Doing-Business-in-Canada - Unknown PDF

DOING BUSINESS
IN CANADA
An Introduction to the Legal Aspects
of Investing and Establishing
a Business in Canada
DOING BUSINESS IN CANADA
AN INTRODUCTION TO THE LEGAL ASPECTS OF
INVESTING AND ESTABLISHING A BUSINESS IN CANADA
BORDEN LADNER GERVAIS LLP

Lawyers | Patent & Trade-mark Agents
© 2012 – 2013 Borden Ladner Gervais LLP,

an Ontario Limited Liability Partnership.
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cannot be used, for the purpose of (i) avoiding penalties under the Internal
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any matters addressed herein.
©Borden Ladner Gervais LLP, 2012 – 2013. All rights reserved. No part of
this publication may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means without the prior written permission of
Borden Ladner Gervais LLP.
Borden Ladner Gervais LLP, an Ontario Limited Liability Partnership
TABLE OF CONTENTS
CHAPTER 1 1
INTRODUCTION.........................................................................................................1
CHAPTER 2 3
THE CANADIAN LEGAL SYSTEM ...............................................................................3
CHAPTER 3 5
FOREIGN INVESTMENT REGULATION ........................................................................5
3.1 Notification and “Net Benefit to Canada” Review............................................... 5
3.2 Applicable Thresholds for a “Net Benefit to Canada” Review............................ 6
3.3 The Application Process....................................................................................... 7
3.4 The “Net Benefit” Factors.................................................................................... 7
3.5 The “National Security” Review.......................................................................... 8
3.6 The National Security Review Process................................................................. 8
3.7 Corporate Ownership Restrictions...................................................................... 10
3.8 Directors’ Residency Requirements................................................................... 10
CHAPTER 4 11
BUSINESS FORMATION...........................................................................................11
4.1 Branch or Subsidiary.......................................................................................... 11
4.2 Corporations....................................................................................................... 11
4.3 Proprietorships.................................................................................................... 16
4.4 Partnerships......................................................................................................... 16
4.5 Joint Ventures...................................................................................................... 17
CHAPTER 5 19
FINANCING CANADIAN OPERATIONS........................................................................19
5.1 External Financing.............................................................................................. 19
5.2 Government Assistance Programs...................................................................... 22
CHAPTER 6............................................................................................................25
SECURITIES REGULATION........................................................................................25
6.1 General................................................................................................................ 25
6.2 Registration of Dealers ...................................................................................... 25
6.3 Registration of Advisers..................................................................................... 26
6.4 Registration of Investment Fund Managers........................................................ 26
6.5 Issuing Securities in Canada............................................................................... 26
6.6 Listing Requirements.......................................................................................... 27
6.7 Take-over Bids.................................................................................................... 27
6.8 Issuer Bids.......................................................................................................... 27
6.9 Investors.............................................................................................................. 28
CHAPTER 7 29
CANADIAN IMMIGRATION PROCEDURES
FOR BUSINESS PEOPLE..........................................................................................29
7.1 Non-Immigrant or Temporary Entry................................................................... 29
7.2 Dependants of Foreign Worker........................................................................... 31
CHAPTER 8 33
EMPLOYMENT LAW.................................................................................................33
8.1 Constitutional Jurisdiction.................................................................................. 33
8.2 Individual Contracts of Employment.................................................................. 33
8.3 Employment Conditions Imposed by Statute..................................................... 35
8.4 Workers’ Compensation...................................................................................... 36
8.5 Canada Pension Plan........................................................................................... 36
8.6 Employment Insurance....................................................................................... 37
8.7 Human Rights Legislation.................................................................................. 37
8.8 Employment Governed by Collective Agreements............................................ 38
8.9 Whistleblower Protection................................................................................... 39
CHAPTER 9 41
DIRECTORS AND OFFICERS LIABILITY 41
9.1 Duties and Liabilities of Directors...................................................................... 41
9.2 Duties and Liabilities of Officers........................................................................ 43
9.3 Protections and Defences for Directors and Officers......................................... 43
CHAPTER 10 45
CANADIAN INTERNATIONAL TRADE REGULATION.....................................................45
10.1 Canadian Import Laws........................................................................................ 45
10.2 The Classification of Goods................................................................................ 45
10.3 The Valuation of Goods...................................................................................... 45
10.4 Duty Remission and Other Schemes.................................................................. 46
10.5 Export and Import Controls................................................................................ 46
10.6 Canadian Trade Remedy Laws........................................................................... 46
10.7 North American Free Trade Agreement.............................................................. 47
10.8 Other Trade Agreements..................................................................................... 47
CHAPTER 11 49
COMPETITION LAW.................................................................................................49
11.1 Merger Review................................................................................................... 49
11.2 Criminal Offences............................................................................................... 50
11.3 Misleading Advertising and Deceptive Marketing Practices.............................. 51
CHAPTER 12 53
SALE OF GOODS AND CONSUMER PROTECTION......................................................53
12.1 Regulation of Advertising................................................................................... 53
12.2 Regulation of Labelling of Goods in Canada..................................................... 53
12.3 Product Liability Law......................................................................................... 55
CHAPTER 13 57
FRANCHISING.........................................................................................................57
13.1 Structure of the Franchise................................................................................... 57
13.2 Foreign Franchisors............................................................................................ 58
13.3 Compliance with Federal and Provincial Legislation......................................... 58
CHAPTER 14 61
INTELLECTUAL PROPERTY......................................................................................61
14.1 Trade-marks........................................................................................................ 61
14.2 Copyright............................................................................................................ 62
14.3 Patents................................................................................................................. 64
14.4 Industrial Design................................................................................................. 65
14.5 Licensing............................................................................................................. 65
CHAPTER 15 67
E-COMMERCE.........................................................................................................67
15.1 E-Commerce Legislation in Canada................................................................... 67
15.2 The Validity of Electronic Documents............................................................... 68
15.3 Contract Formation and Contract Enforceability............................................... 68
15.4 Sending and Receiving Electronic Records........................................................ 69
CHAPTER 16 71
PRIVACY..................................................................................................................71
16.1 Personal Information Protection Legislation...................................................... 71
16.2 Other Privacy Obligations.................................................................................. 73
CHAPTER 17 75
REAL PROPERTY ACQUISITIONS IN CANADA................................................... 75
CHAPTER 18 79
ENVIRONMENTAL LAW............................................................................................79
18.1 Permits................................................................................................................ 79
18.2 Contaminated Sites............................................................................................. 79
18.3 Environmental Impact Assessments................................................................... 79
18.4 Species Protection............................................................................................... 80
18.5 Transportation of Dangerous Goods................................................................... 80
18.6 Climate Change.................................................................................................. 81
18.7 Water................................................................................................................... 81
CHAPTER 19 83
TAXATION...............................................................................................................83
19.1 Residency............................................................................................................ 83
19.2 Income Tax Rates................................................................................................ 83
19.3 Filing and Reporting Requirements.................................................................... 84
19.4 Business Income................................................................................................. 84
19.5 Employment Income........................................................................................... 85
19.6 Income from the Disposition of Certain Properties............................................ 85
19.7 Withholding Taxes.............................................................................................. 85
19.8 Branch Tax.......................................................................................................... 86
19.9 Canadian Taxation of Non-Resident Trusts........................................................ 86
19.10 Capital Tax.......................................................................................................... 86
19.11 Commodity and Sales Taxation.......................................................................... 86
19.12 Value-Added Taxes............................................................................................. 87
19.13 Provincial Retail Sales Tax................................................................................. 87
19.14 Other Provincial Taxes........................................................................................ 88
CHAPTER 20 89
INSOLVENCY AND RESTRUCTURING........................................................................89
20.1 BIA Liquidation (Bankruptcy)............................................................................ 89
20.2 BIA Reorganization............................................................................................ 90
20.3 Reorganization under the Companies’ Creditors Arrangement Act.................... 90
20.4 Receivership....................................................................................................... 91
CHAPTER 21 93
LITIGATION, ARBITRATION AND MEDIATION.............................................................93
21.1 The Canadian Court System............................................................................... 93
21.2 Civil Procedure................................................................................................... 93
21.3 Class Proceedings............................................................................................... 94
21.4 Damages............................................................................................................. 94
21.5 Mediation............................................................................................................ 94
21.6 Arbitration........................................................................................................... 94
CHAPTER 22 97
LANGUAGE CONSIDERATIONS.................................................................................97
Chapter 1
INTRODUCTION
(Current as of January 2013)
This booklet surveys the key areas of Canadian law that may be of inter-
est to those looking to invest or do business in Canada. It is an introduction, in-
tended to provide general information only, and does not constitute the provision
of legal or other professional advice. Since laws vary among provinces and
change from time to time, if you are considering investing in Canada or estab-
lishing business operations here, you should always obtain legal advice from a
qualified and competent professional regarding your particular circumstances.
2 |
Chapter 2
THE CANADIAN LEGAL SYSTEM
(Current as of April 1, 2013)
Canada’s legal system includes two of the world’s major legal traditions: English
common law, applied in nine provinces and three territories; and French civil law,
applied in the province of Québec. Constitutionally, Canada is a federal state, in
which some powers are assigned to the federal government and others to the prov-
incial and territorial governments.
For most businesses, provincial laws have a greater impact than federal laws, since
the provincial governments have power over “property and civil rights”, which in-
cludes contract law, labour relations, occupational health and safety, consumer pro-
tection, real estate transactions, land use, municipal law (municipalities derive their
powers from provincial statutes), securities law and regulation of professionals.
So far as businesses are concerned, federal jurisdiction is more narrowly focused, on
particular kinds of business (for example, banks and most other financial institu-
tions, airlines, railways, broadcasters, and telecom companies), particular kinds of
property (for example, patents, trademarks and other intellectual property), particu-
lar kinds of behaviour (such as crime and anti-competitive practices), or matters of
national significance (such as immigration, customs and monetary policy).
In some cases, an aspect of a business may be subject to either federal or provincial
regulation. An employer’s relations with employees are generally governed by prov-
incial labour and employment laws, but if the business is a bank, railway, airline or
other “federal” business, those relations are governed by a federal labour code. In
other cases, different aspects of the business may be regulated at different levels: for
example, all major insurance companies are federally chartered, and their govern-
ance and prudential practices are subject to the oversight of the federal Superintend-
ent of Financial Institutions, but their marketing, policies and relations with
policyholders are subject to provincial insurance laws. In a few cases, there is dupli-
cation: for example, there are both federal and provincial environmental regulations.
This “division of powers” is further complicated by a number of arrangements in
which a province may “opt out” of a federal program (for example, Québec admin-
isters its own provincial pension plan, separate from the Canada Pension Plan), or
the federal government may recognize a provincial regime as being an acceptable
substitute for the federal regime in the same area (for example, in Québec, Alberta
and British Columbia, businesses comply with only the provincial privacy law).
Both levels of government impose personal and corporate income taxes and trans-
action taxes, though in many cases there are administrative arrangements under
which the federal government administers both taxes: for example, except in Qué-
bec, payroll deductions for employment insurance, government pensions and in-
come tax are paid only to the federal government, but are credited to the employee’s
tax obligations at both levels; similarly, in all provinces but Alberta and Québec,
the provincial corporate tax is collected by the federal government under a single
tax return.
Unlike many other federal states, however, the Canadian judicial system is mostly
unitary. There is a specialized Federal Court (including both trial and appellate lev-
els), which has jurisdiction over specific areas such as tax, intellectual property and
admiralty, but virtually all other litigation is brought in a provincial superior court,
from which there is an appeal to a provincial court of appeal. The Supreme Court
of Canada hears appeals from both the federal and provincial courts of appeal.
Canada is receptive to foreign ideas and capital. Canadian courts often look to for-
eign judicial decisions for guidance, and both the federal and provincial legislatures
frequently adopt foreign legislative models (for example, the Personal Property
Security Act in force in the common law provinces is essentially the same as Arti-
cle 9 of the Uniform Commercial Code). Because of this interest in international
legal developments, many of Canada’s laws and governmental policies reflect inter-
nationally accepted norms (for example, unlike the US, Canada has adopted the
International Financial Reporting Standards for public companies and other “pub-
licly accountable entities”).
However, there are legal considerations unique to doing business in Canada, for
both domestic and foreign companies.
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Chapter 3
FOREIGN INVESTMENT REGULATION
(Current as of January 28, 2013)
Generally, there are few restrictions on foreign investment in Canada, although some
screening does take place and some sectors are subject to special limits at the federal
or provincial levels. Foreign investment in Canada has been subject to some type of
screening or review for almost 40 years. Such review generally occurs pursuant to
the Investment Canada Act. The Investment Canada Act was introduced in 1985 to
replace the much more restrictive Foreign Investment Review Act, which had initially
been introduced in 1973. The purpose of the Investment Canada Act was initially to
provide a mechanism for the federal government to review only significant invest-
ments in Canada. Recent amendments have expanded its scope to also provide for
the review of any foreign investment in Canada that may raise national security
concerns. The Investment Canada Act applies to all “non-Canadians”, which includes
any person that is not a Canadian citizen or permanent resident of Canada, along
with any entity that is not controlled or beneficially owned by Canadians.
The Investment Canada Act contains two separate review processes. These
two processes are subject to differing thresholds and different procedures, and
consider different factors. The first process provides for the review of only those sig-
nificant investments over certain specified financial thresholds. This process
considers whether such investments will be of “net benefit to Canada”. The second
process applies generally, to any investment by a non-Canadian in or into Canada,
regardless of size, and considers whether the investment might reasonably be
expected to injure Canada’s national security.
3.1 Notification and “Net Benefit to Canada” Review

In all cases of an investment in Canada by a non-Canadian to establish a new
business or acquire control of an existing Canadian business, the non-Canadian must
file either: (a) a straight-forward “Notification” of the investment; or (b) a much
more in-depth “Application for Review”. A Notification must be filed each time a
non-Canadian commences a new business activity in Canada or acquires control of
an existing “Canadian business” where the establishment or acquisition of control is
not otherwise subject to a “net benefit to Canada” review. A “Canadian business» is
defined to be a business carried on in Canada that has: (a) a place of business in
Canada; (b)��
��
an individual or individuals employed or self-��
employed in connec-
tion with the business; and (c) assets in Canada used in carrying on the business.
Current ownership or control of the business is not relevant to this determination and
therefore foreign-owned entities operating in Canada will still be considered
“Canadian businesses”. If only a Notification is required, it must be filed by the non-
Canadian making the investment at any time prior to the implementation of the in-
vestment or within 30 days following implementation. However, if the investment
is subject to a “net-benefit” review and an Application for Review must be filed, the
Application must be filed and the review process completed before the investment
can be implemented in most cases.
3.2 Applicable Thresholds for a “Net Benefit to Canada” Review

The acquisition of control of an existing Canadian business by a non-Canadian
will be subject to a “net benefit” review (as opposed to being merely notifiable)
if the book value of the assets being acquired exceeds one of the following applic-
able thresholds:
• if the investor is from a country that is not a Member of the World Trade Organ-
ization (“WTO”), any acquisition over C$5 million, for a direct acquisition,
or over C$50 million, for an indirect acquisition;
• subject to the exception described below, if the investor is from a WTO Member
country, any direct acquisition in excess of C$344 million1 is reviewable (indirect
investments by WTO investors are not reviewable); and
• the C$344 million threshold that generally applies to WTO investors does not
apply in the case of any acquisition of a Canadian business engaged in a cultural
business (such as the publishing, distribution or sale of books, magazines, news-
papers, films or music) (in cases of such cultural investments, the lower review
thresholds set out in the first bullet point above apply).
It is important to note that, subject to special provisions for cultural businesses, the
“net benefit” review provisions of the Investment Canada Act only apply to “acqui-
sitions of control” of a Canadian business or substantially all of its assets. For
purposes of the Investment Canada Act, a non-Canadian can only “acquire control”
of a Canadian business through certain specified methods. If the proposed trans-
action does not fall within the scope of one of those specified methods, then there
can be no acquisition of control for purposes of the Investment Canada Act and
1
Currently, this threshold is adjusted annually, based on inflation. However, it is anticipated that the
federal government will increase this threshold to C$600 million. It will thereafter be subject to
biannual upward adjustment, by C$200 million increments, until it reaches C$1 billion, after which
it will be adjusted annually, based on inflation. Once this new threshold is established valuation
will be by way of “enterprise value”. For public companies, enterprise value will generally be
their market capitalization. For private companies, enterprise value will remain the book value of
their assets. Note, these new higher thresholds will not be available to any foreign state-owned
enterprises. All investments in Canada to be made by such entities will remain subject to the lower
existing thresholds outlined above, subject to annual adjustment tied to changes in nominal gross
domestic product.
6 |
the transaction cannot be subject to a “net benefit” review. Note, in particular, that
the acquisition of effective or de facto control over a Canadian business through
contractual arrangements only, such as IP licensing agreements, where there is no
other acquisition of shares, voting interests or assets, cannot be subject to a “net
benefit” review.
3.3 The Application Process

The obligation to file a Notification or an Application for Review under the Invest-
ment Canada Act, as appropriate, falls solely on the non-Canadian undertaking the
investment. The Canadian business or vendor involved has no filing obligations,
although it will commonly assist the investor by providing information necessary to
complete the required filing. There is no filing fee associated with either a Notifica-
tion or an Application for Review.
The Minister of Industry (the “Minister”) has 45 days from the filing of a complete
Application for Review to make a determination as to whether the proposed invest-
ment will be of net benefit to Canada.2 The Minister may unilaterally extend this
initial review period by a further 30 days, and commonly does, if the Minister
considers it necessary to do so to complete his review. Any further extensions are
only permitted with the investor’s consent, although such consent is normally given
by the investor. In addition, the “net benefit” review period will be extended auto-
matically if the investment is or may be subjected to a national security review
(discussed below). Generally, once an Application for Review has been filed the
investor cannot implement the proposed investment until after the Minister has
made a positive determination that the investment will be of net benefit to Canada.
3.4 The “Net Benefit” Factors

The Minister’s general mandate under the “net benefit” review provisions is to
determine if the proposed investment will be of net benefit to Canada. The Invest-
ment Canada Act sets out the specific factors that the Minister must consider in any
such determination. The Minister has also issued special guidelines (Guidelines In-
vestment by State-Owned Enterprises Net Benefit Assessment), concerning the ap-
plication of these factors to investors that are state-owned enterprises. In particular,
the Minister’s Guidelines provide that the governance structure and the commercial
orientation of the state-owned enterprise are factors which will be specifically con-
sidered in the Minister’s “net benefit” review. (Note, under a recently announced
policy relating to foreign investment in Canada’s oil sands, any future proposed in-
2
In situations involving cultural businesses, the net benefit to Canada decision is made by the Minister
of Heritage, on the recommendation of the Investment Review Division of Heritage Canada.
| 7
vestment by a foreign state-owned enterprise to acquire control of a Canadian oil

sands business exceeding the review threshold will be found to be of net benefit to
Canada only in exceptional circumstances. Non-controlling minority interests in
Canadian oil sands businesses and joint ventures are not subject to this new policy.)
Although it is necessary to comply fully with the notification and informational re-
quirements of the Investment Canada Act, it should be noted that, to date, only
two significant proposed investments in Canada have ever been blocked following
a “net benefit” review. This is not to say, however, that these reviews are mere in-
formation gathering exercises. Certain commitments concerning the future
operation of the Canadian business, known as “undertakings”, are often required
from the investor as a condition of Ministerial approval. Such undertakings are ne-
gotiated between the Minister and the investor and the terms of such undertakings
are normally kept confidential to the investor. The precise scope and term of these
undertakings will vary depending on the specific transaction at issue and the invest-
or’s future plans for the business, as set out in its Application for Review. Once
agreed to as part of an approved Application for Review such undertakings then
become enforceable against the investor and, post-implementation, the investor is
normally required to report to the Minister regularly concerning the investor’s
progress in meeting its undertakings. Although enforcement action relating to
accepted undertakings is rare, it does occur.
3.5 The “National Security” Review

