Except where otherwise noted, this paper is current as of November 2013 and provides preliminary information on Canadian and Québec legal matters to assist you in establishing a business in Québec and provides general guidance only. This paper is a general guide and not an exhaustive analysis of provisions of Canadian or Québec law. We recommend that you contact a corporate/commercial lawyer with Davis LLP’s Montréal office for specific advice before proceeding with your investment in Canada. Davis LLP has substantial presence and capabilities to help you successfully launch your business transaction in Canada.
B. GOVERNMENT AND LEGAL SYSTEM
Before it became a self-governing nation in 1867, Canada was primarily settled by English and French settlers and the legacy of those two "founding groups" is still felt today in many areas. For example, Canada’s two official languages are English and French and Canada has inherited two systems of law, civil law from the French and common law from the English. The result is a civil law based legal system in Québec and a common law system in the rest of the country.
The Québec civil law system relies on the provisions found in the
Civil Code of Québec ("CCQ") for private law matters. Québec courts are also inspired by the rule of precedent of the common law tradition when rendering decisions implicating private legal relationships, such as contract and property.
Canada is a constitutional monarchy and a parliamentary democracy with a federal system of government whereby governmental powers and legislative authority are divided between the national (federal) level and ten provincial and three territorial governments. The federal government deals with matters that affect all of Canada, such as criminal law, trade between provinces, telecommunications, bankruptcy and insolvency, banking and currency, intellectual property, fisheries, immigration and extradition, and national defence. The provinces and territories make laws in such areas as education, property and health services. Certain aspects of provincial powers are delegated to municipal governments, which enact their own bylaws.
Generally speaking, compared to the relationship of the states to the federal government in the United States, the provinces have weaker powers vis-à-vis the Canadian federal government. For example, as mentioned above, criminal law in Canada is a federal area and, unlike American states, each province does not make its own criminal law. In Canada, "residual powers" (i.e., all powers not specified in the Canadian constitution), reside with the federal government. Despite this, in practice many federal powers have been assigned to provincial jurisdiction, such that Canada today is a highly decentralized federation. Further decentralization of functions has been implemented to accommodate provincial aspirations, chiefly those of Québec. Each of Canada’s two levels of government is supreme within its particular area of legislative jurisdiction, subject to limits created by the Canadian Charter of Rights and Freedoms.
Canada’s Parliament consists of the monarch (Queen Elizabeth II, as represented by the governor general) and a legislature composed of an elected House of Commons and an appointed Senate. The governor general appoints Canadians, who are recommended by the prime minister, to the Senate according to a formula that distributes the seats among the provinces. In practice, legislative power rests with the party that has the majority of seats in the House of Commons, which elects its members, the members of Parliament, from 308 constituencies for a period not to exceed five years. Although the prime minister may ask the governor general to dissolve Parliament and call new elections at virtually any time, new elections are customarily called after the prime minister has been in power for four years.
Each province has a lieutenant governor (the monarch’s representative in the province), a premier and an elected legislative chamber. Provincial governments operate under a parliamentary system similar in nature to that of the federal government, with the premier of the province chosen in the same manner as the Canadian prime minister is chosen federally. Lieutenant governors, like the governor general, have broad but essentially symbolic powers that are rarely used.
Québec, Canada’s largest (1,667,926 km²) and second most populous province, offers a unique business experience for investors due to its abundance of natural resources and exceptional quality of life. Montréal, Québec’s largest city, located near other major urban centres, such as New York, Boston and Toronto, constitutes an interesting strategic location for potential investors.
C. TYPES OF BUSINESS ORGANIZATION
A wide variety of legal arrangements may be used to carry on business activity in Canada. Commonly used arrangements are: corporations, partnerships, limited partnerships, trusts, joint ventures, unlimited liability corporations and sole proprietorships. The selection of the appropriate form of business organization will depend in each case upon the nature of the activity to be conducted, the identity and priority of the investor(s), the method of financing, income tax planning and potential liabilities of the business and the principals engaged in the business.
As discussed in more detail below in Part D (Market Entry Into Canada), one of the first issues faced by a foreign entity contemplating carrying on business in Canada is whether to conduct business directly in Canada as a Canadian branch of its principal ‘foreign’ business or to create a separate Canadian entity to carry on the business. Canadian and foreign tax treatment, liability and availability of government incentive programs will generally dictate whether to carry on business through a ‘branch’ or a ‘direct’ relationship.
The most common method of carrying on business in Canada and in Québec is through a corporation. Corporations offer limited liability to their shareholders and have most of the powers of a natural person. Moreover, the securities of a corporation are generally more readily marketable than an interest in a partnership, joint venture or trust.
If an investor decides to use a corporation to carry on its business in Canada, it is necessary to decide on the jurisdiction of incorporation because corporations can be formed under federal law or the laws of any of the ten provinces or three territories of Canada. While federal company law and the various provincial laws are similar in many respects, there are some important differences.
(a) Incorporation in Québec
In order to incorporate a corporation in Québec under the
Business Corporations Act (Québec) (the "QBCA"), the following documents and filing fees are required. The documents will be prepared by a lawyer based upon directions given by the investor:
(i) to incorporate under a name other than a numbered name, the proposed name must be approved by the Enterprise Registrar (Québec). This name must comply, in particular, with the
Charter of the French Language (the "French Charter"). According to the French Charter, a corporation may select a name in any language but a French version of the name must be used prominently when the corporate name is used/displayed;
(ii) as provided by the
Act Respecting the Legal Publicity of Enterprises (the "Publicity Act"), the Enterprise Registrar can reserve a name for a period of 90 days;
(iii) along with the articles of incorporation, a notice establishing the head office and the list of directors must be filed. However, filing the initial declaration for a legal person (Form RE-200-T) can substitute the obligation concerning the filing of these two notices. Unless a designating number has been requested as corporate name, a declaration stating that reasonable means have been taken to ensure that the name chosen is in compliance with the law must also be filed;
(iv) a corporation in Québec may be constituted by one or more founders. Any individual who is qualified to be a director or even a corporation may be the founder(s) of a new corporation. A Québec corporation may have an unlimited number of directors and officers;
(v) filing fees of approximately $316 (or $474 fee with priority service), legal fees and other disbursements must be paid.
A corporation incorporated in Québec is required to have its head office and a records office in Québec at the location specified in its articles. Davis LLP’s Montréal office often acts as power of attorney and records office of corporations it incorporates.
In Québec there are no residency requirements for the corporation’s directors which, in some cases, makes Québec a preferred jurisdiction in which to incorporate. Moreover, according to the Ontario Bar Association "the QBCA represents the most recent and innovative contribution to profit corporate legislation in the country".
If a corporation incorporated in Québec carries on business activities in other Canadian provinces or territories, it must register extra-provincially (extra-territorially) in each of those other provinces or territories and must obtain approval for the use of its name from each such jurisdiction.
