M&A in Canada

Selling a business in Canada is usually done through the sale of assets or stakes. Please note that selling shares of a Canadian company is a far preferable option due to the lower income tax rates. To initiate an M&A deal in Canada, a company’s owners must obtain approval of the majority of its shareholders.

Normally, an M&A transaction in Canada involves signing an NDA, performing DD & agreeing on transaction-related documentation. Sometimes, companies can hold auctions to attract potential buyers. How long a transaction may take depends on the complexity of a target company’s business, number of stakeholders & special agreements between sellers.

Regulatory Framework

Registering a corporation in Canada is usually done on the basis of statutes of commercial corporations existing in each province or pursuant to federal law. Transferring a Canadian company’s assets/shares is governed by its charter.

If you are interested in obtaining a bank license in Canada, registering an insurance company in Canada or establishing a credit company or trust in Canada, you should keep in mind that such companies are regulated by special federal laws.

Shares & Assets

Transferring shares/assets of a Canadian company requires making an entry in the securities register. A transfer of shares may be subject to restrictions in the company's founding documents or SHA. In most cases, the transfer of shares requires approval of the BoD.

It’s also possible to obtain ownership of a Canadian company’s assets or obtain ownership of a target business in Canada. An individual having legal title to the shares will be listed in the company's share register as a registered owner; however, they can also hold the shares on behalf of an unnamed beneficial owner.

Multiple Sellers

Many companies have agreements in place whereby large stakeholders can make dissenting shareholders participate in a deal. If there’s no such agreement, minority shareholders can be ousted or involved in a transaction by way of a shareholder vote (usually a ⅔ majority is required).

Liabilities & Assets

When purchasing assets, buyers can choose which assets & liabilities are going to be transferred. Depending on the acquired assets & liabilities, the consent of the government & 3rd parties may be required to conduct an M&A transaction in Canada.

Restrictions

Depending on the structure of a transaction, parties’ identities & nature of business, ICA-regulated investments may require verification. Verification is done to determine whether an investment could be beneficial to Canada. The government may also renegotiate/prohibit M&A deals or impose restrictions on foreign investors based on national security considerations.

There’s also restrictions on foreign ownership in selected sectors of the Canadian economy (e.g. commercial aviation, telecommunications, financial services, fisheries, etc.). Some provinces have land-related restrictions.

Additional Conditions

Transactions in shares or assets don’t require filing any applications or paying any registration fees. However, certain transactions may require ICA verification. Conducting an M&A transaction in Canada as per the Competition Law requires filing an application, paying a fee & obtaining authorization. Purchasing property in Canada may require paying land transfer taxes.

Documentation

While M&A agreements may differ in form, most of their fundamental principles remain unchanged. Normally, selling shares of a Canadian company is less difficult than selling assets. Specific supporting documents include NDAs, LOIs,NCAs, employment agreements, LODs, SHAs & other similar documents.