The second review process under the Investment Canada Act is the “national
security” review. Any direct or indirect investment in Canada by a non-Canadian,
regardless of value, is subject to a security review if the investment could be
injurious to national security. If determined to be potentially injurious, the invest-
ment can be blocked completely, or permitted to proceed only on terms and condi-
tions acceptable to the Governor in Council (effectively the federal Cabinet). If the
investment has already been undertaken, divesture can be ordered.
3.6 The National Security Review Process

The national security review process applies to any investment, implemented or
proposed, by a non-Canadian to establish a new Canadian business, acquire control
of a Canadian business, or acquire, in whole or in part, or establish an entity to
carry on all or any part of its operations in Canada. In general, it is expected that the
Minister will become aware of transactions having potential national security
concerns through the filing of Notifications and Applications for Review that are
done as part of the existing “net benefit” review process (discussed above). All such
transactions are now also potentially subject to a national security review. However,
8 |
the national security review process has broader potential application, also applying
to transactions which are not notifiable or reviewable under the “net benefit”
process, including minority investments.
Having become aware of a proposed or implemented investment by a non-Can-
adian, if the Minister has reasonable grounds to believe that the investment could
be injurious to national security, he may then send the investor a notice indicating
that an order for a review of the investment may be made. Generally, the Minister
may issue such a notice at any time within 45 days of being made aware of the in-
vestment. Such a notice is not an order for review and is optional, at the Minister’s
discretion. It is an “early warning”, indicating to the investor at an early stage that
the transaction may raise potential national security concerns. In addition, if the
investor has not yet implemented the investment, receipt of an “early warning”
notice has the effect of barring the investor from implementing the investment until
the investor is formally advised either that there will be no review, or that the in-
vestment is permitted following a review.
If an “early warning” notice is issued, the Minister then has a further 25 days to
consider whether a full national security review is warranted in the circumstances.
In circumstances where no “early warning” notice has been issued, the time period
for consideration of whether a full review is warranted is at least 45 days from the
date the investment was implemented. The Minister may require the investor and
any other person or entity involved in the transaction to provide such information
as the Minister considers necessary. The Minister must also consult with the
Minister of Public Safety and Emergency Preparedness. A full review may then be
ordered if the Minister considers that the investment could be injurious to national
security, and the federal Cabinet, on the recommendation of the Minister, orders the
review. Similar to an “early warning” notice, if the investor has not implemented
the investment prior to receiving a notice of review, receipt of that notice bars it
from implementing the investment until it receives authorization to proceed.
Once a full national security review is ordered, the Minister then has 45 days, or
such longer period as may be agreed to between the Minister and the investor, to
complete the review. The Minister may gather further information during his review
and the investor must be afforded a reasonable opportunity to make representations.
The Minister is expected to consult with numerous other federal departments and
agencies as part of the review, including the Canadian Security Intelligence Service,
the RCMP, the Canadian Border Services Agency and the Departments of Justice,
National Defence, Transport, Health, Finance and Citizenship and Immigration.
Upon completion of the review, the Minister must either allow the investment to
proceed, or refer the investment to the federal Cabinet for further consideration. If
the matter is referred to Cabinet, within 15 days of the reference Cabinet must then
| 9
issue an order in respect of the investment on terms it considers advisable in the cir-
cumstances including: (a) authorizing the investment, with or without conditions;
(b) directing that the investment not be implemented; or (c) if already implemented,
ordering divestiture.
The time required to complete a national security review depends on a number of
factors including complexity of the transaction, industry and entities at issue and
type and nationality of the investor. However, based on the prescribed time periods,
and subject to any additional time that may be agreed to between the Minister and
the investor, the review process may take up to 130 days to complete.
3.7 Corporate Ownership Restrictions

In addition to the provisions of the Investment Canada Act, both the federal and
provincial governments impose corporate ownership restrictions in certain strategic
or sensitive industries. This includes, for example:
• Financial Institutions: Generally, without ministerial approval a foreign bank
cannot own more than 10 percent of any class of shares in any Canadian bank,
including a Canadian bank subsidiary. There are various exceptions to this
general rule.
• Broadcasting: In an effort to promote the ownership of control of broadcasting
entities by Canadians, Parliament has enacted a general rule that broadcasting
licences may not be issued to non-Canadians or to companies that are effectively
controlled, directly or indirectly, by non-Canadians.
• Telecommunications: In an effort to promote the ownership and control of tele-
communications common carriers by Canadians, Parliament has enacted a
general rule that to be eligible to operate a telecommunications common carrier
in Canada, the carrier must be a Canadian-owned and controlled corporation in-
corporated or continued under the laws of Canada or a province.
• Air Transportation: Generally, a licence to operate a domestic airline service
will only be issued to a corporation if the corporation is controlled in fact by
Canadians and if 75 percent of the voting interests in the corporation are owned
and controlled by Canadians. Licences for international airline service may be
issued to a non-Canadian provided that the non-Canadian applicant satisfies
certain eligibility requirements.
3.8 Directors’ Residency Requirements

See Section 4.2(e) (Residency of Directors).
10 |
Chapter 4
BUSINESS FORMATION
One of the threshold issues for a foreign entity wishing to establish a business in
Canada is whether that business should be carried on directly, as a branch of the
foreign entity, or should be created as a separate Canadian business organization,
such as a subsidiary corporation (with either limited liability or, in some provinces,
unlimited liability), a proprietorship, or a partnership (which may be general or
limited). Generally speaking, a foreign entity may carry on business directly in
Canada through a branch, but will be subject to the same sort of provincial registra-
tion requirements as would apply to a corporation incorporated in another province.
4.1 Branch or Subsidiary

A number of issues should be considered in choosing whether to operate as a branch
or subsidiary.
If the Canadian operation is expected to incur significant losses in its early years of
operation, the foreign entity may wish to carry on business in Canada directly
through a branch, in order to deduct those losses for foreign tax purposes, if possible.
Many foreign investors prefer to carry on business in Canada through a Canadian
subsidiary. The use of a Canadian subsidiary is more convenient for administrative
purposes. For example, having a Canadian subsidiary can make the process of
executing documents much simpler.
The use of a Canadian subsidiary generally limits the liability of the foreign parent
corporation to its investment in the Canadian subsidiary. In conducting business
through a branch office, the foreign parent corporation would expose itself directly
to all of the liabilities of the Canadian operation.
For a discussion of the tax issues that should be considered in determining whether
to carry on business in Canada through a Canadian branch or subsidiary, see Section
19.8 (Branch Tax).
4.2 Corporations
The most common form of legal entity for businesses is the corporation. Most
foreign businesses operating in Canada adopt the corporate form. A corporation is a
legal entity that is separate and distinct from the shareholders who contribute to the
corporation’s capital. While there are exceptions, generally shareholders are not re-
sponsible for the debts, liabilities or obligations of the corporation. In addition, the
corporation enjoys perpetual succession, meaning that the existence of the corpora-
tion continues despite the death of any or all of its shareholders. As discussed in
Section 4.2(c) (Alberta, British Columbia and Nova Scotia Unlimited Liability
Companies), the provinces of Alberta, British Columbia and Nova Scotia provide
for the incorporation of unlimited liability companies where shareholder liability is
not limited.
Corporate income is taxed at combined federal and provincial flat corporate rates
rather than at the marginal individual rates. For more on the taxation of corpora-
tions, see Chapter 19 (Taxation).
(a) Federal or Provincial Incorporation
Corporations may be created in Canada under either federal or provincial legisla-
tion. Accordingly, assuming a decision has been made to incorporate in Canada, a
choice must then be made regarding the jurisdiction under which the entity should
be incorporated. In most cases, the jurisdiction of incorporation does not affect the
question of whether federal or provincial laws will apply in areas of dual jurisdic-
tion, as in the case of Canada’s labour laws. Corporations established under federal
or provincial legislation may carry on business anywhere in Canada as of right, but
are required to comply with provincial filing requirements.
In most Canadian jurisdictions, governing legislation permits corporations to adopt
a unanimous shareholders agreement. Such agreements have the effect of transfer-
ring certain of the directors’ powers to the shareholders. To the extent that these
powers are transferred to the shareholders, the directors are generally relieved of
liability and the shareholders are then subject to those duties and liabilities. This
can be useful in the case of a foreign corporation that wishes to limit the powers of
the Canadian subsidiary’s directors over the operation of the subsidiary, especially
where the subsidiary and the foreign parent have different directors.
(b) Public and Closely-Held or Private Corporations
Canadian law distinguishes between public corporations, which distribute their se-
curities to the public, and closely held or private corporations, which have a limited
number of shareholders and restrict the transferability of their securities in some
manner. Public corporations are subject to more stringent requirements concerning
public disclosure and to special income tax rules. These differences do not,
however, affect most fundamental principles of corporate law, including limited
liability of shareholders, which apply to all limited liability corporations.
12 |
BUSINESS FORMATION
(c) Alberta, British Columbia and Nova Scotia Unlimited

Liability Companies
An unlimited liability company (or a “ULC”) is a form of corporation where the
shareholders of the ULC can be liable for the obligations of the ULC. In this
respect, a ULC can be similar to a general partnership and is different from the
common form of corporation where the corporation’s shareholders are not, in
general, liable for the liabilities, acts or omissions of the corporation.
A ULC can be formed under the laws of Alberta, British Columbia or Nova Scotia.
The corporate legislation in each provincial jurisdiction is different, so creating a
ULC will therefore require that an assessment of the advantages and disadvantages
of each jurisdiction be completed before the ULC is formed. The unique nature
of the shareholder liability under a ULC also requires that the liability be assessed
and mitigated.
The oddity of a ULC with respect to shareholder liability is what also makes it
unique from a tax perspective. For U.S. tax purposes, a ULC is a flow-through
entity. The U.S. Internal Revenue Service treats a ULC as a branch if there is only
one shareholder or as a partnership if there is more than one shareholder but, either
way, the ULC will be “looked through” for U.S. tax purposes. This is different than
in Canada, where a ULC is treated and taxed like any other corporation. The end
result is that a ULC is a hybrid entity – a corporation for Canadian tax purposes and
a flow-through entity for U.S. tax purposes.
This hybrid tax treatment has resulted in a ULC being used in a variety of situa-
tions, including by U.S. businesses operating in Canada. However, starting January
1, 2010, the Fifth Protocol to the Canada – US Tax Treaty adversely affects the
treaty benefits applicable to ULCs. The Canada Revenue Agency has issued inter-
pretations which suggest that certain transactions involving interest payments and
deemed dividends paid by a ULC to a U.S. resident would still be eligible for a
reduced rate of withholding tax. Professional advice should be obtained to fully
consider the tax implications of establishing a ULC.
(d) Capital Structure
Considerable flexibility is permitted in the design of a corporation’s share structure
under Canadian federal or provincial corporate statutes. For example, shares can
be voting or non voting, they can have limited or unlimited participation in equity
and they can be redeemable for a fixed price at the option of the corporation or
the holder. Shares can also be given special voting rights with respect to certain
matters, such as the appointment of directors and the acquisition or disposal of sig-
nificant assets.
| 13
By careful selection of share characteristics, it is possible to separate capital contri-

butions and control from participation in future profits. This possibility is particu-
larly useful in designing share structures for joint ventures and in addressing
taxation issues.
On occasion, foreign parents may wish to capitalize their Canadian subsidiaries
through debt rather than share capital. In general, Canadian corporate legislation
does not require any minimum investment by way of share capital. However, the
financing of a corporation largely by debt may lead financial institutions to require
a guarantee from the foreign parent. It may also have income tax implications, as
discussed below.
In most provinces, the authorized capital of a corporation does not affect either the
incorporation or registration fee. Accordingly, this should not be a major factor in
determining the share structure for a corporation.
Interest is generally deductible in computing the income of a corporation for tax
purposes, while dividends are not. However, there are income tax rules which limit
the deductibility of interest paid to non-resident shareholders. These “thin capitaliz-
ation” rules provide in general that where the debt owing to certain non-resident
shareholders exceeds 1.5 times (for taxation years ending on or after January 1,
2003) the equity investment of those shareholders, interest on the excess debt will
not be deductible for tax purposes. Such denied interest expense will also be
deemed to be a dividend paid to the non-resident and subject to Canadian withhold-
ing tax.
The tax rules governing the capitalization of non resident controlled corporations
are complex and accordingly, professional advice should be obtained before an en-
terprise is established and capitalized.
(e) Residency of Directors
Canadian corporate law differs from its counterparts in the United Kingdom and
the United States with respect to requirements of citizenship and/or residency
of directors. For example, the federal Canada Business Corporations Act (the
“CBCA”) requires that at least one quarter of the directors of most federal corpora-
tions must be resident Canadians. For CBCA corporations doing business in certain
industries, such as book publishing and uranium mining, the residency requirement
for directors is higher. Some provinces also have residency requirements
for directors.
14 |
BUSINESS FORMATION
To be a resident Canadian for federal purposes, a person must be either a Canadian

citizen, or a permanent resident under the federal Immigration and Refugee Protec-
tion Act. Subject to some limited exceptions, a person must already be living in
Canada in order to be considered to have resident status.
In many cases, it is possible to avoid these residency requirements by incorporating
in a province or territory with less onerous or no residency requirements, such as
British Columbia, New Brunswick, Nova Scotia, Québec and the Yukon Territory,
followed by extra provincial registration in each of the other provinces and territor-
ies in which the corporation intends to conduct business.
(f) Corporate and Trade Names
Corporations are registered in Canadian jurisdictions by their corporate name. That
registration does not, in and of itself, give the corporation any proprietary interest
in the corporate name. It does, however, give the corporation some practical protec-
tion for its name, since the corporate registrars in certain jurisdictions will typically
refuse to register a corporation under a name which is the same as, or substantially
similar to, that of another existing corporation within that jurisdiction.
In order to better protect a corporation’s name that is used in association with its
goods or services, the name can also be registered as a trade mark under the federal
Trade-marks Act. Registration gives the owner of the trade mark the exclusive right
to use the trade mark in association with its goods and services throughout Canada.
Trade marks are discussed in Section 14.1 (Trade marks).
If a corporation operates in Québec, it must comply with specific requirements with
respect to its name. These requirements are discussed in Chapter 22 (Language
Considerations).
If a corporation wishes to conduct business using a name other than its corporate
name, some provinces require the corporation to register this so called “trade
name”. In most provinces, the name cannot be the same as, or similar to, that of
another corporation (except in certain specified circumstances). Registration of a
trade name does not, in and of itself, give the corporation a proprietary interest in
the trade name. However, once a corporation establishes a reputation in association
with the trade name it may, in certain circumstances, preclude other businesses
from using the same trade name. It is also possible to trade mark trade names.
Some provinces are more flexible than others in granting registration to foreign cor-
porations whose corporate name is confusing with a previously registered corpora-
tion. In some jurisdictions the foreign corporation cannot be registered unless it
| 15
changes its corporate name. In other jurisdictions, the registrar will approve the
registration on receiving the foreign corporation’s undertaking that it will operate
under a pseudonym within that jurisdiction.
4.3 Proprietorships
The simplest form of business organization, a proprietorship, exists when an indi-
vidual carries on business as the sole owner without incorporating. At law there is
no distinction between the proprietorship and the owner; the proprietorship’s
income is the owner’s income and the proprietorship’s liabilities are the owner’s
personal liabilities. For tax purposes the proprietorship is not treated as a separate
taxpayer. Rather, the income of the proprietorship is included in the calculation of
the owner’s taxable income. While the requisite formalities for creating a propri-
etorship are minimal, in some cases there may be licensing and registration require-
ments. Also, if the owner wishes to carry on business using a name that is different
from his or her own individual name, that name may first need to be registered with
the applicable provincial government.
4.4 Partnerships
(a) Generally
A partnership generally exists when two or more individuals or entities carry on
business together without incorporating. In an ordinary partnership, the partnership
is not a separate legal entity and all the liabilities of the partnership are the personal
liabilities of the partners. An exception is found in Québec, where (although not
recognized as a legal person distinct from that of its partners), a partnership
possesses some of the characteristics of a legal person, such as a partnership name,
a partnership head office, and legal standing in court. The assets and liabilities of a
Québec partnership are also considered to be distinct from those of its partners, and
creditors must first take recourse against partnership assets before calling on the
personal liability of the partners for any excess. A number of provinces and territor-
ies recognize a second type of partnership: the limited partnership, where the
liability of at least one partner (the “general partner”) is unlimited and the liability
of any other partner (a “limited partner”) is limited to the amount of the limited
partner’s contribution to the business.
Generally, partnership income is not taxed at the partnership level but in the hands
of the individual partners. Each partner will be taxed on his or her proportionate
share of the partnership income and on any capital gain realized when the partner
disposes of his or her interest in the partnership. See Chapter 19 (Taxation).
16 |
BUSINESS FORMATION
In partnerships, it is usual to have a comprehensive agreement to avoid certain

onerous provisions in partnership legislation which would apply in the absence of a
specific agreement to the contrary.
(b) Limited Partnerships
A limited partnership is something of a legal hybrid, providing some of the benefits
of a limited liability company along with many of the tax benefits of a partnership.
Generally, there must be one or more general partners who are liable for all the
partnership’s debts. There may also be any number of limited partners whose
liability is limited to the amount they agree to contribute. Generally, limited partner
is not permitted to take any part in the management of the partnership’s business. A
breach of this requirement makes the limited partner liable as a general partner.
However, a limited partner may participate in certain fundamental decisions, such
as the admission of new general partners, the winding up of the partnership or its
expansion into new businesses. A comprehensive partnership agreement is required
to address these issues.
4.5 Joint Ventures

The term “joint venture” lacks a precise legal definition in Canada. It generally
refers to any means whereby two or more economic entities share in a common
venture. It can refer to joint venture corporations, to partnerships of corporations or,
most commonly, to a structure under which separate corporations own certain assets
in common in the expectation that the venture does not constitute a partnership, at
least for tax purposes.
Typically, in any joint venture, profits or losses are not calculated at the joint
venture level, except in the case of a partnership or a joint venture corporation.
Instead, each co-venturer contributes assets or cash to cover expenses and shares in
any revenue generated from those assets in the agreed proportion. Depreciation and
the calculation of profit and loss are determined by each co-venturer separately
from the others.
| 17
18 |
Chapter 5
FINANCING CANADIAN OPERATIONS
(Current as of December 1, 2012)
Assuming that the foreign investor will conduct operations through a Canadian cor-
poration, financing for the Canadian business will either be sourced internally, for
example by way of shareholder loans or equity, or from external sources, such as
bank lines of credit and loans or publicly-issued securities.
Internally-sourced funds can be advanced or contributed in a combination of debt
and equity usually dictated by the “thin capitalization rules” contained in the federal
Income Tax Act, as discussed in Section 4.2(d) (Capital Structure).
In some cases shareholder loans may be preferred over equity because in a bankrupt-
cy or liquidation of the corporation, debt is paid in priority to return of equity.
Furthermore, to obtain priority over the general unsecured trade creditors, sharehold-
er loans can be secured by the assets of the corporation. The form of security will
usually be a debenture, a general security agreement or (in Québec) a hypothec, each
of which would normally be subordinated by agreement to any security for senior in-
debtedness such as bank debt. However, even though subordinated, bona fide share-
holder loans which are secured in this fashion will still have priority against the
unsecured creditors of the corporation.
5.1 External Financing