(b) Incorporation of a Federal Corporation
An investor may choose instead to incorporate a federal corporation under the
Canada Business Corporations Act (the "CBCA"). The requirements for incorporation of a federal CBCA corporation are:
(i) selection of a name through a federal NUANS search report and approval by Canada Corporations of the requested name;
(ii) filing of articles of incorporation, a Notice of Directors and a Notice of Registered Office (a federal corporation may have an unlimited number of directors); and
(iii) filing fees of approximately $250 plus legal fees and disbursements or online filing fees of $200 plus legal fees and disbursements must be paid. A federal CBCA corporation carrying business activities in Québec must also register in Québec (registration fees of $316 must be paid). Additional legal fees apply to incorporate a federal corporation.
Under the CBCA, 25% of directors of the federal corporation must be resident Canadians (or Canadian permanent residents), except when there are fewer than four directors, in which case at least one must be a resident Canadian.
A federal corporation may carry on business in Québec (or other provinces), provided it extra-provincially registers in Québec (or such other province).
A non-Québec company carrying on business and which does not have a place of business in Québec must appoint an attorney to whom the company’s notices and legal documents may be delivered or served. The attorney may be a company incorporated in Québec or an individual who resides in Québec.
(c) Other Considerations Relating to Choosing Whether to Incorporate Federally or Provincially
Some of the matters which should be taken into consideration in deciding where to incorporate or register a corporation are:
(i) the place in which the corporation intends to do business. If it intends to do business in more than one province and it wishes to use an established name, it may be desirable to incorporate federally so that the corporation will be entitled to carry on business in every province under the same name;
(ii) the corporate name of a federal corporation will be accepted by the Québec Registrar of enterprises (and all other provincial and territorial registrars in Canada) for the conduct of business (subject to providing and registering a French equivalent of the name in Québec if the name is not French). By comparison, a Québec corporation’s name may not be accepted in another province or territory if there is an existing conflict or perceived conflict between its name and that of an existing corporation in that other jurisdiction;
(iii) a federal corporation must comply not only with the CBCA, but also with the corporate requirements of each province in which it conducts business;
(iv) as identified above, there are no residency requirements for directors of Québec corporations, unlike federal corporations;
(v) the by-laws of a corporation generally deal with requirements relating to meetings and to notices of meetings. Most jurisdictions (including Québec and federal) state that, unless the articles or the by-laws otherwise provide, the directors may meet anywhere;
(vi) shareholders’ meetings of a federal corporation must be held somewhere in Canada unless all shareholders agree otherwise. Under the QBCA, a meeting of shareholders of a Québec corporation must take place in Québec (as provided in the corporation’s by-laws or, in the absence of such a provision, at the place within Québec determined by the board of directors) unless another location, outside of Québec, is provided for in the articles or, in the absence of such a provision, if all shareholders entitled to vote at the meeting agree that the meeting is to be held outside Québec. In lieu of holding a physical meeting of the shareholders, a consent resolution of all shareholders is a possible substitute for both federal corporations and Québec corporations;
(vii) requirements as to financial disclosure for public corporations are very similar in Québec and federally. Financial information on a private or non-reporting corporation is usually available to the directors, the shareholders and their personal representatives, but not to the general public. The board of a Canadian federal corporation or a Québec corporation must approve the corporation’s financial statements annually and present them to the shareholders; and
(viii) generally there is no requirement to file a Canadian corporation’s or Québec corporation’s financial statements with a government body, except in the case of ‘public’ corporations. Federal corporations that are distributing corporations (i.e., they distribute their securities to the public) or that have gross revenues exceeding $15 million or assets exceeding $10 million must file their annual financial statements with the Director appointed under the CBCA or with the Chief Statistician of Canada. For purposes of revenue and asset tests, the revenues and assets of affiliates are included. For reporting Québec corporations, additional financial information must be disclosed to the public. These disclosure requirements are governed by separate Québec and federal securities legislation. In this regard, the Québec government enacted the
Securities Act which imposes specific disclosure requirements that must be respected by public corporations.
(d) "Foreign Corporations"
An existing "foreign corporation" (i.e., a corporation incorporated under the laws of a jurisdiction other than Québec) must register in Québec no later than 60 days after the date on which it started carrying on business in Québec. The concept of carrying on a business in Québec is broad, and includes having an address, establishment, post office box or the use of a telephone line in Québec, or performing any act for profit in Québec. In order to become registered in Québec, a foreign corporation must:
(i) declare a name that complies with specific conditions set out in the Publicity Act, for example, to insure compliance with the French Charter;
(ii) file a registration declaration with the Enterprise Registrar (Form RE-00-T), that includes, if applicable:
A. the foreign corporation’s name and any other name used by the corporation in Québec and by which the corporation is identified in carrying on an activity. A statement indicating the foreign corporation’s juridical form and domicile;
B. the names and domiciles of the three shareholders controlling the greatest number of votes, in order of importance, and identity of the shareholder holding an absolute majority (more than 50% of votes);
C. a statement as to the existence or not of a unanimous shareholder agreement, entered in accordance with the laws of a Canadian jurisdiction, that restricts the powers of the directors or withdraws all powers from the directors;
D. the foreign corporation’s elected domicile and the name of the person mandated to receive documents for the purposes of the Publicity Act (if the corporation does not have an establishment in Québec);
E. the title of and reference to the statute under which the foreign corporation was constituted, as well as the place and date of such constitution;
F. the names and domiciles of the directors and the positions they hold and the date of entry into office and the date of cessation of office. The names, domiciles and offices held of certain officers;
G. a statement indicating the foreign corporation’s two main activities;
H. the addresses of the corporation’s establishments in Québec and the number of employees whose workplace is in Québec; and
I. the expected date on which the corporation expects to cease to exist if applicable.
(iii) pay the prescribed fees of $316 to the Minister of Revenue of Québec.
As mentioned above, a foreign corporation must either have a place of business in Québec or must ensure the continuing appointment of an attorney for service in Québec. The attorney for service must be a Québec resident or a Québec corporation. Davis LLP can act as attorney for service, if requested.
2. Unlimited Liability Companies
Businesses coming to Canada from the United State have, in many instances, used unlimited liability companies (ULCs) as a vehicle for their activities in Canada because of historical favourable treatment afforded to ULCs as ‘flow-through’ entities under US tax law. An unlimited liability company differs from a limited corporation because shareholders retain some liability for obligations of the company. Recent changes to the Canada-United States Income Tax Convention have, however, eliminated in many cases the tax benefits associated with such entities and give rise to adverse tax consequences. British Columbia, Alberta and Nova Scotia have legislation which permits the formation of ULCs. There are no federal or Québec equivalents. Tax advice should be sought before adopting the use of a ULC for investment in Canada.
