelephony have been re-cast as a competitive business. This has resulted in the passage of a variety ofindustry-specific legislation and regulations. The provision of electricity, among others, continues to movetowards a competitive market.The introduction of market forces into traditionally public enterprises through public-private-partnerships inhospital, highway and other infrastructure projects, is also leading to new regulatory regimes. Participants insuch endeavours can anticipate regulatory structures to be introduced by contract, and potentially by publicregulatory instrument or agency.It is not possible in this publication to outline the numerous considerations which might be relevant to aforeign business entity wishing to establish business operations in any specific industry in Canada. Anyforeign business wishing to carry on activities in Canada should consult with its professional advisers toensure that it is aware of the regulatory framework applicable to its particular industry, including the needfor any licences or other governmental approvals necessary to its operations.Doing Business In Canada 121
  • 132. ConclusionThe purpose of this publication has been to present a general overview of the legislative and regulatoryframework faced by foreign businesses wishing to establish or acquire a business in Canada. It is beyond thescope of such a summary to review such legislation in depth, or to provide particulars of the legal and otherconsiderations which should be reviewed when dealing with a particular industry. This publication doesnot constitute legal or tax advice to any person. Persons contemplating business activity in Canada shouldconsult with their professional advisers to ensure that their endeavours are structured in compliance withlocal laws and to ensure maximum benefit.Fraser Milner Casgrain llpMay, 2010Doing Business In Canada 122
  • 133. About FMCFraser Milner Casgrain LLP (FMC) is one of Canada’s leading business and litigation law firms with morethan 500 lawyers in six full-service offices located in Montréal, Ottawa, Toronto, Edmonton, Calgary andVancouver. The way in which we conduct our business is driven by our core values – our commitment to ourclients and respect for our people. The expertise and capabilities of our professionals extend across numer-ous industry sectors and law disciplines on regional, national and international levels. Through excellence inservice, value and teamwork, we consistently deliver quality business solutions to our clients, leveraging thediversity of our people in an inclusive environment.Whether you require the services of an individual lawyer, the dedication of a client service team or theresources of a national practice group, FMC has a well-earned reputation for consistently delivering thehighest quality legal services and counsel to its clients, regardless of where you choose to do business inCanada.LOCAL DEPTH, NATIONAL STRENGTH, INTERNATIONAL REACHEach of our full-service offices located in the country’s key business centres, rank among the leaders in itsrespective market, and is completely familiar with local business and market conditions. Where a transac-tion or project requires specialized knowledge or expertise, or where jurisdictional complexities or timepressures demand additional resources, the full strength and depth of one of Canada’s largest and mosttrusted national business law firms can quickly be made available.We regularly establish multidisciplinary teams to address the most complex issues or opportunities ef-fectively and efficiently. Our offices are linked by sophisticated technologies to streamline communication,collaboration and workflow, and our lawyers are accustomed to practising nationally and working as part ofnational practice groups.As Canada/U.S. cross-border transactions have continued to grow in both volume and complexity, so toohas FMC’s ability to service clients operating in the cross-border arena. The firm also has extensive businessand law firm relationships in key U.S. cities, such as Chicago, New York and San Francisco, which furtherstrengthens FMC’s position as a top-tier Canadian business law firm.FMC’s clients include major corporations (both private and public) in all sectors of the economy, nationaland international companies active in Canada and abroad, entrepreneurs and emerging businesses, as wellas governments and institutions. Our clients are involved in financial services, communications, advancedtechnologies, e-commerce, pharmaceuticals and biotechnology, oil and gas, energy, insurance, health care,manufacturing, real estate, construction, retail, professional services, transportation, forestry, mining andmany other industries.OUR APPROACHAt FMC, we understand the complexities posed by changing market conditions. We know that to serve yourneeds effectively, we must understand your business and objectives in a broad context in order to anticipatedevelopments, identify opportunities and respond to challenges.Doing Business In Canada 123
  • 134. Key Contacts Toronto Christopher E. Pinnington Chief Executive Officer chris.pinnington@fmc-law.com 416 863 4409 Montréal JoAnne Wakeford Manager, Business Development, Cross-Border joanne.wakeford@fmc-law.com 514 878 5845