(a) Debt Financing
Canada has a well-developed banking system. There are three types of banks
operating in Canada under the federal Bank Act. The first two are domestically-char-
tered banks, which can carry on branch banking operations throughout the country.
They are known as Schedule I banks (banks that are not subsidiaries of foreign
banks) and Schedule II banks (banks that are subsidiaries of foreign banks). They
provide the widest range and most easily accessible set of services to all types of
customers. Canadian subsidiaries of foreign banks may also register as legal entities
and operate certain types of businesses in Canada. The third type of bank is a
Canadian branch opened by a foreign bank. This type of bank, commonly called an
authorized foreign bank or a Schedule III bank, has similar powers to the other types
of banks, except that it cannot accept deposits payable in Canada that are less than
C$150,000, subject to certain limited exceptions (and some authorized foreign banks
are not permitted to accept deposits at all). This restricts its ability to carry on “retail
banking” business in Canada.
Banks typically provide two kinds of loans: operating and term loans. Revolving
operating loans are most often payable on demand. Operating loans are generally
used to finance working capital requirements. Operating loans sometimes permit
the borrower to obtain letters of credit in addition to cash advances and may permit
U.S. dollars to be borrowed in addition to Canadian dollars. The borrower may also
be provided with a choice of interest rate options such as a floating prime-based
rate, a bankers’ acceptance rate and, in the case of larger U.S. dollar borrowings, a
rate based on short-term rates in the London inter-bank market. Operating loans
from Canadian banks are normally based on a floating rate of interest, although
banks will sometimes offer a borrower an opportunity to fix rates for large borrow-
ings through an interest rate swap.
Typically, banks will secure operating loans by taking a security interest in all of
the borrower’s personal property or specifically in the inventory and accounts re-
ceivable of the borrower. Often the operating loan will provide for a maximum
amount of credit available to the borrower but will also be limited by a “borrowing
base” calculated on a percentage of the value of each of the inventory and receiv-
ables of the company after allowing for assets against which the bank does not wish
to lend, such as by deducting those receivables which are over 90 days or otherwise
doubtful and obsolete inventory.
In addition to security on assets of the borrower, in many cases banks will also
require personal guarantees from the shareholders. Shareholder loans made to the
borrower and any security for them may also have to be subordinated, postponed
and assigned to the bank. The bank will also require that it be named as an addition-
al insured and as loss payee in any insurance policy respecting the assets of the
borrower over which the bank holds security. “Key person” life insurance may be
required on the principals of the borrower. If the shareholder is sufficiently credit
worthy, the bank may make a loan solely on the strength of a guarantee from the
shareholder, or the shareholder may be able to obtain a letter of credit from its bank
in favour of the Canadian bank, which would be held in place of security in the bor-
rower’s assets.
The second kind of loans made by banks are term loans. Term loans are generally
repayable over a fixed period of time pursuant to an agreed schedule. Term loans
are most often made to finance the acquisition of fixed assets by the borrower.
Usually term loans can only be accelerated by the bank when a specified event of
default occurs, although some banks make term loans payable on a demand basis in
some circumstances.
20 |
The principal security taken for a term loan is often a security interest in the fixed
assets of the borrower. However, as discussed above, banks frequently demand
security over all of the borrower’s assets. Similarly, the discussion above with
respect to the methods of availability, choice of interest rates, additional security
and guarantees applies equally to term loans, although letters of credit are not
common in connection with term loans and fixed rates of interest are more often
available in term loans.
Although banks are the dominant providers of debt financing in Canada, debt
financing is also available from other sources such as insurance companies, trust
companies, credit unions, finance companies and vendors of assets. These sources
often operate within narrower market niches than banks and in particular some may
be better sources of longer-term, fixed rate financing than banks.
Capital assets can often be acquired from the manufacturer on a conditional sale
basis or using a lease. Such accommodation from the manufacturer eliminates the
need for a substantial sum of up-front cash and allows the company to pay for the
assets over their useful life from the company’s cash flow. Lease finance companies
can also help a company to acquire assets by buying the assets chosen by the
company and then leasing those assets to the company.
In some situations a company may also use a factoring company to improve its cash
flow. A factoring company will purchase or lend against a company’s accounts re-
ceivable at a discount (normally smaller than the discount used in a borrowing base
calculation described above) and will then try to collect the receivables. Depending
on the arrangement, the collection may either be with or without recourse to
the company.
(b) Equity Financing
Raising funds by means of general distribution to the public through a prospectus is
usually done through investment dealers. Since the costs incurred in pursuing this
type of financing are substantial, this route is only suitable if large sums of money
are to be raised. For a new company starting out, an initial public offering is
generally not appropriate. Securities regulation is discussed further in Chapter 6
(Securities Regulation).
Funds may also be raised by way of a private placement (i.e., under an exemption
from the prospectus requirements), whether directly by the issuer or through invest-
ments dealers. Certain of the exemptions are designed for institutional investors
or high net worth individuals (e.g., the accredited investor exemption) but
others are designed for others (e.g., the family and friends and the offering memo-
randum exemptions).
| 21
For smaller or start-up companies, another source of external equity financing is

through venture capital financiers to new businesses. Typically these venture capital
companies are interested in acquiring a substantial minority equity position and, in
combination with such an investment, will often also make available some debt
financing. For their support, venture capitalists usually require significant control
over the management and direction of the company. This is a major factor to
consider before seeking venture capital financing.
5.2 Government Assistance Programs

The availability of government assistance programs in Canada varies depending on
the size and location of the proposed borrower, the nature of the market in which
the borrower sells its product and the inclination of the government to make such
assistance available.
Federal and provincial governments in Canada have established a number of gov-
ernment assistance programs. The programs discussed below are designed to assist
persons engaged in the establishment or expansion of a business in Canada.
(a) Federal Assistance – The Business Development Bank of Canada
Wholly-owned by the federal government, the Business Development Bank of
Canada (BDC) exists to assist small and medium-sized enterprises in Canada. The
BDC offers financing, consulting services and venture capital. The BDC has offices
located across the country.
(b) Federal Assistance – Regional Development Programs
Two of the more significant regional development initiatives of the federal govern-
ment are the Western Economic Diversification Canada (WD) and the Atlantic
Canada Opportunities Agency (ACOA).
The focus of WD is on innovation, business development and entrepreneurship, and
community economic development in Western Canada. The focus of ACOA is
similar to WD, but its region of responsibility is limited to Atlantic Canada which is
comprised of New Brunswick, Nova Scotia, Newfoundland and Labrador, and
Prince Edward Island.
(c) Federal Assistance – Canada Small Business Financing Program
The Canada Small Business Financing Program (the “CSBF Program”) is a
program devoted to the credit needs of small businesses. Under the CSBF Program,
the federal government guarantees loans made by conventional lenders to small
business enterprises in a broad spectrum of industrial sectors, including manufac-
22 |
turing, transportation, wholesaling and retailing. Farming businesses, charitable or

religious organizations and businesses not operating for gain or profit are ineligible
under the program. A small business is defined as a business carried on in Canada
for profit or gain with estimated gross annual revenues (in the case of an existing
business) not exceeding C$5 million for the fiscal year in which the CSBF Program
loan is approved or (in the case of a new business) not expected at the time the
CSBF Program loan is approved to exceed C$5 million during the first 52 weeks
of operation.
The rate of interest on CSBF Program loans is set at a maximum of 3 percent above
the prime lending rates of the chartered banks for variable rate loans. This rate fluc-
tuates as the prime lending rate fluctuates. Fixed rate loans are also available. The
rate of interest on fixed rate loans is a maximum of 3 percent above the lender’s
single family residential mortgage rate for the period of the loan. The CSBF
Program loan may be used to finance up to 90 percent of the cost of the purchase or
improvement of land or of new or used equipment, or the purchase of leasehold
improvements. The maximum loan amount a small business can access under the
CSBF Program is C$500,000, of which C$350,000 can be used to finance the
purchase or improvement of equipment and the purchase of leasehold improvements.
The loan must be secured. Unsecured personal guarantees of CSBF Program
loans may be required, but will be limited to 25 percent of the total loan amount.
All participants are required to pay a 2 percent registration fee to the lender.
(d) Provincial Assistance
Individual provinces carry out many of their own government assistance programs.
Although a Canadian corporation’s operations are based in one particular province,
if it is intended that marketing be done nationally through branch operations, assist-
ance may be obtainable from more than one province.
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24 |
Chapter 6
SECURITIES REGULATION
6.1 General
Each province and territory has enacted its own securities legislation and has estab-
lished a regulatory authority to administer it. As a result, national securities trans-
actions require compliance with several regulatory regimes administered by different
authorities. However, the laws are generally very similar (and in many cases
uniform) and the regulatory authorities have implemented procedures to reduce the
difficulties of dealing with multiple regulators. Moreover, in the March 2013 federal
Budget, the government announced that it intends to push ahead with the establish-
ment of a single securities regulation system (to be operated jointly by the federal
and provincial governments), notwithstanding the historical opposition by a number
of provinces to the establishment of a single regulator.
Canadian securities regulation is relevant to: those who trade securities in Canada;
those who provide investment advice or portfolio management services in Canada;
those who manage investment funds that have investors in Canada or that have
actively solicitated investors; those who issue securities in Canada; those issuers
who list their securities on a Canadian stock exchange; those who acquire or offer to
acquire more than 20 percent of the voting or equity securities of a class of an issuer
from securityholders, including securityholders in Canada; those issuers who offer to
acquire their own securities from securityholders in Canada; and certain investors in
Canadian public issuers.
6.2 Registration of Dealers

Generally those persons or companies who engage in the business of trading in se-
curities are required to be registered as a dealer in the applicable province or territory.
Depending on their activities, they may also be required to join the Investment
Industry Regulatory Organization of Canada. The dealer will have to satisfy certain
financial, insurance and other requirements. As part of the registration process, for
most categories of registration, individuals acting as officers or representatives will
have to demonstrate that they have the required knowledge, experience and integrity.
There are exemptions from these requirements in certain circumstances. In particu-
lar, foreign dealers can engage in certain specified limited activities if they file
a form submitting to the local jurisdiction and appointing an agent for service
and process.
6.3 Registration of Advisers

Generally those persons or companies who engage in the business of providing in-
vestment advice (including providing portfolio management services) are required
to be registered as an adviser in the applicable province or territory. The adviser
will have to satisfy certain financial, insurance and other requirements. As part of
the registration process, those individuals who will be providing advice or acting as
officers or representatives will have to demonstrate that they have the required
knowledge, experience and integrity. There are exemptions from these require-
ments in certain circumstances. In particular foreign advisers can engage in certain
specified limited activities if they file a form submitting to the local jurisdiction and
appointing an agent for service and process.
6.4 Registration of Investment Fund Managers

Generally, these persons or companies that act as investment fund managers are
required to register as such in the applicable province or territory. A registered in-
vestment fund manager will have to satisfy certain financial insurance and other re-
quirements. If an investment fund manager does not have a place of business in
Canada, it may be exempt from these requirements in certain circumstances. These
circumstances vary between Ontario, Quebec and Newfoundland and Labrador on
the one hand and the other provinces and territories on the other.
6.5 Issuing Securities in Canada

Generally issuers that issue securities in Canada are required to file and clear a pro-
spectus with the applicable securities regulatory authorities. A prospectus must
contain specified information about the issuer and the offering including full, true
and plain disclosure of all material facts relating to the issuer and the offered securities.
An issuer that offers securities by way of prospectus (or, in some jurisdictions, one
who merges with a reporting issuer, who offers securities in a securities exchange
take -over bid for a reporting issuer or who lists its securities on a recognized
Canadian stock exchange) becomes a “reporting issuer”. Reporting issuers are
subject to certain continuous and timely reporting obligations. For example, they
must file and send to securityholders unaudited quarterly financial reports, audited
annual financial statements, management’s discussion and analysis and information
circulars in connection with meetings of securityholders. They must also make
prompt announcements and filings in connection with material changes in their
business, operations or capital.
26 |
SECURITIES REGULATION
Issuers can also offer or issue their securities in a manner that is exempt from the
prospectus requirements. For example, an exemption would be available for sales
to those defined as “accredited investors” or those who spend at least C$150,000 to
purchase the securities. In these cases there are filing requirements and there may
be specific disclosure obligations.
6.6 Listing Requirements

Issuers who wish to list their securities on stock exchanges, such as the Toronto
Stock Exchange or the TSX Venture Exchange, must satisfy minimum listing re-
quirements relating to their management, issued capital, distribution of securities
and financial resources. They must sign a listing agreement with the stock exchange
and agree to comply with the rules of the exchange.
Listed issuers must notify, and in some cases obtain the consent of, the stock
exchange before making corporate changes or entering certain transactions, such as
changes in capital structure, material transactions and issues of shares or options.
Listed issuers must also make regular filings with the exchanges, pay annual fees
and satisfy timely disclosure requirements. By listing its securities an issuer would
become a reporting issuer in one or more provinces and, therefore, become subject
to the continuous and timely reporting obligations referred to in Section 6.5 (Issuing
Securities in Canada).
6.7 Take-over Bids

A person or company that offers to acquire voting or equity securities which if
acquired would cause the offeror’s holdings of the securities to exceed 20 percent
of the outstanding securities of that class is considered to be making a “take-over
bid”. Unless it can avail itself of one of the exemptions, a take-over bidder must
comply with certain rules including that it send a take-over bid circular with
specified disclosure to all holders of securities of the class who are in Canada
offering to buy their securities.
6.8 Issuer Bids

Similarly, an issuer that offers to acquire its own securities (other than non-convert-
ible debt securities) from holders in Canada is considered to be making an “issuer
bid”. Unless an exemption from those requirements is available, an issuer bidder
must comply with certain rules including that it send an issuer bid circular with
specified disclosure to all holders of securities of the class who are in Canada
offering to buy their securities.
| 27
6.9 Investors
Certain securityholders of Canadian reporting issuers have obligations under
Canadian securities laws. For example “insiders” (which include directors, officers
and 10 percent shareholders) are required to report their trades. Those who acquire
at least 10 percent of the outstanding voting or equity securities of a particular class
(5 percent if a formal take-over bid has been made) are required to report and in
some cases make an announcement and wait before making further purchases.
Those “persons in a special relationship” with an issuer are prohibited from trading
in securities of the issuer while in possession of material undisclosed information
relating to the issuer and from “tipping” others as to that information.
28 |
Chapter 7
CANADIAN IMMIGRATION PROCEDURES
FOR BUSINESS PEOPLE
7.1 Non-Immigrant or Temporary Entry

As a general rule, all persons who are not Canadian citizens or permanent residents
require a work permit to work in Canada. A work permit is normally granted only if
there is no qualified Canadian available to fill the position in question. However,
there are many exceptions to this general rule that either make a work permit un-
necessary, or that make a work permit much easier to obtain. The following are some
of the more widely utilized exceptions to this general rule.
(a) Business Visitors
A person may enter Canada as a business visitor without the need for a work permit
if the person seeks to engage in international business activities in Canada without
directly entering the Canadian labour market. A person will not be considered to be
directly entering the Canadian labour market if the primary source of remuneration
for his or her business activities is outside Canada and the principal place of business
and accrual of profits of the employer remains predominantly outside Canada and/or
the services rendered do not compete directly with those rendered by Canadian
citizens or permanent residents. In addition, a representative of a business outside
Canada may work in Canada without a work permit if the purpose of his or her visit
is to attend business meetings, to purchase Canadian goods or services or to give or
receive training within a Canadian parent or subsidiary company of his or her
employer. This is not an exhaustive list of permissible activities. However, it does
represent some of the most often used exemptions to the requirement for a work permit.
(b) Work Permits
Where a foreign national is entering Canada for business purposes outside the scope
of the business visitor provisions, a work permit is required. There are many categor-
ies under which a work permit can be obtained:
• Intra-Company Transferee: The intra-company transferee category offers one
of the quickest and most convenient methods for certain categories of foreign
business persons to work in Canada. Intra-company transferees are only persons
in senior executive or managerial positions or positions requiring specialized
knowledge regarding the employer’s products, services or processes and proced-
ures, who have been employees of a branch, subsidiary or parent of the company
located outside of Canada for at least one year, and who seek to enter Canada to
work at senior executive or managerial levels or in a position requiring special-
ized knowledge for a temporary period in a related Canadian company.
• Creating Significant Employment or Other Benefits in Canada: The “signifi-
cant benefit” category is available if a person’s employment will create or
maintain significant employment or other benefits in Canada. This category may
be used, for example, where an individual does not meet the requirements of the
intra-company transferee category, but has knowledge concerning the financial,
administrative or procedural affairs of a company that has an operation in
Canada, and it can be shown that significant benefits will be generated from his
or her employment.
• Self-Employed: The self-employed category may be utilized by a business
person wishing to enter Canada temporarily to establish a new business and to
recruit Canadian citizens or permanent residents for the new business. An
example is a foreign manufacturer coming to Canada to recruit or train Canadian
agents or distributors through closed meetings.
• Entry Under Trade Agreements: Certain international trade agreements to
which Canada is a party, such as the North American Free Trade Agreement (
“NAFTA”), the General Agreement on Trade in Services (“GATS”) and the Can-
ada-Chile Free Trade Agreement (“CCFTA”), facilitate the temporary entry of
certain categories of workers who are nationals of one of the other member
states. Three categories of work permits are generally granted under these agree-
ments: (a) traders and investors; (b) professionals; and (c) intra-company trans-
ferees. For these persons no Service Canada “Labour Market Opinion” is
required and entry procedures are generally streamlined.
• Confirmed Job Offer: Where the above or other exempt categories are not ac-
cessible to the foreign worker, a “Labour Market Opinion” must be obtained
from Service Canada. The criteria for assessing an offer of employment to a
foreign worker varies from region to region in Canada, depending on employ-
ment levels, labour market conditions and the nature of the position at issue. The
critical factor is that Service Canada must be satisfied that qualified Canadians or
permanent residents are not available in Canada to perform the work at issue
(because the requisite specific recruiting/advertising in Canada has been done)
or, put another way, that the hiring of a foreign worker will not have a negative
impact on the Canadian labour market.
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CANADIAN IMMIGRATION PROCEDURES FOR BUSINESS PEOPLE
7.2 Dependants of Foreign Worker

A work permit generally permits a spouse (legal or common law, in each case
including same-sex) and children to accompany the person authorized to work to
Canada. It also permits dependent children to attend elementary and secondary
school in Canada. However, it does not authorize the spouse or the children to take
up employment in Canada. In many cases, however, it will be possible for the
spouse to obtain a work permit under Canada’s Spousal Work Permit Program. In
addition, in Ontario and Alberta, dependant children can also obtain work permits.
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32 |
Chapter 8
EMPLOYMENT LAW
The importance of the employment relationship and employment law for any
business could not be more emphasized. Employment law involves the legal rights
and obligations that regulate all aspects of the work place relationship between
employers and employees. While the principles of law governing employment in
Canada are derived from the common law of contracts, certain aspects of labour and
employment law, such as collective bargaining and employment standards, are
regulated by statutes. Every province and the federal government has enacted its
own labour and employment legislation and each business will either be federally or
provincially regulated.
8.1 Constitutional Jurisdiction

The nature of the business carried on by the employer determines whether its
relations with its employees (including the recognition of unions and the regulation
of collective bargaining, as well as employment standards such as the severance to
which employees are entitled) are regulated by federal or provincial law. There is a
relatively small number of businesses which fall within the category of a “federal
work, undertaking or business” (for example, navigation and shipping, railways,
inter-provincial transport, air transportation, communications, broadcasting and
banking), and whose employment relations are therefore governed by federal law.
For all other employers, employment relations are considered to be matters of
“property and civil rights”, which fall within provincial jurisdiction, and are
therefore regulated by provincial statutes.
8.2 Individual Contracts of Employment