Partnerships are formed under provincial law and must be registered in each province in which they intend to carry on business. There are two primary types of partnership in Canada: general partnerships and limited partnerships. A third form, limited liability partnerships, also exists and is usually adopted by professional partnerships. Under the CCQ there are three types of contractual partnerships: general partnerships, limited partnerships and undeclared partnerships.
The CCQ contains rules of public order (mandatory provisions) that apply to contractual partnerships. For example, parties in a general partnership are not allowed to include a clause in their partnership agreement whereby a partner is excluded from participating in the profits of the partnership or from participating in collective decisions.
A partnership formed in Québec may, as a rule, carry on business only in Québec. However, most provinces provide for the registration of extra-provincial partnerships which entitles them to carry on business in those provinces as well.
A foreign corporation may wish to enter into a partnership to establish a joint venture arrangement with another person or corporation. The result of setting up such a partnership is that the income or loss of the business will be calculated at the partnership level as if the partnership were a separate person but the resulting net income or loss will then flow through to the partners and be taxable in their hands in accordance with their capital interests in the partnership. Partnerships themselves are not taxable entities for the purpose of calculating Canadian tax obligations.
(a) General Partnerships
A general partnership is a relationship of two or more parties, who may be natural persons or corporations, jointly engaged in business with a view to a profit. This definition excludes all associations and organizations which are not carried on for profit, such as social clubs and charitable organizations. Many business relationships are also not partnerships within the meaning of the law, for example, a debtor-creditor relationship or the joint ownership of property.
Almost all partnerships with significant assets or operations are run subject to partnership agreements which govern the relations among the partners, including their capital interests, the operation of the business and the distribution of profits and losses. In a general partnership, all partners are jointly responsible for the liabilities of the partnership and may actively take part in the management of its business.
The CCQ requires general partnerships to register by providing a registration declaration as prescribed by the Publicity Act, failing that, the general partnership is deemed to be an undeclared partnership. The Enterprise Registrar has authority to refuse to register a partnership’s name if the name does not comply with certain provisions of the Publicity Act. For example, if the name does not respect the provisions of the French Charter or where the name contains an expression which the law reserves for another person or that the registrant is prohibited from using.
(b) Limited Partnerships
A limited partnership must have at least one general partner who manages the business and is liable for its debts and obligations. The general partner must be a corporation or a natural person. All other partners may be "limited partners". A limited partner’s liability is limited to the extent of its investment in the limited partnership. Limited partnerships are often used for investment purposes where a majority of the partners do not wish to be involved in running the business. Limited partners are not allowed to participate in the management of the limited partnership. The partners’ share of profits and the management and operational matters are usually governed by the limited partnership agreement.
As with general partnerships, the limited partnership must register its business name and must comply with the registration requirements set out in the Publicity Act.
(c) Limited Liability Partnerships
Under a limited liability partnership, individual partners retain liability for their own acts and omissions and there is no general partner, as there is in a limited partnership. In Québec, limited liability partnerships are often formed by members of a profession (accountants, lawyers, etc.). These partnerships are bound by certain rules found in the CCQ (mainly those applicable to general partnerships) and the
4. Sole Proprietorships
Sole proprietorships are generally only used for small investments where an individual desires to carry on business without using one of the more formal business entities. The owner of such a business has the sole responsibility for carrying on the business and is personally liable for its debts and obligations. As a sole proprietor, however, the individual is allowed to claim business losses against his or her personal income. In the beginning stages of a business, this may be preferable to incorporation, provided the retention of personal liability is not an undue risk.
5. Joint Ventures
In Canada, there is no distinct legal entity known as a "joint venture". The term "joint venture" is generally used to describe either an unincorporated business association between individuals or corporations or a jointly owned and controlled corporation. Unincorporated joint ventures are often used for mining and land development projects.
(a) Unincorporated Joint Ventures
As mentioned above, the term "joint venture" is often used to refer to a business relationship similar to a partnership that is treated differently for tax purposes because of specific characteristics of the business being carried on. A joint venture agreement should be entered into by the co-venturers to show that the business association is a joint venture rather than a partnership. Each co-venturer retains ownership over the assets that it contributes to the joint venture so that at the end of the joint venture relationship, each party may take back its own assets. A significant difference in tax treatment between a partnership and a joint venture is that co-venturers are taxed as individuals, not jointly as is the case with partners in a partnership. However, similar to partnerships, the joint venture agreement normally sets out the co-venturers’ rights and restrictions and governs the sharing of profits and losses. Because a joint venture is not a distinct legal entity, it cannot sue or be sued; such rights and liabilities attach to the individuals or entities involved in the joint venture.
(b) Incorporated Joint Ventures
Often a corporation that is jointly owned and controlled is referred to as a "joint venture" with the rights of shareholders being governed by a shareholders’ agreement that sets out each shareholder’s rights and obligations. For example, each shareholder may be given the right to veto major transactions by the joint venture corporation. Other rights, such as the ability to appoint a certain number of directors to the board, are usually set out in the shareholders’ agreement. This type of joint venture does not permit individual shareholders to calculate taxes as individuals as in the case with unincorporated joint ventures. Instead, tax is calculated and paid by the ‘joint venture’ corporation itself.
Some commercial activity is carried on through income trusts and other forms of trust whereby an investment trust holds assets that are income producing and income is passed on to unit holders. Income trusts can generate a cash flow for investors and are often used as vehicles for real estate and natural resource investments. The tax treatment of income trusts has undergone significant change under Canadian tax law in recent years and a trust structure as a vehicle for investment in Canada requires knowledgeable tax structuring advice.
D. MARKET ENTRY INTO CANADA
1. Acquiring a New Business
Individual circumstances will determine whether a foreign investor should start a new business in Canada or acquire an existing business. For example, it may be more appropriate in the forestry industry to acquire an existing operation if the target company owns licences and permits that are otherwise difficult to obtain. In other circumstances, however, it may be more appropriate to start a new operation.
2. Subsidiary or Branch Office
A related question is whether it is preferable to start a Canadian operation through a subsidiary or a branch office of a foreign corporation. There are tax, liability and operational factors which influence the choice of a ‘branch’ or ‘Canadian subsidiary’ operation. Generally, branch offices are only used by foreign corporations when their activities in Canada are not extensive and, in practice, most foreign investors use a subsidiary corporation.
Subsidiaries and branch operations must meet the same regulatory obligations in Canada and, specifically, all necessary business licences, registrations and consents relating to the business activity must be obtained from any province or territory in which the subsidiary or branch operation carries on business.
One of the advantages of using a branch office over a subsidiary, depending on the jurisdiction of the foreign investor, is that it will be easier for the foreign corporation to claim losses incurred by the branch office than it would be in the case of a subsidiary. This is one component of the tax treatment of branch operations as compared to subsidiary corporations dealt with in more detail in Part H - Tax Considerations.
