Acquiring a Canadian company that will be controlled from outside Canada requires obtaining approval. To obtain approval, foreign investors must convince the relevant authorities that the deal represents a “net benefit” to Canada. If the “net benefit” qualification criteria aren’t met, foreign investors must notify the relevant authorities of the acquisition of a Canadian business prior to or within a month of the upcoming deal. Approval is also required if a foreign investor plans to open a business in Canada.
Acquisition of a Canadian Company
Net benefit verification or notification is only required if a non-resident acquires control of an existing Canadian business. Acquiring control over a Canadian business is done by:
- acquiring assets of a Canadian company;
- acquiring a majority stake in corporations, partnerships, JVs or trusts controlling a Canadian business.
Procedure for Acquiring a Company in Canada
If the eligibility criteria aren’t met, there’s two procedures:
- foreign investors purchasing a Canadian company must submit their investment proposals for prior review by the Canadian Government;
- foreign investors must notify the Canadian Government of their intention to acquire a Canadian business or set up a Canadian company.
After receiving an application, the government:
- verifies investments requiring prior approval & evaluates whether there’s “net benefit” to Canada;
- doesn’t verify investments requiring prior notification for their compliance with the “net benefit” criteria (with the exception of investments in the field of culture);
- checks investments for compliance with the "net benefit" criteria when it comes to business in the field of culture.
Special Verification Procedure
All investments are assessed for damage they may cause to Canada's national security, with particular attention being paid to government-owned enterprises.
Special Rules for SOE
There are specific provisions for foreign state owned enterprises (SOEs), namely:
- definition of SOEs;
- control & verification threshold;
- net benefit.
SOEs are defined as:
- foreign governments;
- organizations directly or indirectly controlled or influenced by foreign governments;
- individuals directly or indirectly acting under the direction of foreign governments.
While determining whether an investment in an SOE constitutes “net benefit” to Canada, the relevant authorities examine foreign investors’ corporate governance & reporting structure. They also determine whether foreign investors comply with Canadian corporate governance standards & Canadian laws.
Seeking to buy a company in Canada? Need advice on FDI regulation in Canada? Why not reach out to IQ Decision UK?