There is extensive regulation of individual contracts of employment by both provin-
cial and federal laws which govern such matters as human rights, occupational
health and safety, workers’ compensation, employment insurance, pensions,
minimum wages and other standards of employment. Some provinces have as many
as 25 different statutes addressing employment conditions.
Individual contracts of employment are commonly not in writing. The courts have
therefore developed a series of terms which are regarded as implied in every em-
ployment contract unless the parties have expressly provided otherwise. In Canada,
employees are considered to be hired for an indefinite period, unless there is a
written or oral agreement which specifies the duration of the employment.
Generally, it is implied that the employee has a duty of honesty and avoidance of a
conflict of interest with the employer. Employees are also obliged to comply with
lawful directions of their employer within the scope of their employment, and to
perform their contract of service with diligence and to an appropriate standard of
skill and competency. Employers in turn have a duty to act in good faith with regard
to the manner of termination of an employee.
Canadian courts have held that employees owe a duty not to injure their employer
during or after the employment, for example by disclosing confidential information
or trade secrets.
Employers can also protect their interests by having a written contract of employ-
ment or separate contract that includes terms restricting or limiting certain employee
conduct both during the term of the employment and particularly after termination
of employment. These terms are called “restrictive covenants”. There are three
general types of restrictive covenants used in an employment contract: (a) non-so-
licitation covenants, which restrict departing employees from soliciting clients,
customers or other employees; (b) non-competition covenants, which restrict
departing employees from commencing employment with competitors or setting up
competing businesses; and (c) nondisclosure covenants, which restrict departing
employees from disclosing confidential information. In the absence of a non-disclo-
sure covenant, employees still have a common law duty not to disclose confidential
information or trade secrets. Restrictive covenants are viewed as a restraint of trade
and will be approached by the courts with great scrutiny. The enforceability of re-
strictive covenants depends largely on the duration and geographic scope of the
covenants, the wording of the contract, the nature of the business and the legitim-
acy of the interests that the employer is seeking to protect. The law is clear in that a
restrictive covenant must go no further than is reasonably necessary to protect the
employer’s legitimate proprietary interests.
In the absence of an express agreement regarding the consequences of termination,
the law holds that employees who are dismissed without just cause are entitled to
reasonable notice of termination of employment, and may recover damages if such
notice is not given. In providing reasonable notice, the employer generally has two
options. The employer may require the employee to continue to work through the
notice period (otherwise known as “working notice”) or may provide the employee
with pay in lieu of working notice. All employment standards statutes contain
minimum periods for notices of termination and severance pay, if applicable.
However, absent express agreement to the contrary, employers will be required to
provide employees with both statutory notice of termination and common law
notice of termination. The amount of common law notice that is reasonable is deter-
mined by the circumstances of each case. The courts have identified four major
34 |
EMPLOYMENT LAW
factors in determining common law reasonable notice, giving varying degrees of

weight to each, depending on the circumstances: the character of the employment;
the length of service; the age of the employee; and the availability of similar em-
ployment, taking into consideration the employee’s experience, training and qualifi-
cations. This common law reasonable notice entitlement will encompass any
statutory notice entitlement provided for by the applicable employment standards
legislation. The requirement for reasonable notice directly contrasts with the widely
held view in the United States that workers are employed at the will of the employer
and that their employment may be terminated at any time, without cause and
without notice.
Only where just cause for termination exists can an employee be summarily
dismissed without common law reasonable notice or statutory notice. What consti-
tutes just cause varies. Assertions of just cause for termination which the employer
knows are not well-founded may lead to a larger award of damages to the employee
on the basis that the employer acted in bad faith. It is advisable for the employment
contract to provide a non-exhaustive list of examples of what would constitute “just
cause”. This may be a defence to any argument that a specific type of conduct did
not amount to just cause for termination.
Written employment contracts may also contain an express provision that specifies
the amount of notice to which the employee is entitled on termination without just
cause. Although in most cases the provision will be enforceable, such a provision
will not be enforceable where the notice period is less than that which the employee
would have been entitled to under the applicable employment standards legislation.
An employer and employee can agree on providing a greater benefit than what is
provided in the applicable employment standards legislation but cannot contract out
of the minimum standards set out in such legislation.
As indicated, there are many advantages to having a contract of employment stipu-
lating the terms and conditions of employment.
8.3 Employment Conditions Imposed by Statute

Provincial and federal statutory employment standards exist for all jurisdictions.
Statutes govern such matters as minimum wage rates, method and frequency of
payment, hours of work and overtime pay, vacation pay, statutory holidays,
emergency leave, maternity and other leaves and minimum requirements for notice
of termination of employment or pay in lieu thereof. There are also minimum
standards imposed by both provincial and federal legislation governing health and
safety in the workplace. In most jurisdictions there are penalties for failing to
comply with these standards.
| 35
Where employers have a duty under health and safety legislation to protect the
safety of a worker, Canada’s Criminal Code expands this duty to include members
of the public. Anyone who undertakes, or has authority to direct how another person
does work is under a legal duty to prevent bodily harm to that person and any other
person, arising from that work.
In some jurisdictions there is legislation governing the layoffs or termination of
large groups of employees. Such legislation may make it necessary for the employer
to give substantial advance notice to the responsible ministry and the affected
employees prior to implementing such initiatives. A specific government ministry
in each jurisdiction has the power and duty to enforce the legislation through the
imposition of payment orders enforceable by the courts.
Some jurisdictions have enacted legislation protecting workers from workplace
violence and harassment. The legislation requires employers to prepare policies and
maintain programs with respect to workplace violence and harassment. The
programs must include measures and procedures for reporting by workers and in-
vestigation by the employer of incidents of violence and harassment. The employer
is also required to proactively identify and assess the risks of violence particular to
their workplace. In addition the employer is required to notify workers who will be
coming in contact with other workers known to have a history of violent behaviours.
8.4 Workers’ Compensation

Employers have a general duty to provide a safe working environment. Workers’
compensation insurance protects employers from claims resulting from injuries to
employees and is mandatory for most Canadian employers that employ a stipulated
minimum number of people. Under provincial legislation that provide for workers’
compensation schemes, employees covered by such legislation are generally denied
their common law right to sue their employer but may claim for benefits under the
compensation scheme. Where employees are injured “in the course of their em-
ployment”, compensation is payable to the employee. In most jurisdictions, injured
employees receive between 75 percent and 90 percent of their pre-injury income
while disabled.
Such compensation payments are largely funded through employer contributions.
8.5 Canada Pension Plan

The Canada Pension Plan is a contributory, earnings-related social insurance scheme
established by the federal government. It insures against the loss of income due to
retirement, disability and death. It applies to anyone working in Canada outside of
36 |
EMPLOYMENT LAW
Québec. An employee must contribute to the plan 4.95 percent of all employment
earnings in excess of C$3,500 up to a specified maximum of C$2,356.20 per year
(in 2013). Employers are required to deduct this amount from an employee’s
remuneration and remit it to the federal government, and are required to match this
contribution. Self-employed persons must pay both portions. The Province of
Québec has its own similar program, the Québec Pension Plan, for those working
in Québec.
8.6 Employment Insurance

The federal Employment Insurance Act regulates an insurance scheme to which
both employers and employees must contribute. Workers who qualify for assistance
receive benefits while they are unemployed, or without pay because of pregnancy,
parental leave, temporary sickness or quarantine, and on compassionate family care
leave. The level of benefits an employee will receive depends on several factors
including past contributions, length of employment and previous salary. The
program is funded by way of employee contributions at a rate of C$1.88 per C$100
of insurable earnings, up to a maximum of C$891.12 per year (in 2013). Employers
are required to deduct this amount from an employee’s remuneration and remit it to
the federal government. For each employee, an employer will have to contribute a
rate of C$2.632 per C$100 of insurable earnings up to a maximum of C$1,248
(in 2013).
8.7 Human Rights Legislation

Every provincial and federal jurisdiction has legislation designed to protect human
rights. Among other things, this legislation is aimed at preventing and redressing
discrimination in the work place. For each jurisdiction, the relevant legislation
should be referred to as the prohibited grounds of discrimination are not uniform.
Most jurisdictions prohibit discrimination on the basis of race, ancestry, nationality,
ethnic or place of origin, political belief, colour, religion or creed, sex, sexual orien-
tation, marital status, family status, age, physical or mental disability, or criminal
conviction for which a pardon has been granted. Sexual harassment is considered
discrimination on the basis of sex. Some jurisdictions allow for mandatory retire-
ment at age 65, while in other jurisdictions mandatory retirement constitutes age
discrimination. With respect to disability, employers have a duty to accommodate
employees with a disability to the extent possible to the point of undue hardship.
Some jurisdictions have also enacted pay equity legislation. Pay equity legislation
requires that employers provide comparable salary and benefits to employees in
comparable positions, regardless of gender.
| 37
8.8 Employment Governed by Collective Agreements

Trade unions represent a significant portion of the Canadian work force. All
Canadian jurisdictions recognize by statute the right of trade unions to organize and
represent employees, and to engage in collective bargaining. Collective bargaining
consists of negotiations between an employer and group of employees over the
terms and conditions of employment. The result of collective bargaining is a col-
lective agreement.
Provincial and federal labour legislation provides for the following: exclusive bar-
gaining rights to certified trade unions; a postponement of the right to strike or
lock-out until after conciliation or mediation; prohibition of unfair labour practices
by both employers and trade unions; the legal recognition and enforceability of col-
lective agreements; the resolution of disputes under collective agreements through
a grievance procedure or arbitration without resorting to strike; and the establish-
ment of administrative tribunals or regulatory bodies with investigative and
remedial powers over the collective bargaining and organization process and other
aspects of labour relations. While the precise nature of these rights varies from
jurisdiction to jurisdiction, these features are common to all Canadian jurisdictions.
Employees have the right to belong to a trade union of their choice, free of any
coercion or interference by the employer. Employers have a duty to recognize and
bargain in good faith with the trade union chosen by their employees. Labour
relations tribunals supervise the organization of employees and, to some extent, the
collective bargaining process.
This institutional arrangement largely displaces the administration of labour law by
the courts, although the jurisdiction of the courts in certain labour matters, such as
the issuance of injunctions and limited review of labour board decisions, remains intact.
Employers and employees have different rights and obligations under a collective
agreement than under individual contracts of employment where there is no trade
union. The collective agreement represents the terms and conditions of employ-
ment. Generally, employers cannot enter into individual contracts with employees.
Collective agreements must provide for a private system of dispute resolution,
typically in the form of arbitration. Employees who are dismissed or disciplined by
their employer have the right to seek redress through arbitration. Arbitrators are
given the power under the collective agreement (or by statute) to reinstate
employees if they find that the employer acted with insufficient cause. They have
the right to substitute a penalty of less severity than that imposed by the employer.
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EMPLOYMENT LAW
Arbitrators also have the authority to settle disputes over the interpretation of the
collective agreement. Their decisions are binding on the employer, the employees
and the trade union. There is a limited right of appeal to the courts from
arbitration decisions.
8.9 Whistleblower Protection

In Canada, it is a criminal offence for an employer to take disciplinary measures, or
threaten or adversely affect the employment of an employee, with the intent to stop
an employee from providing information to law officials regarding wrongful
activity. Anti-reprisal provisions that protect employees who report wrong activity
of their employers are also found in various provincial employment standards legis-
lation and human rights and workers’ health and safety legislation.
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40 |
Chapter 9
DIRECTORS AND OFFICERS LIABILITY
A director or officer of a corporation is subject to certain duties. These duties arise

from the common law as well as from legislation. In a number of instances, a
director or officer can be held personally liable for failing to fulfill these duties.
Duties and liabilities of directors and officers of a corporation may arise under the
statute governing the corporation or under various federal or provincial statutes
which apply generally to carrying on business (making directors personally respon-
sible is a common form of “get tough” regulation), as well as under common law.
9.1 Duties and Liabilities of Directors

(a) Fiduciary Duty
Directors owe a “fiduciary duty” to the corporation. This means that they must act
honestly and in good faith with a view to the best interests of the corporation. This
also means acting loyally to the corporation and avoiding situations where a direc-
tor’s duty to the corporation conflicts with his or her self interest. Accordingly, as
part of fulfilling this fiduciary duty, a director must disclose his or her personal
interest in a material contract with the corporation, refrain from voting on any reso-
lution which places the director in a conflict of interest and refrain from using
corporate information or corporate property for personal benefit. In addition, a
director must not take personal advantage of a business opportunity that the corpora-
tion either had or was pursuing if the director became aware of the business oppor-
tunity in the course of serving as a director. If a director fails to take any of these
steps, the director may have breached this fiduciary duty. In such circumstances, the
director may be required to account to the corporation for any gain earned as a result
of the breach. A court may also award damages to the corporation in order to restore
the corporation to the position it was in before the breach occurred.
(b) Duty of Care
Directors also owe a duty of care to the corporation. For corporations incorporated
under the federal Canada Business Corporations Act and most provincially-incor-
porated corporations, this duty of care is articulated in the relevant corporate statute
as a duty to exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances. This means that a director must apply
his or her knowledge, experience, skills and best judgment when exercising powers,
performing functions and making decisions as a director. In jurisdictions where the

relevant corporate statute does not define the duty of care, the duty of care is based
on common law, which provides that the director’s duty of care is to exercise the
care, diligence and skill of a person possessing the knowledge and experience of
that director.
Those who possess greater knowledge or skill may be expected to meet a higher
standard of care. For example, directors who hold other management positions
within the corporation may be subject to a higher standard because they are
generally better informed about the corporation’s affairs.
To determine whether a director has breached his or her duty of care, a court will
examine the process by which the director came to the decision in question. A
director will not be relieved from liability simply because the director was absent
from the directors’ meeting where the decision was made, unless the director
properly registered his or her dissent to the decision.
(c) Other Duties
In addition to the fiduciary duty and the duty of care, directors owe additional duties
arising from federal and provincial legislation. These duties include:
• Duties relating to wages and pensions: Under the various federal and provin-
cial statutes governing employment standards, directors can be held liable to the
corporation’s employees for unpaid wages and vacation pay earned by the
employees during the individual’s directorship. Moreover, where a corporation
commits an offence under provincial pension benefits legislation, a director may
be held personally liable if the director participated in the offence.
• Tax-related duties: A director may be liable for employee source deductions,
non-resident withholding taxes, excise taxes, and certain other provincial taxes
that the corporation has failed to withhold, deduct or remit as required. In
addition, directors can be personally liable where a corporation commits an
offence under federal or provincial tax legislation.
• Duties arising from environmental legislation: Directors can be held liable
where the corporation commits certain environmental offences. This liability can
arise even where the director was not actively involved in committing the
offence, since directors are deemed to have control of the corporation and its
employees. Directors may be fined, imprisoned or found liable in damages for
the corporation’s offences.
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DIRECTORS AND OFFICERS LIABILITY
• Duties relating to publicly-traded corporations: Directors of publicly-traded

corporations are subject to additional duties and potential liabilities. A director of
a publicly-traded corporation must ensure that the corporation has complied with
the various filing, disclosure and reporting requirements and restrictions arising
from relevant provincial securities statutes. Failing to do so can give rise to
serious penalties, including fines or imprisonment.
• Other duties: Depending on the nature of the activities of the corporation,
directors can be subject to a number of other duties and liabilities, including
those arising from bankruptcy and insolvency legislation, pension benefits legis-
lation and legislation governing financial institutions. The penalties for breaching
these duties may consist of fines, imprisonment or the payment of damages.
9.2 Duties and Liabilities of Officers

Like directors, a corporation’s officers owe a fiduciary duty to the corporation and,
generally, are subject to the same duty of care that is imposed on directors.
Therefore officers face many of the same potential liabilities as directors. Whether
an employee is an officer will depend not on the employee’s stated position or title,
but rather on the degree of actual power and control that the employee has over
the corporation.
9.3 Protections and Defences for Directors and Officers

Directors and officers can minimize the risk of liability by performing their
functions as directors and officers diligently and faithfully. Among other things,
directors and officers should be vigilant in:
• holding the interests of the corporation paramount;
• disclosing personal interests that are in conflict with the corporation’s interests;
• abstaining from voting on decisions in which they have conflicting interests;
• obtaining shareholder approval of transactions in which they are
personally interested;
• diligently asking questions and obtaining full answers from management about
the affairs of the corporation;
• participating in a meaningful way at all board meetings;
| 43
• before relying on the advice of an independent adviser or expert, verifying that

the person giving the advice is qualified to give such advice, giving the person
access to all relevant information in the corporation’s possession and exercising
common sense when reviewing the report;
• ensuring compliance with applicable legislation and policies;
• becoming familiar with applicable statutory and common law duties as well as
those arising from the corporation’s constating documents; and
• keeping the affairs of the corporation confidential.
Directors and officers can also limit their personal liability in the following ways:
• Corporate Indemnity: In certain circumstances, corporations may indemnify
their directors and officers for actions taken on the corporation’s behalf.
However, this indemnity is unavailable where the director has breached his or
her fiduciary duty, where the corporation is insolvent or where a court finds an
indemnity otherwise inappropriate.
• Shareholders Agreement: In some cases director’s liability can be limited by an
unanimous shareholders agreement that transfers liability from the directors to
the shareholders of the corporation.
• Insurance: As a further protection, directors and officers can obtain director and
officer liability insurance to protect against certain types of losses and claims.
However, insurance typically does not cover cases such as fraud, conspiracy,
criminal behaviour and human rights violations.
• Resignation: As a last resort, a director or officer could resign to avoid liability
arising from future events. However, this does not exonerate the director or
officer from liability arising from events that occurred during his or her term as
director or officer.
• Due Diligence: Generally, directors and officers are entitled to a due diligence
defence that may protect a director from liability if it can be proven that the
director took all reasonable steps to avoid the event giving rise to liability, or that
the director had a reasonable belief in a mistaken set of facts that, if true, would
have made the director’s conduct reasonable in the circumstances. The due
diligence defence is available to officers in a more limited set of circumstances.
Depending on the nature of the offence, there may be other statutory and common
law defences and protections available to a director or officer.
44 |
Chapter 10
CANADIAN INTERNATIONAL TRADE REGULATION
The Canadian federal government is generally responsible for Canada’s trade

policies and laws.
10.1 Canadian Import Laws

Canada’s Customs Act imposes a general duty to report the importation of all goods
into Canada. It also regulates the valuation of goods for duty purposes on importa-
tion to Canada, the basis for any exemptions from the payment of duty, and proced-
ures for contesting the federal customs authorities’ classification of goods for
customs purposes. The Customs Tariff sets out the various rates of duty that apply to
the importation of goods into Canada.
10.2 The Classification of Goods

The classification of imported goods for customs purposes is undertaken pursuant to
the Harmonized Commodity Description and Coding System (or “HS”) which
Canada has implemented into domestic law through the federal Customs Tariff.
The Canadian International Trade Tribunal (“CITT”), established by the Canadian
International Trade Tribunal Act, is empowered to resolve questions of tariff classi-
fication whenever a dispute arises between Canadian customs authorities and the
person liable to pay duties. The CITT also deals with the injury aspects of investiga-
tions arising under Canada’s anti-dumping, safeguards and countervailing duty laws.
A Canada Border Services Agency (“CBSA”) officer first classifies and values goods
within 30 days of the acceptance of the final entry documents. If the importer of
record disagrees with the classification or valuation, it may request a re-determina-
tion or reappraisal within 90 days of the initial determination. Further rights of
appeal are also available.
10.3 The Valuation of Goods

Canada is a party to the WTO’s Customs Valuation Agreement. Consistent with its
obligations under this Agreement, Canada generally uses the “transaction value”
method for valuing goods for customs purposes.
Except for special rules which apply when the importer and the exporter are related
parties, the transaction value is determined by ascertaining the price paid, or payable,
for the goods when they are sold for export to Canada. This price is adjusted for
certain fees, charges, royalties, transportation and other additional costs.
10.4 Duty Remission and Other Schemes

Canada has numerous programs that provide for abatements, refunds, drawbacks
and remissions of customs duties in certain circumstances. These duty programs are
complex. The availability of a reduced tariff rate is often dependent on the import-
er’s status or how it intends to use the imported goods. The Government of Canada
also has authority to reduce or eliminate duties that may have been paid or are
payable in certain circumstances.
10.5 Export and Import Controls