Conversely, advantages of using a subsidiary instead of a branch operation include: (i) the limited liability of a subsidiary, which insulates the parent from the subsidiary liabilities; (ii) the potential for greater market impact; and (iii) the potential for obtaining regulatory approvals and financing faster and with fewer barriers.
Other advantages of a subsidiary are that a foreign parent corporation using a branch office could be subject to a variety of Canadian legislation to which it would not be subject if the corporation used a subsidiary. Such legislation includes Canadian tax legislation that requires foreign corporations doing business through a branch to open their books and accounting records to a Canadian tax audit. Other legislation that governs the business activities of a branch office, such as consumer protection legislation and employment standards legislation, could also directly impact the foreign parent corporation.
Whether a foreign entity conducts business in Canada through a branch office or by creating a Canadian subsidiary, the investment may be subject to the foreign investment notification or review requirements of the
Investment Canada Act (discussed in Part G-Regulation of Foreign Investment).
One common method of starting a business in Canada is through franchising. Franchising generally refers to a business-format system under which an investor is permitted to market a specified product or service in a particular location using a well-known trade-mark. Initial training and ongoing support are normally provided by the franchisor. There are many advantages for a new investor to purchase a franchise. For example, the investor will benefit from established goodwill (under trade-mark), a standard product and broad advertising. There are also many advantages for a franchisor to market and sell products through franchisees. The parties will enter into a franchise agreement which sets out the relationship between the franchisor and the franchisee, including matters such as what assistance the franchisor will provide to the franchisee and where and how the products or services may be marketed.
Another popular method of carrying on business is through licensing. Licences are similar to but are often not as complex as franchises and may include the right to use trade-marks, technology, know-how and perhaps patents. As is the case with franchises, there may be numerous advantages to both parties to a licence agreement. The party granting the licence may obtain relatively inexpensive market access to a geographical area, with the party obtaining the licence gaining access to proven technology and products.
Whatever type of business is commenced or acquired, the investor will usually require outside financing in addition to its own equity both to establish the business and to operate it. Tax considerations will often determine to what extent different types of financing should be used.
Money may be borrowed from many sources. All of the large Canadian banks have extensive branch systems in Québec and many mid-sized, small and foreign banks are represented in Montréal. There are also many other lending institutions such as credit unions and trust companies. Government agencies such as the federal Business Development Bank of Canada and programmes such as the Canada Small Business Financing Program seek to increase the availability of loans and capital leases for establishing, expanding, modernizing and improving small businesses. The Business Development Bank offers loans
at favourable terms to certain types of businesses. Under the Canada Small Business Financing Program, a small business must apply for a loan or lease at a financial institution (i.e., a bank, credit union or caisse populaire) or a participating leasing company of its choice. If the loan or lease is granted by the financial institution or the leasing company, the federal government guarantees 85% of the lender’s or lessor’s losses in the event of default.
Short and long-term loans in Canada can be unsecured or secured against the real or personal property of the borrower. Lenders may insist that unsecured loans be supported by related party guarantees and personal or corporate covenants. All provinces and territories have established personal property and land registry systems for purposes of recording Canadian security and real property interests granted by borrowers. To this end, the province of Québec has established the Registre Foncier (Québec land register) and the Registre des droits personnels et réels mobiliers (Register of Personal and Movable Real Rights), also known as RPMRR.
There are also asset-based lenders that will provide financing based on the realizable value of the borrower’s assets including its inventory, equipment and/or accounts receivable.
Loans in Canada are available in multiple currencies but most commonly in Canadian and US dollars. However, a security interest (hypothec) can only be registered in Québec if it is expressed in Canadian dollars.
Both the federal and provincial governments may offer grants to foreign investors. Generally speaking, grant programs are aimed at businesses which will locate manufacturing or processing facilities in Canada which in turn will provide a significant number of jobs, or to businesses which will improve Canada’s technology or research capabilities.
3. Capital Markets/Public Offerings and Private Placements
In addition to the sophisticated and well-developed Canadian capital markets system provided by Canadian chartered banks and other financial institutions, Canada offers public offerings and private placements through the listing and trading of securities of Canadian and foreign public companies. For public offerings, the largest stock exchange in Canada is the Toronto Stock Exchange (TSX).
In Canada, securities law is under provincial jurisdiction and each Canadian province and territory (including Québec) has its own separate securities regulator and securities legislation. Securities legislation is significantly harmonized through the national and multilateral instruments adopted by the Canadian Securities Administrators, which is an umbrella organization comprising all of the provincial securities regulators. Québec’s securities regulator, l’Autorité des Marchés Financiers ("AMF"), was established under the Act Respecting l’Autorité des Marchés Financiers in 2004. AMF is mainly responsible for supervising the activities connected with the distribution of financial products and services, providing assistance to consumers, ensuring that certain entities of the financial sector comply with the solvency standards applicable to them, and seeing to the implementation of protection and compensation programs for consumers.
When debt or equity securities are offered for sale to the public, a prospectus must be filed with the securities regulatory authorities in the provinces and territories where the securities are offered. Where securities are offered in Québec, the prospectus must be available in French.
Issuers filing a prospectus or listing its securities on a Canadian stock exchange will become a ‘reporting issuer’ and become subject to various ‘continuous and timely disclosure’ obligations. These include the requirement to prepare and file financial statements and annual information forms and reports regarding material changes.
Foreign issuers that meet certain conditions and who have become reporting issuers in Canada by listing on a Canadian stock exchange or by acquiring a Canadian reporting issuer (through a share exchange transaction or other mechanism) may generally meet there continuous disclosure obligations in Canada by filing in their home jurisdiction.
F. LICENCES AND PERMITS
Most businesses must obtain licences from various levels of government. The federal government has extensive licensing powers within certain areas such as foreign trade. The Export and Import Permits Act (Canada) regulates a wide range of materials which cannot be exported without a permit. The Canadian Competition Bureau administers the Consumer Packaging and Labelling Act (Canada) and Measurement Canada administers the Weights and Measures Act (Canada) which require, among other things, the use of metric measurements and of both English and French labelling. Various provincial government agencies have jurisdiction over different types of business. Most municipalities require that business premises be licensed. Municipal building and zoning regulations impose controls over buildings.
G. REGULATION OF FOREIGN INVESTMENT
Canada, like most developed countries, has legislation pertaining to foreign investors. Compared to most other developed countries, however, Canada’s regulations are quite limited. In Canada, the foreign investor must comply with the provisions of the Investment Canada Act (Canada) (the "ICA"). The ICA’s stated purpose is to "encourage investment in Canada by Canadians and non-Canadians that contributes to economic growth and economic opportunities". "Non-Canadian" is defined in the ICA to include both individuals as well as corporations owned or controlled by non-Canadians.