The Export and Import Permits Act gives general statutory authority for controlling
imports and exports of goods and certain types of technology. This Act allows the
Government of Canada to place goods on the Import Control List for a number of
reasons, including restricting the import of certain farm or fish products, arms and
textiles. The Government of Canada also has the authority to control the export of
goods including firearms.
Canada is also a party to international agreements of relevance to the export and
import of goods and the imposition of economic sanctions. These agreements are
implemented into domestic law by, among others, the Special Economic Measures
Act and the United Nations Act, and are used by Canada to impose economic and
trade sanctions on other countries pursuant to Canadian multilateral obligations and
to control the export of strategic goods and technology.
10.6 Canadian Trade Remedy Laws

According to its rights and obligations under the WTO, Canada has measures in
place to control the import of dumped and subsidized goods if such imports cause
injury to domestic production. To investigate alleged dumping or subsidization, the
federal Special Import Measures Act provides for two types of investigations
conducted by two separate agencies.
The Canada Border Services Agency investigates whether dumping or subsidiza-
tion has taken place. The CITT determines whether the complaining domestic
industry has been materially injured by dumped or subsidized imports. As required
by Canada’s WTO obligations, dumping (or subsidization) and injury to domestic
producers must both be found before definitive duties can be imposed.
46 |
CANADIAN INTERNATIONAL TRADE REGULATION
10.7 North American Free Trade Agreement

The North American Free Trade Agreement (“NAFTA”) has generally eliminated
customs duties and other barriers to trade among Canada, the United States and
Mexico on goods originating from member jurisdictions (with some notable excep-
tions). The goods must meet NAFTA’s “rules of origin” in order to qualify for this
preferential treatment. Certain restrictions to protect human, animal or plant life or
health and safety continue in effect subject to certain limitations. The NAFTA
parties have also agreed to work to remove unnecessary obstacles to trade created
by certain technical standards.
10.8 Other Trade Agreements

Canada is party to a number of other bilateral trade agreements under which prefer-
ential benefits may be extended to goods from covered countries. These agreements
include trade agreements with Panama, Honduras, Jordan, Colombia, Peru,
European Free Trade Association (Iceland, Liechtenstein, Norway and Switzer-
land), Costa Rica, Chile and Israel. Canada is also participating in a number of on-
going negotiations including those with the Andean Community Countries (Bolivia,
Colombia, Ecuador and Peru), Caribbean Community (CARICOM), the Central
American Four (Honduras, Guatemala, El Salvador and Nicaragua), European
Union, India, Japan, Morocco, Ukraine, Dominican Republic, Singapore, South
Korea and the Trans-Pacific Partnership.
| 47
48 |
Chapter 11
COMPETITION LAW
Canadian law relating to anti-competitive acts and unfair competition is found

primarily in the federal Competition Act. The Competition Act applies, with few ex-
ceptions, to all industries and all levels of trade across Canada.
The Act contains both criminal and non-criminal provisions. Criminal offences
include bid-rigging, conspiracy, deceptive telemarketing, misleading advertising and
deceptive marketing practices. Non-criminal or “reviewable” matters include
mergers, abuse of dominant position and certain types of competitor collaborations.
Allegations of competition offences are investigated by the Commissioner of Com-
petition. The Commissioner brings non-criminal offences before the Competition
Tribunal, a specialized judicial body, independent of government, which is composed
of judges of the Federal Court of Canada and non-lawyer experts. The Competition
Act also provides a limited scope for private parties to bring complaints before the
Competition Tribunal for specific non-criminal anti-competitive behaviour involving
five reviewable matters: refusal to deal, price maintenance, exclusive dealing, tied
selling and market restriction. The Competition Tribunal can issue both interim and
final orders remedying non-criminal anti-competitive practices. Suspected criminal
offences are referred by the Commissioner to the Attorney General for Canada for
prosecution before the courts. Criminal offenders are subject to fines, prohibition
orders, interim injunctions and/or imprisonment.
The Competition Act provides that evidence obtained by an investigation by the
Competition Bureau in Canada can be provided to a foreign authority without the au-
thorization or consent of the party under investigation. Moreover, foreign competi-
tion authorities from countries that are party to a mutual legal assistance treaty with
Canada now have the power to request the assistance of the Competition Bureau in
Canada, even where the alleged anti-competitive conduct did not occur or have any
effect in Canada.
11.1 Merger Review

The Competition Act defines a merger in broad terms to include the direct or indirect
acquisition or establishment of control over, or significant interest in, the business of
another person. In general, mergers are subject to review where they are likely to
substantially prevent or lessen competition. In considering whether a merger will
substantially lessen competition, the Competition Tribunal will consider a variety of
factors, including: the extent of foreign competition faced by the parties to the
merger; the likelihood of the business of one of the parties to the merger failing in
the absence of the merger; the availability of substitute products for those supplied
by the merging parties; the extent of barriers to entry into the market; and the extent
of remaining post-merger competition. In addition, the Competition Tribunal will
consider whether the merger is likely to bring about gains in efficiency that will be
greater than and will offset any anti-competitive effects of the merger. If the Com-
petition Tribunal determines that a merger is likely to substantially lessen competi-
tion, the Competition Tribunal may prohibit or dissolve the merger in whole or in
part, or may allow it to proceed under imposed conditions.
Significant merger transactions may also be subject to pre-merger notification,
depending on the size of the parties involved and the size of the transaction. For
example, asset purchases require notification where: (a) the parties to the trans-
action together with their respective affiliates have assets in Canada or gross
revenues from sales in, from or into Canada in excess of C$400 million; and (b) the
gross value of the assets being purchased or gross revenues from sales in or from
Canada generated by those assets exceeds C$80 million. The same thresholds apply
in the case of share acquisitions, amalgamations and combinations. If the applicable
notification thresholds are met, the parties to the transaction must provide pre-
scribed information to the Commissioner and pay the prescribed filing fee (currently
C$50,000). Notifiable transactions are subject to a mandatory initial waiting period
of 30 days and cannot be completed until either this waiting period has expired or
the Commissioner has otherwise indicated that the transaction can proceed. This
initial waiting period can be further extended in the event the Commissioner makes
a supplementary information request of the parties.
11.2 Criminal Offences

The Attorney General of Canada has exclusive jurisdiction over all criminal pros-
ecutions under the Competition Act. Both companies and individuals can be charged
with criminal offences, including conspiracy and bid-rigging, as well as some mis-
leading advertising and deceptive marketing practices. Such offences are sanc-
tioned by fines and/or prison sentences.
The key criminal offence under the Competition Act is conspiracy, which involves
any agreement or arrangement (formal or informal) between competitors or
potential competitors: to fix, maintain, increase or control prices; to allocate sales,
territories, customers or markets; or to fix, maintain, control, prevent, lessen or
eliminate production or supply of a product. Such agreements are per se illegal and
subject to significant fines and/or prison sentences, regardless of any actual anti-
competitive effect.
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COMPETITION LAW
11.3 Misleading Advertising and Deceptive Marketing Practices

The Competition Act also contains provisions aimed at curtailing misleading adver-
tising and deceptive marketing practices. These provisions generally prohibit rep-
resentations to the public that are false or materially misleading, that are not based
on adequate and proper tests, or that contain false testimonials or misstatements as
to price. Where these representations are made deliberately or recklessly, they can
be pursued criminally and criminal sanctions can be sought. If not made deliberate-
ly or recklessly, the Competition Act provides for civil sanctions, including orders
prohibiting a continuation of the anti-competitive practice and significant adminis-
trative monetary penalties.
Criminal deceptive marketing practices include double ticketing of prices, pyramid
selling, bait-and-switch selling and deceptive prize notices. These provisions
prohibit promotional contests where there is a representation made which suggests
that the recipient has won or will win a prize or benefit and that seeks payment from
or requires the recipient to incur any cost, unless the recipient actually wins the
contest and prescribed disclosure requirements are met. Criminal responsibility for
this deceptive practice can also be imposed on the directors and officers of the corpor-
ation who were in a position to control or influence the behaviour of the corporation.
Reviewable, non-criminal deceptive marketing practices include misleading or
false representations to the public that fall short of the criminal standard, perform-
ance claims based on inadequate testing, and bait-and-switch advertising.
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52 |
Chapter 12
SALE OF GOODS AND CONSUMER PROTECTION
Just as Canada has competition laws that are designed to protect businesses from
unethical competition, Canada has consumer protection laws that are designed to
protect consumers from misrepresentation and misleading packaging and labelling
related to the sale of goods.
Under the Canadian Constitution, the federal and provincial governments share re-
sponsibility for consumer protection. The federal government is responsible for
ensuring a fair, efficient and competitive marketplace for producers and consumers.
Federal consumer protection laws govern the sale, advertising and labelling of
consumer goods sold in Canada. Provincial governments are responsible for contrac-
tual matters related to the sale of goods, such as conditions of sale, warranties and
licensing. The standard of protection given to consumers is broadly similar in all
provinces across the country. The provinces also require that a variety of businesses
providing goods or services to the public be registered, licensed, or granted a permit
before selling their goods or providing their services (including real estate agents,
automobile dealers, collection agencies and direct sellers).
12.1 Regulation of Advertising

As discussed above in Chapter 11 (Competition Law), in addition to addressing
competition issues, such as price discrimination and predatory pricing, the federal
Competition Act addresses a variety of consumer issues, including misleading adver-
tising, deceptive telemarketing, and pyramid schemes. The misleading advertising
and deceptive marketing practices provisions of the Competition Act apply to any
person promoting the supply or use of a product or service or any business interest,
by any means (including print, broadcast and internet advertisements, written and
oral representations, and illustrations). Any materially misleading representations
that affect the purchaser’s decision to buy the product fall under the Competition Act
and can attract penalties. Misleading advertising is also the subject of various prov-
incial regulations.
12.2 Regulation of Labelling of Goods in Canada

In general, federal consumer protection laws govern the information that must be
disclosed on product labels, and prohibit the use of false or misleading information.
The federal Consumer Packaging and Labelling Act, administered by Canada’s

Competition Bureau, regulates the packaging and labelling of consumer goods. The
goal of this legislation is to protect consumers from misrepresentations and to help
consumers differentiate between products. Products regulated under the Act include
any article that is the subject of trade or commerce, including both food and
non-food products. The Consumer Packaging and Labelling Act applies to “dealers”
(who are defined broadly as retailers, manufacturers, processors or producers of
products, or any person who is engaged in the business of importing, packing, or
selling any product) and prohibits dealers from selling, advertising or importing
into Canada any pre-packaged product unless a label in the prescribed form is
attached. Certain information displayed on labels must be written in both English
and French (including the common name of the product and the quantity in metric
units). The Consumer Packaging and Labelling Act also regulates standard
container shapes and sizes.
In addition to the requirements of the Consumer Packaging and Labelling Act, the
federal Food and Drugs Act regulates the advertising, sale and importation of
foods, drugs, cosmetics and medical devices by prescribing standards of purity and
quality, as well as labelling and advertising standards.
The Hazardous Products Act regulates the advertising, sale and importation of
hazardous or controlled products and substances, which include compressed gas,
flammable and combustible material, oxidizing material, poisonous and infectious
material, corrosive material, and dangerously reactive material. The statute
prohibits suppliers from selling or importing hazardous products intended for use in
a workplace unless the importer provides a material safety data sheet disclosing
certain information, and the packaging of such hazardous products comply with
certain labelling requirements.
The Canada Consumer Product Safety Act regulates manufacturers, importers and
retailers of “consumer products” (which are defined broadly to include a product,
its parts, accessories or components that may be reasonably expected to be obtained
by an individual to be used for non-commercial purposes), as well as those persons
who advertise, test, package or label consumer products and those who distribute
promotional products for free. The purpose of the statute is to prevent the manufactur-
ing, importation, advertising and selling of consumer products that pose a danger to
human health or safety, such as the advertising or labelling of consumer products in a
manner that is false, misleading or deceptive in respect of their safety. Pursuant to the
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SALE OF GOODS AND CONSUMER PROTECTION
Canada Consumer Product Safety Act, the federal government can recall products.
There are also obligations to report consumer product safety incidents or product
defects, and to maintain records pertaining to the supply chain under the statute.
Other consumer protection legislation regulates the marketing and sale of certain
specific products. For example: (a) the Textile Labelling Act requires labels to be
affixed to garments and upholstered household furnishings; (b) the Precious Metals
Marking Act sets out rules for the sale of goods made from precious metals;
(c) the Agricultural Products Act sets standards and grades for agricultural products
and regulates the import, export and inter-provincial trade of agricultural
products; (d) the Tobacco Act requires the packaging of tobacco products to display,
amongst other things, the health hazards and health effects arising from the use of
or emissions from the products; and (e) the Motor Vehicle Safety Act regulates the
safety standards of motor vehicles imported and exported to and from Canada.
In addition, both the federal and provincial governments have set mandatory
standards for the performance and safety of numerous other potentially dangerous
products, such as electrical wiring, equipment, appliances and automobiles.
12.3 Product Liability Law

Product liability law in Canada is based on both the law of contract and the law of
negligence. Statutory law also applies in some cases.
Contract law provides a remedy for parties who are injured when enforceable
promises are breached. Contracts for the sale of personal property are subject to
provincial jurisdiction and are regulated by provincial sale of goods legislation
which generally implies into contracts certain conditions and warranties of fitness
and quality of goods. Where goods are found to be defective or in breach of either
express or implied warranties, sellers, distributors and manufacturers may be held
liable for breach of contract. The purchaser of the defective goods may choose to
either reject the goods and rescind the contract, or to treat the breach as a breach of
warranty and sue for damages. Proof of fault is not required for a breach of warranty
action; contract law requires only that a warranty was breached and that the breach
has resulted in damage. An injured party can sue for breach of warranty only where
the injured party has a contractual relationship with the party being sued.
The law of negligence provides a remedy for parties who are injured when the
conduct of a responsible party (usually the party responsible for manufacturing or
| 55
bringing a product to market) falls below an accepted standard. To support a claim

in negligence, an injured party must show that the responsible party owed the
claimant a duty of care, that the responsible party’s actions with respect to the
product breached the applicable standard of care, and that the breach caused the
claimant’s injury. Negligence does not require a contractual relationship between
the injured party and the responsible party, such that liability in negligence can be
extended to anyone that came into contact with the defective goods, including
manufacturers, designers and distributors.
56 |
Chapter 13
FRANCHISING
Franchising is a method of doing business and facilitating business expansion. It

normally involves the grant of a licence to the franchisee permitting the franchisee to
use the franchisor’s intellectual property and system of carrying on business in
exchange for a fee.
The extent of a franchisor’s involvement in the ongoing operation of the franchise
will vary considerably depending on the nature of the franchise agreement. In a
“turnkey” franchise, the franchisor is entirely responsible for construction and set-up
of the franchise premises, and exercises continuing supervision over its operation.
At the other extreme, in a “distributorship” relationship, the franchisor’s role is
simply to supply the franchisee with products for resale in return for which it
receives royalties.
Franchise agreements must be distinguished from agency and distribution contracts.
In an agency relationship, the agent simply effects the sale of a product on behalf of
the principal in return for a commission, but does not buy the product. Distributor-
ships are businesses that purchase inventory for resale to other businesses. The line
between franchise and distributorship is not always clear and will usually depend on
the degree of control exercised over the distributor or franchisee. The distinction
between the two becomes particularly important in determining whether a particular
relationship falls within the scope of franchise legislation in effect in some provinces.
13.1 Structure of the Franchise

A franchise system may be structured by way of unit franchise, area development
franchise or master franchise. A unit franchise involves the granting of individual
franchise rights directly to a franchisee. Alternatively, it is possible to devolve on an
area developer responsibility for marketing the franchise system and identifying
potential franchise locations within a specified territory. In a master franchise system,
the master franchisee sublicenses franchise rights to unit franchisees. The master
franchise agreement will normally preserve for the franchisor a measure of control
over the expansion and set an appropriate apportionment of fees between the master
franchisee and the franchisor.
13.2 Foreign Franchisors

There are several business structures available to a foreign-based franchisor wishing
to expand into the Canadian market using the franchise method. The first is to
operate the franchise directly from the franchisor’s existing foreign-based corporate
structure. While direct franchising has the advantage of minimal start-up costs, it
exposes the franchisor to liabilities incurred by Canadian operations and the lack of
a local presence may detract from the effectiveness of the franchisor’s marketing in
Canada. An alternative method is the establishment of a branch office to administer
the granting of franchise rights in Canada. However, this approach may attract
Canadian income tax liability and does nothing to insulate the franchisor from the
operating losses and liabilities of its Canadian branch. Third, a foreign-based fran-
chisor may opt to incorporate a Canadian subsidiary. Such incorporation will serve
to immunize the foreign franchisor from Canadian liabilities and operating losses,
but the other implications of such a structure, such as tax consequences, should be
carefully considered.
13.3 Compliance with Federal and Provincial Legislation

Although Canada has no comprehensive federal franchise legislation equivalent to
the United States’ Federal Trade Commission Franchise Rule (known more formally
as Disclosure Requirements and Prohibitions Concerning Franchising and Business
Opportunity Ventures), there are several federal statutes of general application that
can effect franchise relationships. Of particular significance are the Competition
Act, Trade-marks Act, Investment Canada Act, and Income Tax Act, which govern,
respectively, competition and trade practice matters, the registration and protection
of trade-marks, and investment and taxation rules to which foreign-based franchis-
ors are subject.
Certain types of provincial legislation of general application, such as liquor
licensing, employment standards, commercial tenancy and personal property
security acts, may also be applicable.
In addition to these generally applicable laws, the provinces of Alberta, Ontario and
Prince Edward Island have enacted specific legislation regulating franchise rela-
tionships, as discussed below. The Civil Code of Québec and Charter of the French
Language also merit the attention of any franchisor considering expansion into the
Province of Québec.
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FRANCHISING
(a) Alberta
The stated purpose of the Alberta Franchises Act is to assist prospective franchisees
in making informed investment decisions, to promote fair dealing in franchise rela-
tionships, and to provide civil remedies for breaches of the legislation. Important
features of this statute include: the requirement that franchisors give prospective
franchisees a disclosure document at least 14 days before any payment is made or
any agreement is signed relating to the franchise; the imposition of a duty of fair
dealing on each party to a franchise agreement; a right of action in the franchisee
for any losses arising from misrepresentations contained in the disclosure document;
and the right of a franchisee to rescind the franchise agreement in the event that the
franchisor has failed to provide the requisite disclosure document.
The term “franchise” is broadly defined in the Alberta Franchises Act. Payment of a
franchise fee is not an essential component of the definition provided there is a con-
tinuing financial obligation to the franchisor by the franchisee and significant con-
tinuing control by the franchisor on the operation of the franchised business. As a
result, distribution-type relationships must be carefully examined to determine
whether they fall within the scope of the Alberta Franchises Act.
It is also noteworthy that the Alberta Franchises Act applies to the sale of a franchise
only if the franchisee is an Alberta resident or has a permanent establishment in
Alberta for the purposes of the Alberta Corporate Tax Act. The Alberta Franchises
Act also mandates Alberta law as the governing law of any franchise agreement.
(b) Ontario
The Ontario Arthur Wishart Act (Franchise Disclosure), 2000 is similar to its
Alberta counterpart, but differs in several important respects. First, its application is
not limited to prospective franchisees that reside in or have a permanent establish-
ment in Ontario, but extends to any franchise to be operated partly or wholly in
Ontario. Second, more detail is required in the content of the mandatory disclosure
document. That document must include: warnings that prospective franchisees
should obtain independent advice and contact current or previous franchisees
before entering into the agreement; extensive information on the directors, general
partners and officers of the franchisor corporation; and a description of every
licence, registration, authorization or other permission that the franchisee will be
required to obtain in order to operate the franchise.
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(c) Prince Edward Island, New Brunswick and Manitoba

Prince Edward Island’s Franchises Act came into force on January 1, 2007, New
Brunswick’s Franchises Act came into force on February 1, 2011 and Manitoba’s
The Franchises Act came into force on October 1, 2012. In most respects the
franchise legislation in Prince Edward Island, New Brunswick and Manitoba is
similar to Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 in that they
contain requirements on a franchisor to provide a disclosure document to a pro-
spective franchisee, provide a right of rescission if a disclosure document is not
provided, obligate good faith and fair dealing between a franchisor and a franchisee
and protect franchisees’ rights to associate. The information that a franchisor must
include in a disclosure document with respect to a franchise in Prince Edward
Island, New Brunswick or Manitoba is detailed in the Regulations to each prov-
ince’s Franchises Act. The information that must be included in a disclosure
document for Prince Edward Island, New Brunswick or Manitoba is very similar
but not identical to that which must be included in a disclosure document in Ontario.
(d) Québec
Most franchise agreements will qualify as “contracts of adhesion” under the Civil
Code of Québec, as they are drawn by or on behalf of one party (the franchisor) and
their terms are not negotiable by the other party (the franchisee). Under the Civil
Code, a contract of adhesion must be couched in clear and understandable language.
It may not refer to provisions in other contracts unless those provisions are expressly
brought to the franchisee’s attention. Any abusive or excessively onerous provi-
sions may be found null and void or may otherwise be reduced in their effect. The
contract as a whole will be interpreted in favour of the franchisee.
The Charter of the French Language also has application to franchising as it
mandates French as the language of commerce and business in the Province of
Québec. The Charter is discussed further in Chapter 22 (Language Considerations).
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Chapter 14
INTELLECTUAL PROPERTY
Intellectual property in Canada is governed by federal, provincial and common law.

Federal statutes govern the primary areas of registered trade-marks, copyright,
patents, industrial designs, new plant varieties and integrated circuit topographies.
Provincial or common law applies to unregistered trade-marks, confidential informa-
tion and most aspects of intellectual property licensing.
14.1 Trade-marks
The federal Trade-marks Act defines a trade-mark as a mark used by a trader to dis-
tinguish its wares or services from those of others. In Canada, a trade-mark may be a
word, a design, a combination of words and designs or other distinctive identifiers
(such as shape and colour), and can be registered in association with both wares and
services. As of March 28, 2012, the Canadian Intellectual Property Office started
accepting applications for sound marks.
While registration of a trade-mark is not mandatory in Canada, registration does
provide substantial benefits. Most significantly, registration grants to the owner the
exclusive right to use the registered trade-mark and to enforce the trade-mark
throughout Canada notwithstanding the lack of actual use in certain provinces or ter-
ritories. The Act also provides certain remedies for infringement that are not available
to owners of unregistered or common-law trade-marks.
Unlike many other countries, Canada does not use the international classification
system for classifying wares and services for trade-mark registration purposes. A
single application can cover an unlimited number of wares and services for one fee.
All wares and services included in a Canadian trade-mark application, however,
must be set out in ordinary commercial terms. Such requirement can at times be
cumbersome, especially to applicants whose countries of origin adopt a relatively
relaxed approach towards identification of wares and services. Unlike most countries
which provide a term of registration of 10 years, the registration life of a Canadian
trade-mark is 15 years.
The entire registration process takes approximately 14 to 18 months if no objections
or oppositions are encountered. However, use of the trade-mark may generally
commence prior to completion of the registration process, provided that thorough
pre-application searches have been conducted and no conflicting uses are identified.
When a trade-mark owner permits another to use its trade-mark, it must be cautious
to do so in accordance with the requirements of the Trade-marks Act, which requires
that the owner control the character or quality of the licensee’s wares or services in
association with which the owner’s trade-mark is used. Failure to do so may
prejudice the trade-mark owner’s proprietary interest in that trade-mark in Canada.
Subject to certain conditions, foreign governments and international intergovern-
mental organizations have the additional option of requesting their national, terri-
torial or civic flags, arms, crests or emblems be entered as “official marks” in the
Canadian trade-mark register. Requests for the publication of official marks are not
subject to examination by the Canadian Intellectual Property Office or oppositions
by third parties. Official marks subsist until voluntarily withdrawn or inactivated
pursuant to court order, and do not require periodic renewal.
14.2 Copyright
Copyright in Canada is created by, and does not exist separately from, the Copyright
Act. The Canadian Copyright Act defines copyright as “the sole right to produce or
reproduce the work or any substantial part thereof in any material form whatever, to
perform the work or any substantial part thereof in public or, if the work is unpub-
lished, to publish the work or any substantial part thereof”, and includes certain
other specific rights.
The Copyright Act extends copyright to qualifying authors of certain types of
works. To qualify, the author must be a Canadian, or a citizen or resident of the
British Commonwealth or a foreign country that has, like Canada, adhered to the
Berne Convention. If the author meets these qualifications, the original literary,
musical, dramatic or artistic work will be protected by copyright in Canada if the
work is fixed in a physical embodiment such as text, recordings, works of art, and
the like. The copyright will generally subsist in Canada for a term of the life of the
author plus 50 years, although a shorter term may apply for certain works.
The categories of literary, musical, dramatic and artistic works are widely defined.
For example, artistic works include not only paintings and sculptures, but also
maps, charts, plans and architectural works of art. Similarly, literary works include
computer programs. Regardless of the category into which a work falls, that work
must be original, in the sense that it originated with its author and was not copied
from another source.
There is no requirement that copyright be registered in Canada in order to obtain
the benefits of the Copyright Act. If the author qualifies and the work satisfies the
requirements of the Copyright Act, that work will be protected by copyright in
Canada. Registration does, however, provide certain benefits, such as establishing
62 |
the existence of the copyright, and an evidentiary presumption of ownership that

enhances the owner’s ability to enforce their copyrights. There are no time limits
within which copyright must be registered, provided the copyright subsists.
The Canadian Copyright Act establishes the Copyright Board of Canada, an
economic regulatory body, to oversee the collective administration of copyrights.
Generally, the Board supervises and manages the collective administration of copy-
rights by collective societies. Collective societies are responsible for large collec-
tions of works depending on the rights that they supervise. The Board’s primary
function is to certify tariffs of royalties that are proposed by collectives. It may also
be asked by the Commissioner of Competition to examine, and review, if necessary,
the terms or agreements between collective societies and users where they seem to
be contrary to the public interest. Also, in situations where the owner of copyright
cannot be found, a person desirous of using that work may submit a request to the
Board in order to obtain the issuance of a licence to use specific work under terms
to be established by the Board. Finally, where a collective society and user cannot
agree on royalties or terms of use of certain works, the Board may be asked to fix
such royalties and terms of use.
In early November 2012, several provisions of Bill C-11 the Copyright Moderniza-
tion Act (“Bill C-11”) came into effect. Bill C-11 is the most recent attempt at
modernizing Canadian copyright law.
Generally, Bill C-11 is an attempt to strike a balance between the interests of
copyright holders and the broader interests of the Canadian public. This balance
also must be relevant to the rapidly advancing digital age. As such, Bill C-11
includes a parliamentary review of the Copyright Act every five years. Bill C-11
further includes a variety of other substantive changes to the Copyright Act, most of
which go beyond the scope of this Section. However, some brief comments on a
select few of the changes and their possible impact on the Canadian business en-
vironment are warranted. The circumvention of digital locks that copyright holders
use to prevent unauthorized dissemination of their protected works is now pro-
hibited. However, there are exceptions to this prohibition including reverse engin-
eering for the purposes of security testing and related research. There are further
exceptions for temporary, technical and incidental copies that are made of copy-
righted materials. These exceptions may provide greater certainty to innovation
companies in the software and computer industry. Internet service providers and
search engine companies will not be held liable for the infringing activities by users
of their services. Further, a “notice-notice” structure is enabled, whereby a copyright
holder can provide notice of an alleged copyright infringement to the service
| 63
provider and the service provider will then forward that notice to the alleged
infringer. These changes will provide greater clarity to service providers in the
intermediary position between the copyright holder and the consumer. Further, the
provisions of C-11 are technology neutral. This neutrality is intended to equip the
Copyright Act with adaptability in the rapidly evolving world of digital technology.
This may provide greater comfort to businesses that deal in the latest technologies.
14.3 Patents
In Canada, an invention may be protected either by keeping it confidential as a
trade secret, or by patent rights pursuant to the Patent Act. If the inventor or other
owner of the invention obtains protection under the Patent Act, they are granted the
statutory right to exclusively make, sell and use the invention. In exchange for this
exclusivity the inventor must disclose sufficient information about the invention to
allow others to make and use the invention on the expiry of the patent. The
maximum term of a Canadian patent is 20 years from the date of filing of the appli-
cation, for patent applications filed on or after October 1, 1989.
The Patent Act defines an invention as “any new and useful art, process, machine,
manufacture or composition of matter, or any new and useful improvement
thereof”. Therefore, in order to be patentable in Canada, an invention must be new
in order to satisfy the requirement of “novelty”, useful in order to satisfy the re-
quirement of “utility”, and non-obvious in order to satisfy the requirement
of “inventiveness”.
Like most countries, Canada has adopted the “first to file” rule, whereby the person
entitled to obtain a patent for an invention is the person who is the first to file a
patent application for the invention. Canada is also a member country of the Patent
Cooperation Treaty (“PCT”). Applicants can have their PCT application enter the
national phase to obtain protection in Canada, with late entry being possible up to
42 months after the priority date.
Canada does not require absolute novelty and, therefore, it is possible to file a
Canadian patent application within one year of the first public disclosure of the
subject matter of the invention, if that disclosure was made by the applicant or
someone who obtained knowledge from the applicant.
Subject matter that is patentable in Canada is generally similar to what is patentable
in most other patent systems. While there are clear restrictions in Canada on
patenting methods of medical treatment and higher life forms, recent jurisprudence
has allowed at least some business method patents. For most subject matter, it is
usually possible to obtain patent protection with suitable attention to drafting a de-
scription and claims that comply with Canadian practice.
64 |
14.4 Industrial Design

Original features of shape, configuration, pattern or ornament, and any combination
of those features that, in a finished article, appeal to and are judged solely by the
eye may be protected by registration under the federal Industrial Design Act.
Examples of articles possessing features which qualify for industrial design protec-
tion include furniture, household utensils, toys, vehicles and fabrics. Design
features dictated solely by the utilitarian function of the article, or methods or prin-
ciples of manufacture or construction generally do not qualify.
The successful registrant receives an absolute monopoly on the registered design
for a maximum period of ten years. Qualified applicants are either the author of the
design or the person for whom the author created the design under contract. Regis-
trable designs must be original, in the sense that the author has through the exercise
of intellectual activity created a design which had not occurred to anyone before. At
a minimum, the design must not be similar to a previously registered design or be
describable as common or within general knowledge.
In Canada, an industrial design application shall be refused if it is filed more than
one year after the publication of the design anywhere in the world.
Once registered, articles embodying the design must be marked so as to put others
on notice that a design registration in respect of the particular features embodied in
that article has been obtained. Failure to mark articles properly may preclude
recovery from any infringer and could invalidate the design registration.
14.5 Licensing
Licensing issues relating to intellectual property will arise whenever one person
(the “Licensor”) who owns rights in any intellectual property (“IP Rights”) grants
permission to another party (the “Licensee”) to use those IP Rights in a particular
fashion. Generally, all types of intellectual property can be licensed in Canada and
no one statute will govern such licensing. Rather, the general common law
governing contracts normally applies. Note, however, that licences of trade-marks
must comply with the control requirement described in Section 14.1 (Trade-marks).
The Licensor may grant to one or many Licensees a licence to exercise some or all
of the Licensor’s IP Rights. While the Licensor grants to the Licensee the right to
use the Licensor’s IP Rights, the Licensor will normally retain ownership of the IP
Rights. For example, a Licensee of software will acquire the right to use the
software, but the Licensor will retain ownership of the software and all IP Rights in
the software.
| 65
There are three primary types of licences: an exclusive licence, a sole licence and a
non-exclusive licence. An exclusive licence provides the Licensee with the
exclusive right to use the Licensor’s IP Rights. In other words, only the Licensee
can use the licensed IP Rights, and the Licensor cannot itself use the licensed IP
Rights or allow anyone else to use the IP Rights during the term of the licence. A
sole licence prevents the Licensor from granting licences to anyone else, but the
Licensor will itself retain the right to use the IP Rights. A non-exclusive licence is
one that allows the Licensor to grant as many licences as the Licensor desires. None
of the Licensees will have any right in the IP Rights other than the non-exclusive
right to use the IP Rights as licensed. Most commercial software licences granted
today are non-exclusive.
Although licences can be unlimited, they are often restricted in certain ways by the
Licensor, such as with respect to time, geography or use. A licence can be geo-
graphically limited so that the Licensee is permitted to use or market the licensed IP
Rights only within a particular territory. A licence can be limited as to time so that
the licence will be in effect only for a specified term (for example, one year, ten
years, etc.). A licence can be limited with respect to use in that licences can restrict
the Licensee’s use of the licensed IP Rights to only certain specified activities.
The remedies available in the event of a breach of an intellectual property licence
are the same remedies available for any breach of contract. Potential remedies
therefore include damages, an accounting for any profits earned as a result of the
breach, injunctions and specific performance.
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Chapter 15
E-COMMERCE
(Current as of February 1, 2013)
Electronic commerce has created significant opportunities for foreign investors in

Canada. However, it also presents a host of legal issues. Included among these
issues are:
• the validity of electronic documents;
• the formation and enforceability of electronic contracts;
• the protection of copyrighted works and trade-marks;
• the security of information;
• consumer protection and privacy;
• the admissibility of electronic evidence in court;
• compliance with advertising and competition laws; and
• the application and enforcement of both domestic and foreign tax legislation.
Canada has enacted laws to specifically address some of these issues while other
issues may be dealt with through other generally applicable legislation, private
contract and insurance. The following are some general highlights concerning the
law relating to formation of electronic contracts and the validity of electronic
documents in Canada.
15.1 E-Commerce Legislation in Canada

The federal government and most of the provinces (except Québec) have modelled
their e-commerce legislation after the Model Law on Electronic Commerce
developed by the United Nations Commission on International Trade Law, and the
Uniform Electronic Commerce Act developed by the Uniform Law Conference of
Canada. The legislation defines “electronic” to mean created, recorded, transmitted
or stored in digital or other intangible form by electronic, magnetic or optical means
or by any similar means. While the legislation covers a broad range of electronic
contracts and documents, it does not apply to certain documents such as wills,
powers of attorney and documents creating or transferring interests in land. Québec
has taken a different approach in its legislation, although it is broadly similar to the
legislation adopted in the other provinces.
15.2 The Validity of Electronic Documents

Existing e-commerce legislation generally provides for the following:
• an electronic record will not be denied legal effect solely because it is in elec-
tronic form;
• a record that is in electronic form and is accessible for future reference will
satisfy a legal requirement that a record be in writing;
• a legal requirement for an original record is satisfied by providing an electronic
record, as long as the record is organized in substantially the same manner and
can be accessed and retained by the addressee for future reference;
• an electronic signature satisfies a legal requirement for a person’s signature
(although some provinces such as Québec have stipulated that electronic signa-
tures must satisfy particular standards); and
• the use of electronic records is not mandatory, although consent to use electronic
documents may be inferred from past conduct.
Certain legal documents and contracts, such as wills and contracts that transfer
interests in land, are excluded from e-commerce legislation permitting electronic
contracts and accordingly cannot be made electronically.
15.3 Contract Formation and Contract Enforceability

E-commerce legislation also regulates the formation and enforceability of contracts
made electronically. For example, absent a contrary agreement between the parties,
an offer or acceptance, or any other matter that is material to the formation or
operation of a contract, may be expressed by means of information or a record in
electronic form, or by an activity in electronic form, such as touching or clicking on
a web site icon. A contract will not be invalid or unenforceable solely because an
electronic record was used to form the contract.
Also, a contract may be formed by electronic agents, provided that certain rules are
observed. The legislation defines “electronic agent” to mean a computer program or
some other electronic means used to initiate an activity or to respond to electronic
information, records or activities in whole or in part without review by an individ-
ual at the time of the response or activity.
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E-COMMERCE
15.4 Sending and Receiving Electronic Records

Applicable legislation generally deems an electronic record to be sent when it
enters an information system that is outside the sender’s control. If the sender and
the addressee are in the same information system, the electronic record is deemed
to be sent when the addressee can retrieve and process the record.
An electronic record is deemed to be received by an addressee when the record
enters the addressee’s information system. If the addressee has not designated or
does not use an information system for the purpose of receiving electronic records,
the legislation deems the addressee to have received the record on the addressee
becoming aware of the record in the addressee’s information system.
Electronic records are deemed to be sent from the originator’s place of business and
to be received at the recipient’s place of business. If there are multiple places of
business, the relevant “place of business” is generally the place of business with the
closest relationship to the underlying transaction.
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Chapter 16
PRIVACY
16.1 Personal Information Protection Legislation

Depending on the province(s) in which they operate, private sector entities in Canada
are subject to either federal or provincial legislation governing the collection, use
and disclosure of “personal information”. The purpose of such legislation is to
balance individuals’ privacy rights with the entity’s need to obtain and use personal
information for reasonable purposes.
The federal Personal Information Protection and Electronic Documents Act
(“PIPEDA”) applies to an entity if:
(1) is a “federal work, undertaking or business” (i.e., it carries on business in a
sector such as navigation and shipping, railways, inter-provincial transport, air
transportation, communications, broadcasting and banking), in which case
PIPEDA applies to all personal information it collects, uses or discloses,
including information about its own employees; or
(2) it collects, uses or discloses personal information “in the course of commercial
activities” AND the province in which it is operating has not enacted a compre-
hensive personal information law which has been recognized by the federal
government as “substantially similar” (i.e., the province has not “opted out” of
the federal legislation); or
(3) it transfers personal information, for consideration, out of the province in which
was collected.
To date, Québec, Alberta and British Columbia have enacted personal information
legislation which has been recognized as “substantially similar”.
Under all these statutes, “personal information” is broadly defined, generally as “in-
formation about an identifiable individual”, with some exclusions (for example,
under PIPEDA it does not include the name, title, or business address or telephone
number of an employee of an organization). Importantly, an entity falling within
category (2) above is not subject to personal information laws with respect to infor-
mation about its own employees (because under the Constitution, the federal govern-
ment lacks jurisdiction to legislate on employment relationships that are governed by
provincial law).
Some provinces, namely Alberta, British Columbia, Ontario, New Brunswick and
Newfoundland/Labrador have also enacted legislation specifically governing the
collection and disclosure of “personal health information” that has been recognized
as “substantially similar” for limited purposes. While such legislation applies
primarily to practitioners and organizations in the health care sector (such as doctors
and hospitals), it can also apply to an employer that has personal information about
an employee (for example, in connection with a disability or the employees’ return
to work after an accident or illness).
PIPEDA and its provincial counterparts generally require compliance with the
following principles:
• Accountability: An organization is responsible for personal information under
its control and must designate an individual or individuals who are accountable
for its compliance with the legislation.
• Identifying Purposes: The purposes for which personal information is collected
must be identified by the organization at or before the time the information
is collected.
• Consent: The knowledge and consent of the individual are required for the col-
lection, use or disclosure of personal information, except where inappropriate.
• Limiting Collection: The collection of personal information must be limited to
what is necessary for the purposes identified by the organization.
• Limiting Use, Disclosure and Retention: Personal information must not be
used or disclosed for purposes other than those for which it was collected, except
with the consent of the individual, or as required by law. Personal information
must be retained only as long as necessary for the fulfillment of those purposes.
• Accuracy: Personal information must be as accurate, complete and up-to-date as
is necessary for the purposes for which it is to be used.
• Safeguards: Personal information must be protected by security safeguards ap-
propriate to the sensitivity of the information.
• Openness: An organization must make readily available to individuals specific
information about its policies and practices relating to the management of
personal information.
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PRIVACY
• Individual Access: On request, an individual must be informed of the existence,

use, and disclosure of his or her personal information and must be given access
to that information. An individual must be able to challenge the accuracy and
completeness of the information and have it amended as appropriate.
• Challenging Compliance: Individuals must be able to address a challenge con-
cerning compliance with the above principles to the designated individual or in-
dividuals accountable for the organization’s compliance.
Of particular note to those with international parent companies or service providers
to whom they transfer personal information is the expectation that this be disclosed
in the organization’s privacy policy to meet obligations under the openness and
safeguarding principles. Further, the individuals whose information is collected
must be informed of the transfer to the foreign entities and provided with appropri-
ate contact information for obtaining details on the privacy obligations of the
foreign entities. While this has been held to exist as a requirement in privacy legis-
lation across Canada, it is made explicit in Alberta’s Personal Information Protec-
tion Act. Alberta’s Personal Information Protection Act is also unique in that it
imposes specific breach notification obligations on organizations.
16.2 Other Privacy Obligations