Generally speaking, under the ICA only large acquisitions in Canada by non-Canadians are subject to review by the Investment Review Division of Industry Canada, the federal body which administers this legislation. For small acquisitions and the establishment of new businesses, non-Canadians need only notify Industry Canada. There are also some transactions which are exempt from notification or review.
An investment is reviewable if it results in an acquisition of control of a Canadian business whose asset value equals or exceeds the following thresholds:
(i) for non-World Trade Organization ("WTO") investors (i.e., investors not from a WTO member state), a threshold of $5 million for a direct acquisition and over $50 million for an indirect acquisition; the $5 million threshold will apply however to an indirect acquisition if the asset value of the Canadian business being acquired exceeds 50% of the asset value of the global transaction;
(ii) except as specified in paragraph (iii) below, the 2013 threshold is $344 million, based on the value of the assets of the Canadian business. (The threshold amount is adjusted annually to reflect changes in nominal gross domestic product in the previous year.) An amendment to the ICA, when it comes into force, will initially set the new threshold at $600 million and then it will be incrementally increased to $1 billion, based on a new measurement standard, specifically, the enterprise value of the Canadian business. Regulations will prescribe the manner for calculating the enterprise value.
(iii) Pursuant to Canada’s international commitments, indirect acquisitions by or from WTO investors are not reviewable but are still subject to the notification requirement; and
(iv) Acquisitions of cultural businesses are governed by the $5 million and $50 thresholds set out in paragraph (i). "Cultural business" is defined in the ICA and includes certain activities in relation to books, magazines, periodicals, newspapers, music, film, video and audio recordings and radio communications and radio, television and cable television broadcasting.
Notwithstanding the foregoing, any investment which is usually only notifiable, including the establishment of a new Canadian business, and which falls within certain specific business activities, may be reviewed if an Order-in-Council of the federal government directing a review is made and a notice is sent to the investor within 21 days following receipt of a certified complete notification.
When submitting an application for review, a prospective investor must demonstrate that the investment will likely result in a "net benefit to Canada". In determining whether the proposed investment will be of "net benefit to Canada", the Minister of Industry (the "Minister") will consider the following factors:
(i) the effect of the investment on the level and nature of economic activity;
(ii) the extent to which Canadians will participate in the business;
(iii) the effect of the investment on productivity and technological development;
(iv) the effect of the investment on competition;
(v) the compatibility of the investment with national industrial, economic and cultural policies; and
(vi) the contribution of the investment to Canada’s ability to compete in world markets.
The prospective investor must address each of these factors and provide supporting documentation and financial data when submitting an application for review. Depending upon the nature of and the circumstances surrounding the investment, some of the above factors will be given more weight than the others. The more specific the investor’s plans regarding the above factors, the greater the likelihood that a speedy approval will be obtained.
If the Minister advises that he is not satisfied that the investment represents a "net benefit to Canada", the ICA provides an opportunity for the investor to make additional representations and undertakings to demonstrate the net benefit of the investment. Ultimately, if the Minister remains unsatisfied, a notice will be sent to the investor advising of the Minister’s decision and the investor will be prohibited from implementing the investment or, if the investment has already been made, the investor will be required to divest itself of the investment.
Under the ICA, the Minister has 45 days to determine whether to allow the investment. The Minister can unilaterally extend the 45 day period by an additional 30 days by sending a notice to the investor prior to the expiration of the initial 45 day period. A further extension is permitted only if the investor and the Minister agree. If no approval or notice of extension is received within the applicable time, the investment is deemed approved. It is not unusual for the Minister to extend the initial 45 day review period by an additional 30 days to permit full consideration of the investment. In the case of a proposed investment in a cultural business, the review will usually require at least 75 days to complete.
Under the ICA, the Minister may also initiate a review of an investment by a non-Canadian where the Minister has reasonable grounds to believe the investment could be injurious to national security. Such a review is possible for foreign investments constituting less than an acquisition of control and regardless of financial thresholds. These provisions apply to a non-Canadian that acquires an interest in or establishes a Canadian business or, in certain circumstances, an entity carrying on all or part of its operations in
Canada. Corporate reorganizations, following which ultimate control remains unchanged, are not exempt (except those involving financial institutions that are otherwise subject to governmental approval).
The Minister must send a notice to the investor that a national security review may be ordered within the prescribed time periods, and, in the event the notice is given prior to completion of the proposed transaction, the investor may not implement the investment until it has received (i) notice that no order for review will be made, (ii) notice indicating no further action will be taken, or (iii) a copy of an order authorizing the investment to be implemented.
In the event a review is ordered, the Governor in Council (i.e. the Federal Cabinet) may (i) direct the non- Canadian investor not to implement the investment, (ii) authorize the investment (with such undertakings and on such terms and conditions as may be ordered), or (iii) in the event the investment has been implemented prior to receiving notice from the Minister, order the non-Canadian to divest itself of control of the Canadian business or of its investment in the entity.
The ICA does not contain a definition of "national security", which injects Ministerial discretion and corresponding uncertainty into this aspect of the investment review process. Nor does the ICA provide guidance as to the business sectors in which foreign investments are likely to trigger a national security review. Similarly, the legislation does not identify factors to be considered by the government in assessing whether an investment may be injurious to national security. That said, senior Government officials have stated that it does not intend to target any specific industry sector or specific country of origin of a proposed investment.
If the investment is not subject to review as set out above, the ICA simply requires that the foreign investor notify Industry Canada. This notification requirement applies to a non-Canadian each and every time it commences a new business activity in Canada and each time it acquires control of an existing Canadian business where the establishment or acquisition of control is not reviewable. The notification must be made at any time before the implementation of the investment or within 30 days thereafter. This notification procedure is usually a formality as it is intended by Industry Canada that these investments proceed without government intervention.
3. State-owned Enterprises
In December 2012, the Canadian government announced revisions to Canada’s foreign investment guidelines, which affect the review process for investments by foreign state-owned enterprises ("SOE"). The Revised SOE Guidelines for evaluating proposed investments by an SOE set out:
(i) an expanded definition of an SOE; and
(ii) a more detailed list of key factors for determining whether an investment by an SOE will likely be of "net benefit to Canada".
Amendments to the ICA came into force in June 2013 and give effect to elements of the new SOE policies. The definition of an SOE now includes not only entities owned by a foreign state, but also entities that are directly or indirectly owned, controlled, or influenced by a foreign government. There is uncertainty as to when the Revised SOE Guidelines apply, given the new broader definition of an SOE and guidance from the Minister is expected.