In addition to PIPEDA and provincial legislation dealing specifically with the col-
lection, use and disclosure of personal information in the private sector, businesses
may have additional statutory privacy obligations. For example, several provinces
have enacted legislation, such as the British Columbia Privacy Act, which makes it
an actionable wrong for one person, wilfully and without claim of right, to violate
another’s privacy. Under the Privacy Act, the nature and degree of privacy to which
a person is entitled in any situation will depend on what is reasonable in the circum-
stances, giving due regard to: the lawful interests of others; the nature, incidence,
and occasion of the act or conduct; and any relationship between the parties. Recent
common law developments in Ontario also give rise to the new tort of intrusion
upon seclusion (Tsige v. Jones, 2012 ONCA 32).
Businesses dealing with Canadian governmental bodies should also be aware of the
privacy aspects of federal and provincial access to information legislation, such as
the provincial Freedom of Information and Protection of Privacy Acts, the federal
Access to Information Act and the federal Privacy Act. Subject to certain excep-
| 73
tions, these statutes generally restrict the ability of governmental bodies to disclose
personal information to third parties, and in British Columbia, impose obligations
on private sector businesses that act as “service providers” to governmental bodies.
These statutes also impose significant obligations on governmental bodies that do
not exist for private enterprises, which should be considered when disclosing infor-
mation to them.
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Chapter 17
REAL PROPERTY ACQUISITIONS IN CANADA
(Current as of March 15, 2013)
In Canada, different types of interests in land may be privately held and transferred,
including, for all provinces governed by a common law system (i.e., all provinces
other than Québec), freehold, leasehold, legal or beneficial interests and for the
Province of Québec, ownership, emphyteusis, superficies, etc. To facilitate the
transfer of title to privately held land, there are public land registration systems
in place.
Since the provinces have jurisdiction over “property and civil rights”, each province
and territory has developed its own rules and procedures regarding privately held
land registration. For historical reasons, Québec has maintained a civil law system
(based on a civil code) that is quite different from the common law system main-
tained by all other provinces. The provincial governments provide or facilitate elec-
tronic and/or physical facilities for the registration, storage and retrieval of
documents affecting title to land, but do not have an active role in transfers of land.
To effect certain transfers of land, specific documents, some of which are quite
technical, must be filed.
In Canada, there are different land registration systems. In Western Canada the
“Torrens” system governs. In the Atlantic provinces, historically the deed registra-
tion system governed. However, some of the Atlantic provinces have implemented a
form of land titles registration system. In Ontario, while there is both a land titles
registration system (or land titles system) and deed registration system (or registry
system), substantially all of the lands not previously subject to the land titles system
have been or are being converted from the registry system to the land titles system.
In Québec, the deed registration system governs. So, the dominant Canadian land
system is the land titles system.
In the registry system, the system acts as a “depository” for documents affecting
title. When land is acquired, one examines all of the documents in the registry system
for a certain period (e.g., 40 years in Ontario; 40 years or more in Québec) to
determine if others hold an interest in the land being purchased and to confirm “good
title” (that is, ownership). In the registry system, the provincial government does not
guarantee the validity of any registered document or “good title”. An increasing per-
centage of purchasers in Ontario (for example) are turning to title insurance as a
means of protecting against certain defects and issues, including fraud and forgery,
whether the property is governed by the registry system or land titles system.
The “Torrens” system of land registration, being a form of land titles system, sim-
plifies and expedites land conveyances and provides greater certainty of title. This
system provides a generally reliable record of the registrable interests currently
affecting the land. Generally, no enforceable interests as against third parties are
created in the land until they are registered. However, there are some exceptions
such as statutory liens. Statutory liens are charges usually in favour of government-
al entities which arise from the failure of present or past owners to pay amounts
owing pursuant to various provincial or federal statutes and may attach to the land
and be effective without registration against the title of the land in the applicable
land title office. If one suffers a loss due to inaccuracies created by a breakdown of
the “Torrens” system, one may be compensated through an assurance fund main-
tained by the particular province.
Failure to register an interest in land may result in serious consequences under each
land registration system. For example, if an interest is not registered, the estate or
interest claimed in the land may not be enforced against a third party who, for
valuable consideration and without notice of that unregistered estate or interest,
obtains an interest in the land. Also, in the registry system, if an interest is not regis-
tered, that interest may lose priority when subsequent interests are registered before
it. So, it is important to become familiar with the laws of each jurisdiction, to ensure
that good title is given and received.
When purchasing land in Canada it is important to consider not only what is being
acquired, but also how it is being acquired. A purchaser should consider the various
encumbrances that may affect the title to the land because some encumbrances may
severely restrict the use that may be made of the land. Searches may be required to
ascertain all of the encumbrances on the land and a review of the documents that
create the encumbrances may be quite complex. If there is more than one purchaser,
they should consider if they want to take title as joint tenants or tenants in common
(in the common law system). How purchasers take title will affect each of their sub-
sequent rights to deal with the land.
There are few restrictions on the ownership of land in Canada by non-residents. At
the federal level, foreign investment in Canadian real estate, such as in apartment
buildings, office complexes and shopping centres, is regulated by the Investment
Canada Act. For a discussion on that Act, see Chapter 3 (Foreign Investment Regu-
lation). At the provincial level, provinces such as Alberta, Saskatchewan, Manitoba
and Prince Edward Island impose limitations on the ownership by non-residents of
certain types and/or amount of land. In Québec, restrictions apply on the purchase
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REAL PROPERTY ACQUISITIONS IN CANADA
of agricultural land by non-Québec residents. In addition, all provinces require

corporations that have been incorporated in other jurisdictions to be licensed or
registered in the province if they carry on business in that province. The concept
of “carrying on business” is a broad one, and in most cases includes holding
an interest in real property. Many provinces impose substantive restrictions on
foreign corporations.
Taxation issues also arise. A transfer of an interest in land may attract provincial
and/or municipal transfer or registration taxes as well as the federal goods and
services tax (“GST”) or in the case of Québec, a separate tax which is equivalent to
the federal GST. In addition, certain provinces levy sales taxes that may apply to
the transfer of the interest in land and/or any associated chattels.
Each province (and some municipalities) has the authority to impose transfer or
registration taxes, and accordingly the amount of such taxes vary from province to
province and sometimes from municipality to municipality. In addition, each
province may establish guidelines for specific tax exemptions which may be
available to purchasers.
Every transfer of an interest in land is subject to GST unless a specific exemption is
available. The most common exemptions are those available to purchasers of previ-
ously occupied residential property and non-commercial vacant land sold by an in-
dividual. GST is currently payable at a rate of 5 percent. Certain provinces have
harmonized their provincial retail sales taxes with the federal GST which has the
effect of raising the rate of the overall tax rate in those provinces. As of February 1,
2013, there are 5 harmonized provinces: New Brunswick, Newfoundland and
Labrador, Ontario (all at 13 percent), Nova Scotia (15 percent) and British Columbia
(12 percent). The Province of Québec imposes a separate tax which is similar to the
federal GST and applies to transfers of land to which the GST applies.
Manitoba, Saskatchewan and Prince Edward Island impose retail sales taxes which
generally do not apply to real property but do apply to most chattels which form
part of the acquisition. The people of British Columbia voted to remove the har-
monized tax in that province and reinstate a provincial sales tax similar in nature to
the taxes presently imposed in Manitoba and Saskatchewan. Conversely, the
Province of Prince Edward Island has decided to harmonize its retail sales tax with
the federal GST at a combined rate of 14 percent. Both these changes take effect on
April 1, 2013.
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78 |
Chapter 18
ENVIRONMENTAL LAW
Canadians have a well-developed regulatory regime for environmental protection.

The environment is where the federal and provincial governments have shared juris-
diction. While the provinces have been most active in this area, the federal and local
governments have also enacted environmental legislation. The federal, provincial,
territorial and local laws use a regulatory system to control (and in some cases
eliminate) the adverse environmental effects resulting from industrial and commer-
cial activities. The environmental laws apply to both new and existing businesses.
18.1 Permits
The federal and provincial (and to a lesser degree, territorial) laws require environ-
mental permits to be obtained for many industrial and commercial activities. The
permits are designed to restrict and control the discharge of pollutants into the en-
vironment. It is an offence under most of these laws to operate contrary to the terms
of, or without having first obtained, an environmental permit. The monetary penalties
for environmental offences are designed for deterrence and are therefore potentially
severe. Several jurisdictions are moving towards “codes of practice”, or other similar
regulatory mechanisms, whereby the requirement to obtain a waste discharge permit
is replaced by registration and compliance with an industry-specific code of practice
or regulation.
18.2 Contaminated Sites

Several provinces have enacted contaminated sites legislation and regulations that
imposes liability on parties connected to a contaminated site, even if those parties
did not cause the contamination. Accordingly, anyone proposing to invest in an
existing business should investigate whether the business and its assets, such as any
real property holdings, are in compliance with the applicable environmental legisla-
tion. It is also advisable to have a reputable consultant conduct appropriate studies in
order to determine whether any real estate holdings contain contamination.
18.3 Environmental Impact Assessments

The federal, provincial and territorial laws, require environmental assessments of
certain types of industrial and commercial projects and activities before they are
undertaken. These environmental assessments generally require a study and con-
sideration of the effect of the project or activity on air and water quality, fisheries,
wildlife, recreational land use and nearby communities. The impact of the project
or activity on First Nations is also a factor taken into consideration and Aboriginal
communities need to be consulted by proponents and the Crown. The outcome of
the environmental assessment may result in the regulators imposing conditions to
moderate or eliminate the effect of the project or activity on the environment before
work on the project or activity may proceed. The project or activity may also be
prohibited from proceeding altogether. Investors contemplating a new venture, par-
ticularly in the manufacturing, processing or natural resource sectors, should
consider carefully the applicable environmental legislation.
18.4 Species Protection

Legislation at both the federal and provincial levels has been enacted with the
intention of protecting animal and plant species from adverse effects caused by
human intervention. The federal Species At Risk Act, aims to prevent wildlife
species from becoming extinct and to secure the necessary actions for their
recovery. It applies to all federal lands in Canada, all wildlife species listed as being
at risk, and their critical habitat. Another example is the federal Fisheries Act which
protects fish and fish habitat, with key provisions including a prohibition against the
harmful alteration, disruption or destruction of fish habitat and a prohibition against
the deposit of deleterious substances into waters frequented by fish. Provincial
legislation may also address species protection in matters within its jurisdiction,
such as the designation of sensitive streams and riparian setback regulations. Legis-
lation designed to protect species is used both to prohibit certain activities and
provide certain exceptions in the form of permits. When purchasing property or
investing in a business with plans to redevelop, it is important to ensure that due
diligence is conducted to identify any relevant species or habitat (for example,
streams) that might impede the project.
18.5 Transportation of Dangerous Goods

The movement of dangerous goods domestically and across international borders is
another major focus of environmental regulation. Both federal and provincial laws
prescribe standards of care as well as the content, form and substance by which the
import and export of hazardous wastes and the local movement of hazardous goods
are undertaken. Generally, transportation of dangerous goods laws apply to carriers,
shippers and transportation intermediaries (including freight forwarders, ware-
houses and customs brokers), although other businesses may be subject to regula-
tory requirements in certain circumstances. Movement across international
boundaries of hazardous waste as well as hazardous materials to be recycled
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ENVIRONMENTAL LAW
requires mandatory notification to the proposed importing country before shipment.

Waste may only be imported into Canada if not prohibited by federal and applicable
provincial laws.
18.6 Climate Change

Climate change is an area which is receiving ever-increasing attention worldwide,
including in Canada, which ratified the Kyoto Protocol but indicated the intention
to withdraw from it in late 2011. However, certain provinces, such as Alberta,
Ontario, Québec and British Columbia, have introduced GHG regulations for
various policy and political reasons. Regulatory developments at the federal level
are very slow coming and are likely reliant on progress in regulating this area of
concern by the U.S. federal government. Requirements to report annual GHG
emissions above certain thresholds are now in effect and GHGs have been added to
the list of substances specified for regulation under the federal Canadian Environ-
mental Protection Act and under several provincial statutes. Canada proposed in
2005 to introduce a domestic GHG offset credit system. Québec is the furthest
along the path to creating a cap and trade program that may be linked to the
emerging California system. Ontario and British Columbia also have indicated a
desire to further develop regulation in this area. Likely as a result of Alberta’s large
oil and gas sector, that province has the only active cap and trade program form
GHG’s in North America although it does not link with other jurisdictions.
18.7 Water
Constitutional division of responsibility for water is complex. The provinces
have primary responsibility for managing water, which they do through water laws
that generally include a requirement to obtain a licence or other form of authoriza-
tion for water use (which may be applicable to surface water and/or groundwater),
regulation of discharges to water, and delegation to local governments. Drinking
water quality is also of primary importance to legislators, particularly given several
recent high profile health incidents related to drinking water, and all provinces have
enacted measures to protect drinking water quality and to regulate those con-
structing and operating drinking water systems. The federal government has juris-
diction over some matters that bear on water management, including fisheries,
navigation, international relations, federal lands and aboriginal people. The Canada
Water Act provides a framework for joint federal-provincial management of
Canada’s water resources. The Act provides for cooperative agreements with the
provinces to develop and implement plans for the management of water resources.
The International Boundary Waters Treaty Act and related regulations prohibit the
| 81
bulk removal of boundary waters from Canadian basins for any purpose, including
export. All provinces also have in place legislation, regulations or policies pro-
hibiting the bulk removal of water (defined as the removal and transfer of water out
of its basin of origin by man-made diversions, tanker ships or trucks, and pipelines).
82 |
Chapter 19
TAXATION
The two important concepts on which Canada’s tax laws are based are residency and
source. In Canada, income earned by Canadian residents and income earned by non-
residents sourced in Canada are subject to Canadian income tax. Under Part I of the
federal Income Tax Act (“ITA”), Canadian residents are taxed on their world-wide
income, whereas non-residents are taxed on Canadian source income which generally
includes income that arises from employment in Canada, a business carried on in
Canada, or the disposition of “taxable Canadian property”. Under Part XIII of the
ITA, non-residents may also be subject to Canadian withholding tax on certain types
of passive income, including interest, dividends, rents, and royalties.
19.1 Residency
An individual’s residency for Canadian income tax purposes generally involves a de-
termination as to whether the individual was “ordinarily resident” in Canada or has
otherwise established significant residential ties to Canada. The ITA also deems
certain persons to be resident in Canada. An individual who is physically present in
Canada for a total of 183 days or more in any year is deemed to be a resident of
Canada for the entire year.
A corporation is deemed to be a resident of Canada for tax purposes if it was incor-
porated in Canada at any time after April 26, 1965. In addition, a corporation incor-
porated in a foreign jurisdiction will be resident in Canada if the directors meet in
Canada or control over the corporation is exercised in Canada. If the foreign juris-
diction is a country with which Canada maintains a tax treaty, further tie-breaker
rules may apply if an individual or corporation is found to be resident in more than
one country.
19.2 Income Tax Rates

Federal taxes on personal income are marginal, increasing with the amount of
income. The federal marginal rates for individuals for the 2012 year are: 15 percent
on the first C$42,707 of taxable income; 22 percent on the next C$42,707; 26 percent
on the next C$46,991; and 29 percent on amounts in excess of C$132,406. In
addition to federal income tax, provincial or territorial tax is also assessed on income.
The highest combined marginal income tax rates for the 2012 year varied from 39
percent (Alberta) to 50 percent (Nova Scotia).
The federal corporate tax rate is currently 15 percent (as of January 1, 2012), after
applying all scheduled rate reductions. Provincial corporate tax rates on general
corporate income vary by province, ranging (as at January 1, 2012) from 10 percent
(Alberta) to 16 percent (Nova Scotia and Prince Edward Island). Preferential rates
are available for all or a portion of the active business income earned in Canada by
“Canadian-controlled private corporations” and in some cases for Canadian manu-
facturing and processing profits.
19.3 Filing and Reporting Requirements

Canadian residents are required to file an annual Canadian income tax return with
the Canada Revenue Agency (“CRA”) and report their worldwide income. As well,
information returns are required to be filed by Canadian residents with respect to
certain foreign property interests, as well as certain transactions with non-arm’s
length non-residents or foreign trusts. Corporations must file a corporate income
tax return within six months after the end of their taxation year.
Non-residents liable to tax under the ITA must also file a tax return with the CRA.
Non-residents may also be required to make self-assessed payments of estimated
tax under the rules applicable to resident taxpayers. Passive receipts of income such
as dividends will not, in and of themselves, subject non-residents to filing a
Canadian tax return. However, the payor of such amounts must issue information
slips that are submitted to the CRA.
A reporting and enforcement system is also provided for under the ITA for dispos-
itions of certain properties (being “taxable Canadian property”) by non-residents of
Canada. This system allows the CRA to enforce the taxation of such non-resident
dispositions through the possible imposition of penalties on purchasers for any
failure to comply with the reporting requirements.
19.4 Business Income

The incidence of Canadian tax on a non-resident’s business income is typically
dependent on whether the business activity is sufficient to create a taxable presence
in Canada. A non-resident will be taxable on income from a business if the non-
resident “carried on a business in Canada”. The question of whether or not a
business is being carried on in Canada must be determined by reference to both
common law doctrines and certain deeming rules. If, however, a non-resident
carries on business in Canada and is resident in a country that has a tax treaty with
Canada, income earned from the business is subject to tax in Canada only to the
extent that the business is carried on through a “permanent establishment” in
Canada. If so, the business profits may be taxed in Canada but only to the extent
that the profits are attributable to that permanent establishment.
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TAXATION
19.5 Employment Income

The ITA provides that non-residents are taxable in Canada if they are employed in
Canada and their taxable income is attributable to the duties of the office or em-
ployment performed by them in Canada. Whether an individual is employed in
Canada is dependent on the location where employment services are physically
performed. If a non-resident renders services to a Canadian resident remotely via
telephone, the Internet or other means of communication, the services are generally
not considered to be rendered in Canada. The employer’s residence is generally ir-
relevant to the determination of the source of employment income.
Relief from Canadian taxation of employment income may be available in certain
circumstances. Under many of Canada’s tax treaties, income from services
performed in Canada is not taxable in Canada if:
• the taxpayer who is a resident of the treaty country is present in Canada for a
period or periods not exceeding 183 days in a calendar year (or any 12-month
period); and
• the remuneration is not deductible in computing the income under the ITA of an
employer who is a Canadian resident, or in computing the income attributable to
a non-resident employer’s permanent establishment or a fixed base in Canada.
19.6 Income from the Disposition of Certain Properties

Non-residents are liable to Canadian tax on capital gains derived from the dispos-
ition of “taxable Canadian property”. “Taxable Canadian property” is defined to
include, among other items, real property and resource property in Canada, assets
used in carrying on a business in Canada, and shares in the capital stock of certain
corporations. Any disposition of such property must be reported. Amendments to
the ITA passed in 2010 significantly narrowed the scope of property that would
qualify as “taxable Canadian property”.
Again, relief from taxation may be available under one of Canada’s tax treaties. The
general pattern of Canada’s treaties is to restrict Canada’s jurisdiction to tax only
those capital gains realized by the non-resident on the “alienation” of immovable
(real) property or property of a permanent establishment or fixed base. In the case
of gains arising from the alienation of other types of property, Canada is generally
precluded by virtue of its treaties from levying tax.
19.7 Withholding Taxes