The June 2013 amendments to the ICA also introduced a new "control in fact" test for entities in which an SOE is involved, including minority investments by an SOE. The Minister has the ability to make determinations as to whether: (1) an entity is controlled in fact by an SOE; (2) there has been an acquisition of control of a Canadian business by an SOE; and (3) an entity which is otherwise Canadian-controlled is controlled in fact by an SOE. If such a determination is made by the Minister, an acquisition of a Canadian business by such an entity would require a "net benefit to Canada" review under the ICA.
The Revised SOE Guidelines outline key considerations in determining whether a proposed investment by an SOE will be of "net benefit to Canada". In addition to the review factors enumerated in the ICA, in assessing the "net benefit to Canada", the Minister will also consider the governance and commercial orientation of the acquiring SOE, the degree of foreign state control or influence over the SOE, the extent to which the SOE conforms to Canadian standards of corporate governance (such as transparency and disclosure), adherence to free market principles, and the likelihood that the new enterprise will operate on a commercial basis.
Most notably, the new SOE policies provide that future acquisitions by foreign SOEs of controlling interests in the Canadian oil sands will be off limits except on an "exceptional basis".
In the case of other industry sectors, SOE acquisitions of control of Canadian businesses may be subject to a more stringent review. The Minister will monitor SOE transactions throughout the Canadian economy, with a specific focus on three factors:
(i) the degree of control or influence an SOE would likely exert on the Canadian business that is being acquired;
(ii) the degree of control or influence an SOE would likely exert on the industry in which the Canadian business operates; and
(iii) the extent to which a foreign state is likely to exercise control or influence over the SOE acquiring the Canadian business.
These factors are designed to address what the Canadian government perceives as the inherent risks of SOE investment in the Canadian economy. One such perceived risk is that SOEs are inherently susceptible to foreign government influence, which may be inconsistent with the national, industrial and economic objectives of Canada. Another is that the acquisition of Canadian companies by SOEs may have adverse effects on the efficiency, productivity and competitiveness of those businesses, negatively impacting the Canadian economy in the long term.
The threshold for review of proposed takeovers by SOEs will remain at $344 million, adjusted annually to reflect changes in Canada’s nominal gross domestic product in the previous year. This threshold will not be raised to $1 billion. The basis of evaluation for SOEs will remain the book value of assets.
H. TAX CONSIDERATIONS
1. Branch Operation versus Canadian Subsidiary Operation
The two primary business structures under which the activities of a foreign entity may be carried on in Québec (or any other province in Canada) are either a Canadian branch operation of the foreign entity or a wholly-owned subsidiary corporation which has been incorporated in a Canadian jurisdiction.
(a) Branch Tax/Dividend Tax
A branch is not a separate legal entity, so there are no immediate tax consequences when it is created. A branch will normally be subject to tax at the ordinary Canadian corporate rates for profits obtained by the branch. The calculation of income subject to tax and the tax rates for branch operations are the same as for Canadian subsidiaries. In addition to normal Canadian corporate tax, the net after-tax income applicable to the branch operation after a reduction for amounts invested in Canadian property would be subject to a "branch tax" payable in each taxation year. The branch tax is designed to equate approximately to the withholding tax that would be payable in the case of dividends paid out to a foreign parent corporation by a Canadian subsidiary. The branch tax is, however, payable in the year in which profits are earned, whether the profits are retained in Canada or remitted to the foreign country. The withholding tax on dividends paid by a Canadian subsidiary to its foreign parent is, on the other hand, payable only when dividends are in fact remitted to the foreign parent. The withholding rate on dividends and branch tax under the Income Tax Act (Canada) is 25% but this rate may be reduced by tax treaties between Canada and certain foreign countries. Generally speaking, treaties reduce the branch tax/dividend rate to 10% or 15%. Please see section (d) below for further discussion of tax treaties.
The potential disadvantages of using a branch are that a branch permits the Canada Revenue Agency (the Canadian taxing authority) to investigate the affairs of the parent company, the allocation of income and expenses between a branch and its parent may be difficult, and the allocation itself may become the basis of an investigation.
(b) Tax Consolidation in Foreign Jurisdiction
One aspect to be considered in determining whether to use a branch or a subsidiary operation in Canada is the tax law of the jurisdiction of the foreign corporation and the availability there for consolidated reporting for tax purposes. If losses are expected in the early years of the Canadian operation and profits are being earned and taxed in the foreign jurisdiction, it will be important that Canadian losses be available to offset against profits otherwise taxable in the foreign jurisdiction. If the foreign jurisdiction does not require the consolidation of losses and income, a branch will represent a significant advantage because the branch is not a separate legal entity and any losses incurred, such as initial operating losses, can be used to offset profits of the foreign corporation. In later years when the branch operation becomes profitable, it can be transferred to a Canadian subsidiary.
However, if the foreign jurisdiction does permit the consolidation of losses or income for tax purposes, then there is no advantage to setting up a Canadian branch operation as compared to a Canadian subsidiary.
(c) Extent of Canadian Tax Liability
A branch is subject to Canadian tax only on the income attributable to its Canadian operations. A Canadian subsidiary is subject to Canadian tax on its worldwide income.
(d) International Tax Treaties
As discussed above, tax treaties may influence the decision to select a branch versus a subsidiary. Under the United States-Canada tax convention the first $500,000 of branch profits will not be subject to branch tax which would provide a tax saving if a foreign branch is used. In addition, many tax treaties provide that the income of a non-resident individual or non-resident corporation obtained from a business carried on in Canada will not be subject to Canadian income tax except to the extent it is attributable to a permanent establishment located in Canada (such as a fixed place of business in Canada, a dependent agent in Canada, or the provision of services in Canada).
(e) Thin Capitalization Rules
Certain income tax provisions are referred to as the "thin capitalization rules". These rules provide for a proportionate disallowance to a Canadian corporation of any deductions for interest paid or payable by the corporation on outstanding debts to specified non-residents (i.e., foreign shareholders of the Canadian corporation or people related to them) whenever the debt/equity ratio of the Canadian corporation exceeds 2:1. The most recent Federal Budget proposed an amendment to the debt/equity ratio, reducing it from 2:1 to 1.5:1 for taxation years beginning after March 29, 2012. Notwithstanding the denial of an interest deduction, such payments will attract Canadian withholding tax. In other words, the new tax rules deem denied interest expense (under the thin capitalization rule) to be a dividend for purposes of withholding taxes.
These rules are designed to prevent non-residents from financing Canadian operations through debt as opposed to investment in equity (i.e., share capital), and then claiming the interest as a deduction in the calculation of the tax payable by the corporation. Thus, care must to be taken to ensure that large interest-bearing amounts do not become owing unintentionally, even for short periods, by the Canadian corporation to any non-residents. In order to avoid the consequences of the thin capitalization rules, it is important at the time of creation of the subsidiary corporation in Canada to ensure that the investment by way of share capital in the corporation is sufficiently large to enable the corporation to deduct all interest paid on loans made to it by non-resident shareholders. This can, in part, be done through the use of redeemable preferred shares. These shares can provide the vehicle for the investment of equity which can subsequently be redeemed if the retained earnings of the corporation become large enough to reduce the requirement for share capital without adversely affecting the debt/equity ratio. It may also be desirable, in the case of borrowings by a company incorporated in Canada and owned by non-residents, to consider having the Canadian corporation borrow from an arm’s length foreign lender with the debt guaranteed by the shareholders.
An investor may also wish to give some consideration to special share structuring of the corporation for the purpose of permitting appropriate investment and receipt of income from its operations by members of the investor’s family if the corporation is one whose shares are closely held by family members.
The thin capitalization rules do not apply to non-resident corporations. Interest expenses reasonably attributable to Canadian business operations will still be deductible in calculating net income of the branch for Canadian tax purposes.
The traditional test for corporate residency is based mainly on decisions in a number of British tax cases that have subsequently been adopted by Canadian courts. Under these rules, a corporation is resident where its "central management and control" is situated, and such "central management and control" is considered to exist in the place where the directors reside and hold their meetings. This principle will apply even if the corporation was incorporated and carries on most of its day-to-day activities in another jurisdiction and if the directors delegate authority to run the business of the corporation to a managing director who is resident in and exercising that authority from another jurisdiction. However, this will not be the case if the directors do not in fact exercise their powers as directors, and allow their powers to be exercised by others. Subsection 250(4) of the Act contains certain deeming rules with respect to corporate residency that can alter the residency determination under common law. Subsection 250(4) states that corporations incorporated in Canada after 1965 are deemed residents of Canada. Subsection 250(5) states that Corporations otherwise resident in Canada under Canadian domestic law are deemed non-resident where they are found to be non-resident by virtue of a Canadian income tax treaty with another country.
2. Applicable Tax Rates – Corporations – Income Tax
The rate of Canadian tax payable by a subsidiary corporation will depend on whether its shares are controlled by Canadian residents and the type of activity or investment carried on by the corporation. Provincial income taxes are levied by each province on income derived by a corporation from business activities in that province.
The top combined federal-Québec corporate income tax rate for 2013 is 26.90%.
Lower rates will apply to Canadian Controlled Private Corporations (i.e. corporations not controlled by non-residents, public companies or a combination). In addition, Québec offers many tax incentives, for example, those found in the fields of research and experimental development, exploration expenses of certain natural resources, multimedia production and science development.
3. Applicable Tax Rates - Individuals
Individuals resident in Canada are taxed on a calendar-year basis on their net worldwide income from all sources. Federal and provincial income tax is levied on a progressive rate basis depending on the amount of taxable income for that year. Income from different sources (i.e., interest and employment income, capital gains or dividends) is effectively taxed at different rates. One-half of a capital gain is included in income for tax purposes. Dividends received by an individual from taxable Canadian corporations give rise to a tax credit (to recognize tax already paid on the income by the corporation) which may reduce the rate at which they are taxed to less than the rate for interest or employment income.
Generally speaking, the provinces tax only those individuals who are resident in the province on December 31 of the taxation year (except with respect to source income) and impose income tax on income earned by individuals within the province by applying the appropriate provincial rate to the federal tax payable.
A province has jurisdiction to tax business income if there is a "permanent establishment" within that province. The Québec Taxation Act defines the "establishment of a taxpayer" as a fixed place where the taxpayer carries on the taxpayer’s business or, if there is no such place, the taxpayer’s principal place of business (this definition includes an office, a mine, a branch, an oil or gas well, a farm, a factory, a timberland, a workshop or a warehouse).
4. Investment From Abroad
Investment into Canada by a foreign individual who does not take up residence in Canada or does not carry on business in Canada him/herself or through a corporation not incorporated or otherwise resident in Canada and not carrying on business in Canada is subject to only the following Canadian tax consequences:
(i) Canadian withholding tax on certain types of investment income earned in Canada, such as dividends, non-arm’s length interest, rents and royalties. The withholding rate of 25% is subject to treaty; treaty rates are generally 15% but the rate may differ depending on the type of income. In most cases where the non-resident shareholder is a company which owns at least 10% of the voting power of the payor corporation, the rate is further reduced to 10%;
(ii) non-participating interest paid by a Canadian resident to an arm’s length non-resident is not subject to withholding tax; and
(iii) Canadian income tax on gains derived from the sale of "taxable Canadian property" such as real estate, mining properties or timber resource properties.
In the case of rents received from real property in Canada, the foreign investor has the right to elect to be taxed at the withholding rate of 25% on the gross amount of the rent or to be taxed at the usual applicable Canadian tax rates on the profits earned from such rents in much the same manner as a resident of Canada, provided a Canadian income tax return is filed with respect to such rents.
5. Sales Tax
The Canadian federal government has a European-style value added tax regime and some of the provinces have U.S.-style sales tax regimes. Some provinces have harmonized their provincial tax with the federal tax including: Nova Scotia, New Brunswick and Newfoundland, Labrador, Ontario and British Columbia. The harmonized sales tax (HST) in Ontario is 13% and in British Columbia it is 12%. Québec sales tax (QST) is calculated at a rate of 9.75% on the sale price and the goods and services tax (GST) is calculated at a rate of 5% on the sale price. Revenu Québec is responsible for, among other things, receiving and processing applications for GST/HST registration of all individuals or entities carrying on a commercial activity in the province of Québec.
6. The Japan-Canada Tax Convention
As discussed above, many of Canada’s international tax conventions reduce the rate at which income earned in Canada by a non-resident is taxed.
The Japan-Canada tax convention provides for the following tax rates on income earned in Canada by a resident of Japan:
(i) dividends from Canadian resident corporations are subject to a 5% rate of tax provided that the Japanese resident owns at least 25% of the voting shares (the rate is increased to 15% if less than 25% of the voting shares are owned);
(ii) the branch tax is also 5%;
(iii) interest paid by a Canadian resident to a Japanese resident where the parties do not deal at arm’s length is taxed at 10%. As noted above, if the parties deal at arm’s length the interest is exempt from tax; and
(iv) royalties paid to a resident of Japan are taxed.
I. COMPETITION LAW
The Competition Act (Canada) (the "CA") is Canada’s federal antitrust and trade practices legislation and governs most businesses and business conduct in or affecting Canada. The purpose of the CA is to maintain and encourage competition in Canada.