Interest, rent, royalty, dividends, management or administration fees, and other
specified amounts paid or credited by a Canadian resident to a non-resident person
| 85
are subject to a 25 percent non-resident withholding tax. Where the non-resident

person receiving the payment is resident in a country with which Canada has a tax
treaty, the withholding tax rate is usually reduced under the terms of the applicable
treaty. Certain types of payments are specifically exempt from this withholding tax,
including certain types of royalty payments and non-participating interest payments
on arm’s length debt owed by a corporation.
19.8 Branch Tax

The ITA also imposes a “branch tax” on any non-resident corporation carrying on
business in Canada. This tax is meant to be a proxy for Canadian non-resident with-
holding tax on dividends paid by a Canadian subsidiary to its non-resident parent
corporation. In the absence of the branch tax, a Canadian branch would be a tax-
preferred alternative to a Canadian subsidiary because income earned through the
subsidiary would be subject to both tax on business income and tax on dividends
distributed to the non-resident shareholder. In contrast, income earned through the
branch would be subject only to business income tax. As a result, a 25 percent
branch tax is levied on the non-resident’s Canadian source business profits, subject
to certain adjustments.
Where the rate on dividends paid to a non-resident is reduced by treaty, the branch
tax rate is typically correspondingly reduced. A treaty may also provide additional
relief from branch tax. For example, the Canada-US treaty provides that the first
C$500,000 of after-tax profits is exempt from branch tax.
19.9 Canadian Taxation of Non-Resident Trusts

As discussed earlier, a taxpayer’s residency will govern the extent of Canada’s
jurisdiction to tax. Accordingly, as with non-resident individuals, a non-resident
trust is not taxable in Canada unless it derives Canadian-source income. However a
non-resident trust can become subject to Canadian tax on its worldwide income if it
is deemed to be resident in Canada in certain circumstances.
19.10 Capital Tax

Some provinces levy corporate capital tax at rates that vary depending on
the province.
19.11 Commodity and Sales Taxation

The federal government and most provincial governments also impose various
taxes on the sale of goods and services and, in some cases, on the transfer of real
property. These taxes include excise, sales, fuel and land transfer taxes.
86 |
TAXATION
19.12 Value-Added Taxes

Canada imposes a multi-staged goods and services tax (“GST”) under the Excise
Tax Act on the consumption of goods and services in Canada. Some of Canada’s
provinces have chosen to harmonize their retail sales taxes with the federal GST.
While GST is collected by all businesses at each stage in the production or
marketing of goods and services, the burden of the tax is borne by the ultimate
consumer. Under this system, businesses collect tax on their sales and claim a
credit, referred to as an input tax credit, for any tax paid on their purchases. While
most sales of goods and services are subject to GST, some goods and services are
exempt or zero-rated (taxable but at a rate of zero percent). Presently (2013) the
rate of the federal GST is 5 percent. In provinces which have harmonized their
taxes, the combined tax (commonly referred to as the harmonized sales tax or HST)
rate varies from 12 percent to 15 percent (British Columbia – 12 percent; Ontario,
New Brunswick and Newfoundland and Labrador – 13 percent; Nova Scotia – 15
percent). British Columbia, as the result of a recent referendum, will cease harmon-
ization effective on April 1, 2013. Accordingly the GST rate in that province will be
reduced to 5 percent. Prince Edward Island will implement HST on April 1, 2013 at
a rate of 14 percent.
GST also applies to imports of goods and is usually paid by the importer of record.
The GST is payable on the duty-paid value of goods, meaning the value for customs
purposes, plus applicable customs duty, additional duty, countervailing duty or anti-
dumping duty and excise tax. If the importer of record is registered for GST
purposes and will resell the goods or otherwise use them in taxable activities, the
importer will be able to recover the GST paid by way of input tax credit. On im-
portation of commercial goods, only the federal portion of the GST will apply at a
rate of 5 percent.
19.13 Provincial Retail Sales Tax

The provinces of Saskatchewan, Manitoba and Prince Edward Island (before April
1, 2013) and British Columbia (after March 31, 2013), impose retail sales taxes.
These taxes are levied directly on the purchaser, consumer or lessee of taxable
goods and services. It is generally levied on the sale or lease price of the goods or
services being taxed. The rates of tax vary among the provinces and range from 5
percent to 10 percent.
In Québec, a separate sales tax is levied and it is generally applicable to the same
goods and services as the GST. The Québec tax is a value-added tax, similar in
nature and application to the federal GST.
| 87
Businesses providing goods or taxable services in a province that levies a separate

sales tax must obtain a provincial vendor’s licence. The licensed vendor acts as an
agent of the province in collecting the tax imposed on the purchaser or consumer.
Generally, an exemption is provided for sales between licensed vendors as long as
the goods are acquired for resale and not for personal consumption or use.
19.14 Other Provincial Taxes

Most provinces impose a tax on forestry and mineral operations and a royalty on
petroleum and natural gas production. Additional taxes and levies are imposed on
other commodities, such as alcoholic beverages, tobacco products, fuel and other
specific items at either or both the federal or provincial levels. Certain provinces
and municipalities also impose taxes on transfers of real property.
88 |
Chapter 20
INSOLVENCY AND RESTRUCTURING
Bankruptcy and insolvency are matters of federal jurisdiction and are principally
governed by the federal Bankruptcy and Insolvency Act (“BIA”) and the Companies’
Creditors Arrangement Act (“CCAA”). The BIA, among other things, provides for
the liquidation of the assets of an insolvent person and the fair and orderly distribu-
tion of the proceeds among the bankrupt’s creditors. It also allows for the reorganiz-
ation of financial affairs to satisfy creditors without a bankruptcy. The CCAA
provides a framework for the reorganization of insolvent corporate debtors with
debts exceeding C$5,000,000 by allowing the insolvent corporation to negotiate ar-
rangements to the satisfaction of its creditors. Provincial receivership laws comple-
ment federal bankruptcy legislation, but federal laws retain paramountcy with
respect to issues of bankruptcy and insolvency.
The most common forms of insolvency proceedings are: (a) BIA liquidation (bank-
ruptcy); (b) BIA reorganization; (c) CCAA reorganization; and (d) private or court-
supervised receivership.
20.1 BIA Liquidation (Bankruptcy)

A sole proprietor, a partner or a corporation can become bankrupt either voluntarily
or involuntarily in one of three ways:
• An insolvent person, who resides, carries on business, or owns property, in
Canada, is indebted to creditors for at least C$1,000, and is insolvent on a balance
sheet test or has ceased to meet liabilities as they fall due, may make a voluntary
assignment into bankruptcy.
• An insolvent person may attempt a reorganization by filing a proposal under the
BIA. If the proposal is rejected by the person’s creditors, the person is deemed to
have assigned itself into bankruptcy, and once bankrupt, all unsecured creditors of
the bankrupt are stayed from taking or continuing any proceedings against the
bankrupt or its assets.
• A debtor, who resides or carries on a business in Canada and is indebted to
creditors for at least C$1,000 and has committed an act of bankruptcy, may be
subject to an involuntary petition into bankruptcy by a creditor, which, if success-
ful, results in bankruptcy.
On bankruptcy by any of these methods, all of the property of the bankrupt vests in
a trustee in bankruptcy who is charged with the administration of the bankrupt’s
estate. (However, secured creditors are not affected by the stay and can realize on
their claims against property of the bankrupt, in accordance with their ordinary
rights.) After secured creditors have enforced their security, the trustee in bankrupt-
cy liquidates the bankrupt’s remaining assets and pays a pro rata dividend to the
unsecured creditors after payment of priority or preferred claims under the BIA.
20.2 BIA Reorganization

Reorganization under the BIA takes place in the form of a proposal. A proposal is a
contract between the debtor and the creditors to allow for a restructuring of debts so
that the claims of creditors can be satisfied without the debtor proceeding to a li-
quidation of assets through bankruptcy. Proposals can be made by an insolvent
person, a bankrupt, a trustee of a bankrupt’s estate, a liquidator of an insolvent
person’s estate, or a receiver of an insolvent person. Once the debtor files a Notice
of Intention to Make a Proposal, or after the proposal is filed, a stay of proceedings
prevents both secured and unsecured creditors from commencing or continuing
proceedings against the insolvent person. A proposal trustee monitors the reorgan-
ization, but the insolvent person remains in possession and control of its business
and assets. The BIA does not set out specific criteria for the proposal, but a success-
ful proposal requires approval by a majority in number and by a two-thirds majority
in dollar value of claims that are voted for each class of creditors, as well as court
approval for fairness. If a class of secured creditors does not vote in favour of the
proposal, then it is not binding on that class of secured creditors. However, if a class
of unsecured creditors or the court rejects the proposal, then the debtor is deemed to
have made an assignment into bankruptcy.
20.3 Reorganization under the Companies’ Creditors Arrangement Act

The CCAA is the preferred statute in Canada for restructuring large corporations.
The CCAA allows corporations in financial difficulty to negotiate arrangements
with creditors that allow the corporation to avoid bankruptcy and to continue
carrying on its business as a going concern. To qualify for relief under the CCAA,
the debtor must be an insolvent corporation with aggregate debts of not less than
C$5,000,000. The debtor begins proceedings by making an application to court for
an order granting a stay of proceedings against the debtor. The debtor continues in
possession of its assets throughout the restructuring period, subject to any restric-
90 |
INSOLVENCY AND RESTRUCTURING
tions that the court may impose with respect to use of funds or specific assets. The
plan of compromise or arrangement must be approved by a majority of the creditors
in each class of creditors and by a two-thirds majority in dollar value of claims for
each class of creditors. The court must also approve the plan of compromise or ar-
rangement. The CCAA has relatively few procedural requirements. Accordingly,
the court is given a great deal of discretion in a CCAA proceeding.
20.4 Receivership
Receivership is the most common method used by secured creditors for realizing
on assets (for example, equipment, inventory, commercial real estate) over which
they have been granted a security interest by a debtor. Receivership involves the ap-
pointment of a receiver (either a private appointment or a court appointment) to
take possession of the debtor’s assets and arrange for their sale. On sale of the
debtor’s assets, the funds are dispersed first to the receiver (for administrative fees),
next to secured creditors in accordance with their priorities, and the balance to
unsecured creditors.
| 91
92 |
Chapter 21
LITIGATION, ARBITRATION AND MEDIATION
21.1 The Canadian Court System

The Canadian court system consists of three divisions:
• The Federal Court, which has jurisdiction over subject matters that generally have
limited relevance in the commercial context. These subject matters include
admiralty, air transport, copyright and aboriginal law.
• Provincial Superior Courts, which are administered by the provincial government
but with judges appointed by the federal government. Commercial disputes
generally are handled by the Provincial Superior Courts.
• True Provincial Courts, which have jurisdiction over child welfare, small claims,
and criminal matters of a minor nature. Provincial Court judges are appointed by
the provincial government.
Each province has a Court of Appeal to which final decisions of the Superior Courts
can be appealed as of right. The Supreme Court of Canada is the highest court in
Canada and the court of last resort for both federal and provincial court systems.
Appeal to the Supreme Court of Canada is generally only permitted with leave of
that court.
21.2 Civil Procedure

Civil procedure rules governing litigation in Canada allow for the exchange of
pleadings followed by an exchange of affidavits of documents in which each party
lists all documents which are or may be potentially relevant to the dispute. Examina-
tions for discovery (depositions) are permitted of the parties only, except with leave
of the court. Many cases in major urban areas in Ontario are case managed by court
officials who attempt to ensure that cases move forward in an orderly fashion to trial,
however, case management is no longer mandatory in Toronto. Juries are used much
less often in civil litigation in Canada than in the United States.
The Superior Court of Justice in Ontario maintains a “commercial list” with jurisdic-
tion over a range of commercial issues such as bankruptcy, creditors’ rights, share-
holder disputes, company re-arrangements etc.. The commercial list is well-regarded
for its efficiency and the expertise of its judges.
21.3 Class Proceedings

Since the enactment of the Class Proceedings Act, 1992, in Ontario, class actions
have been permitted and are growing in popularity across Canada. Class proceed-
ings follow their own rules of procedure and are case-managed by a class proceed-
ings judge. Class proceedings generally follow the same procedure as regular
actions with the proviso that the plaintiffs or defendants, as the case may be, must
be certified as a “class” in accordance with the Ontario Class Proceedings Act,
1992, before the action can proceed to the discovery and trial stage.
21.4 Damages
Generally, damages awarded for tort claims are less than those awarded in the
United States. Punitive, aggravated and exemplary damages are permitted, and oc-
casionally awarded, in the civil tort area, and, rarely, for breach of contract, although
typically for much smaller amounts than is the case in the United States.
21.5 Mediation
In some parts of Canada, parties are required to mediate cases prior to trial. Parties
are, however, free to choose their own mediator for the court mandated mediation.
Apart from court mandated mediation, parties routinely take cases to voluntary
mediation. Respected practitioners and retired judges frequently serve as mediators.
21.6 Arbitration
(a) Domestic
All provinces have domestic arbitration legislation. However, there are significant
differences between the legislation in each province, particularly respecting the
availability of an appeal to the courts from an arbitral award, and the extent to
which parties can contract out of the provisions of the legislation. British Columbia
has a distinctly different domestic arbitration regime from that of Alberta and
Ontario. The domestic arbitration regime in Québec is governed by specific provi-
sions in the Civil Code of Québec.
94 |
LITIGATION, ARBITRATION AND MEDIATION
As a matter of jurisprudence, courts have a preference for deferring to arbitral

tribunals where arbitration has been selected by agreement between the parties. The
popularity of arbitrations in the commercial context has been gaining steadily over
recent years. Recently enacted consumer protection legislation in Ontario prohibits
and renders of no force and effect arbitration clauses used in consumer contracts.
(b) International Arbitrations
In 1986, Canada implemented the United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards. All provinces have implemented the
UNCITRAL Model Law on International Commercial Arbitration, as has the
federal government.
| 95
96 |
Chapter 22
LANGUAGE CONSIDERATIONS
English and French are the two most widely spoken languages in Canada, with
Francophones primarily in Québec and Anglophones primarily in the rest of Canada.
French and English are also Canada’s two official languages. Official bilingualism at
the federal level in Canada dates back to the British North America Act of 1867,
which permitted the use of either French or English in Parliamentary debates, as well
as in any proceedings before federal courts. Official bilingualism was significantly
improved in 1969 with the passage of the Official Languages Act and was further re-
inforced at a constitutional level when Canada’s Constitution was repatriated
in 1982. Both languages now have equal status, rights and privileges with respect to
the operation of, and services provided by, federal institutions. In areas of Canada
designated as bilingual, citizens can obtain federal government services in either
official language.
The Official Languages Act generally does not impose obligations on businesses
operating in Canada. Language requirements that do apply to businesses are found in
other federal legislation and in some provincial legislation. At the federal level,
for example, the Consumer Packaging and Labelling Act requires that certain infor-
mation set out on the labels of consumer products be provided in both French
and English.
Certain additional requirements must be taken into account when doing business
in Québec.
Québec’s Charter of the French Language (the “Charter”) proclaims French as the
official language of Québec. Every inscription on a product sold on the Québec
market (including imported goods) must be drafted in French, subject to a limited
number of exceptions. The same holds true for inscriptions on the product’s container
or wrapping and on documents supplied with it (e.g., directions for use and warranty
certificates) as well as product catalogues and other similar publications. To the
extent that another language is also used, it must not be given greater prominence
than the French. Public signs and commercial advertising must also be in French or
in both French and another language provided that French is markedly prominent. In
addition, standard form contracts, contracts predetermined by one party and related
documents must be in French unless the parties’ express intent is to use another
language. Businesses operating in Québec must also have a name in French. The use
of non-French trademarks is permissible in Québec only where certain requirements
have been met.
As well as establishing French as the language of commerce and business, the

Charter has an impact on employment matters. Workers in Québec have a right
under the Charter to carry on their activities in French. Employers are required to
draw up written communications to staff and offers of employment or promotion in
French (in addition to any other language used), and are prohibited from dismiss-
ing, laying off, demoting or transferring employees for the sole reason that they
speak exclusively French or have insufficient knowledge of another language. Pro-
ficiency in a language other than French cannot be a condition of obtaining employ-
ment unless the nature of the duties related to the position requires such knowledge.
Any enterprise in Québec that employs 50 persons or more for a period of six
months must register with the Office québécois de la langue française (the
“Office”), which is the government agency responsible for enforcing the Charter. If,
after analyzing the enterprise’s linguistic situation, the Office considers that the use
of French is generalized at all levels of the business, the Office will issue a “franciz-
ation” certificate to the enterprise. Otherwise, the enterprise must adopt a franciza-
tion program. An enterprise that employs 100 persons or more is also required to
form a “francization” committee that monitors the language situation in the enter-
prise and reports to management of the enterprise.
The Charter imposes fines for a first offence ranging from C$600 to C$6,000 for in-
dividuals and from C$1,500 to C$20,000 for corporations. Fines are doubled for a
subsequence offence. A judge may also impose on the offender a further fine equal
to the financial gain realized or derived from the offence, even if the maximum fine
set out above has also been imposed. Moreover, a judge may order the removal or
destruction of a sign that does not comply with the Charter.
98 |
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DOING BUSINESS

BORDEN LADNER GERVAIS LLP

© 2012 – 2013 Borden Ladner Gervais LLP,

3.1 Notification and “Net Benefit to Canada” Review

3.2 Applicable Thresholds for a “Net Benefit to Canada” Review

3.3 The Application Process

3.4 The “Net Benefit” Factors

vestment by a foreign state-owned enterprise to acquire control of a Canadian oil

3.5 The “National Security” Review

3.6 The National Security Review Process

3.7 Corporate Ownership Restrictions

3.8 Directors’ Residency Requirements

4.1 Branch or Subsidiary

(c) Alberta, British Columbia and Nova Scotia Unlimited

By careful selection of share characteristics, it is possible to separate capital contri-

To be a resident Canadian for federal purposes, a person must be either a Canadian

In partnerships, it is usual to have a comprehensive agreement to avoid certain

4.5 Joint Ventures

5.1 External Financing

For smaller or start-up companies, another source of external equity financing is

5.2 Government Assistance Programs

turing, transportation, wholesaling and retailing. Farming businesses, charitable or

6.2 Registration of Dealers

6.3 Registration of Advisers

6.4 Registration of Investment Fund Managers

6.5 Issuing Securities in Canada

6.6 Listing Requirements

6.7 Take-over Bids

6.8 Issuer Bids

7.1 Non-Immigrant or Temporary Entry

7.2 Dependants of Foreign Worker

8.1 Constitutional Jurisdiction

8.2 Individual Contracts of Employment

factors in determining common law reasonable notice, giving varying degrees of

8.3 Employment Conditions Imposed by Statute

8.4 Workers’ Compensation

8.5 Canada Pension Plan

8.6 Employment Insurance

8.7 Human Rights Legislation

8.8 Employment Governed by Collective Agreements

8.9 Whistleblower Protection

A director or officer of a corporation is subject to certain duties. These duties arise

9.1 Duties and Liabilities of Directors

performing functions and making decisions as a director. In jurisdictions where the

• Duties relating to publicly-traded corporations: Directors of publicly-traded

9.2 Duties and Liabilities of Officers

9.3 Protections and Defences for Directors and Officers

• before relying on the advice of an independent adviser or expert, verifying that

The Canadian federal government is generally responsible for Canada’s trade

10.1 Canadian Import Laws

10.2 The Classification of Goods

10.3 The Valuation of Goods

10.4 Duty Remission and Other Schemes

10.5 Export and Import Controls

10.6 Canadian Trade Remedy Laws

10.7 North American Free Trade Agreement

10.8 Other Trade Agreements

Canadian law relating to anti-competitive acts and unfair competition is found

11.1 Merger Review