The CA regulates trade and commerce activities and monitors trade practices. The CA is generally divided into three principal parts: criminal offences, civilly reviewable matters and merger regulation. Many of the criminal offences have similar corresponding civil provisions for less egregious or potentially pro-competitive conduct. The Commissioner of Competition ("
Commissioner"), head of the Competition Bureau, Canada is charged with the administration and enforcement of the CA. The Commissioner may challenge a merger or non-criminal anti-competitive conduct that violates the CA by making an application for an order to the Competition Tribunal, an adjudicative (quasi-judicial) body. Criminal offences are prosecuted by the Public Prosecution Service of Canada before a superior court with criminal jurisdiction in Canada.
The CA establishes a number of criminal offences, the most serious of which is the anti-cartel provision. Specifically, the CA contains a per se prohibition against agreements between competitors to, among other things, fix prices, allocate markets or limit the supply of a product (which includes a service). In addition, the CA contains a criminal prohibition against bid-rigging, making false or misleading representations, deceptive telemarketing, deceptive notice of winning a prize and pyramid selling schemes, among others. Upon conviction, a corporation or individual may be fined and, in the case of an individual, sentenced to imprisonment for a term up to 14 years, depending on the offence. Further, the CA establishes a private right of action for breach of the criminal provisions of the CA.
The CA further provides that certain business practices may constitute civilly reviewable conduct, meaning that the conduct is not considered criminal but instead may be challenged by the Commissioner. The principal civil provision is the abuse of dominant position which prohibits a dominant firm or firms (acting jointly) from engaging in a practice of anti-competitive acts that results in, or is likely to result in, a substantial lessening or prevention of competition (meaning the conduct has an exclusionary, predatory or disciplinary effect on competitors or potential competitors). Further, the CA provides for civil review of agreements among competitors that are not otherwise criminal and that prevent or lessen, or are likely to prevent or lessen, competition substantially. Other civilly reviewable conduct includes resale price maintenance, exclusive dealing, tied selling, market restriction and deceptive marketing practices (such as making misrepresentations to the public). If the Commissioner can establish a person or persons have engaged in civilly reviewable conduct, the Competition Tribunal may make corrective orders, such as ordering a person to do or refrain from doing a particular act in the future or otherwise take action necessary to correct the impugned conduct, and, in some cases, order payment of an administrative monetary penalty (which, in certain circumstances, may be as high as $10 million or $15 million for subsequent orders). If the Tribunal issues an order, a private right of action is available under the CA where a person has failed to comply with the order. For certain civilly reviewable matters, a private person may apply directly to the Competition Tribunal for relief.
Mergers under the CA are treated as a special type of civilly reviewable conduct. The Commissioner may challenge any merger that is, or is likely to, lessen or prevent competition substantially. If established, the Competition Tribunal may make an order prohibiting the parties from completing the merger or, in the case of a completed merger, ordering the merger to be dissolved or the divestiture of some or all of the assets to a third party. The Commissioner must bring an application within one year after the merger is substantially completed.
In addition, the CA sets out certain financial thresholds which, if exceeded, require a merger to be pre-notified to the Commissioner before the merger can be completed. If a merger is notifiable, the parties must supply the Commissioner with the required information and a 30 day waiting period applies. In certain circumstances, the Commissioner may issue a supplementary information request to one or more of the parties thereby extending the waiting period to 30 days after the information has been received by the Commissioner. A merger that is subject to the notification requirements must not be completed until the applicable statutory waiting period has lapsed or the merger has been cleared in advance by the Commissioner.
J. EMPLOYMENT AND LABOUR LAW
1. Employment and Labour Law
Businesses operating in Québec may be regulated by either federal or provincial labour and employment laws. The nature of the employer’s business will determine whether federal or provincial labour and employment laws apply. The majority of employers are regulated by provincial labour and employment laws. The federal government generally regulates businesses which operate on an inter-provincial, national or international basis, such as banking or television broadcasting.
2. Sources of Employment and Labour Law
Employment and labour law in Québec has two sources: the CCQ and various statutes. The statutes enacted by government regulate the employment relationship. The most important of these statutes, from an employer’s perspective, are:
(a) Employment standards legislation (sometimes referred to as "labour standards" legislation). This legislation establishes the basic terms and conditions of employment including rules regarding hours of work, minimum wages, mandatory vacation, public holidays and overtime. Québec has enacted the Act Respecting Labour Standards (the "ALS") which contains the minimum employment standards that are applicable to employees in the province;
(b) Workers’ compensation legislation. This legislation creates a no-fault insurance system for workplace injuries. Under such legislation, employers generally pay premiums into a fund and injured workers receive compensation from the same fund to replace their wages while absent from work due to an injury. Covered workers are usually prohibited from suing their employers for injuries covered by the legislation. Québec has adopted the Act Respecting Industrial Accidents and Occupational Diseases to compensate workers, in some cases, for economic and non-economic losses resulting from work injuries and illnesses;
(c) Human rights legislation. This legislation prohibits employers from discriminating against their employees or potential employees on a number of grounds including, but not limited to, sex, race, age, disability and sexual orientation. In Québec, the Charter of Human Rights and Freedoms (the "Québec Charter") protects employees’ fundamental rights and freedoms. This legislation contains prohibited grounds of discrimination (i.e., language, civil status, sexual orientation, political beliefs, marital status, age, sex, etc.) that employers should consider when making employment decisions;
(d) Occupational health and safety legislation. These laws regulate workplace safety by imposing obligations upon a variety of parties in the workplace. In Québec, occupational health and safety requirements are found in the Act Respecting Occupational Health and Safety and the CCQ. The CCQ requires Québec employers to take measures to protect the health, safety and dignity of employees;
(e) Labour relations legislation. This legislation regulates the status of labour unions and their relationships with employees and employers. Labour relations in Québec are subject to the provisions set out in the Labour Code. Québec’s Labour Code protects the right of association and contains, inter alia, specific rules concerning the settlement of disputes and grievances;
(f) Benefits-related legislation. Most jurisdictions in Canada have legislation which regulates private pension plans. In addition, the federal government has created an unemployment insurance plan under the Employment Insurance Act and a pension plan (similar to Social Security in the United States) under the Canada Pension Plan. All Canadian provinces provide comprehensive, government-funded health insurance schemes for residents. Many employers provide supplemental medical, dental, life insurance, disability and other benefits to employees, although these are not required by law;
(g) Privacy legislation. The collection, use, retention, storage and disclosure of personal information, which may include personal information of or about employees, is regulated in Canada by both federal and provincial law. The protection of personal information in Québec is subject to the provisions contained in the CCQ and the Act Respecting the Protection of Personal Information in the Private Sector; and
(h) Pay Equity. In Canada, men and women doing the same job must receive equal remuneration. In Québec, the Pay Equity Act imposes certain obligations on employers with ten employees or more as well as additional procedural obligations for larger employers.
3. Employment and Labour Standards Legislation
Employment and labour standards legislation establishes minimum standards that must be adhered to regarding employees in Canada. Although this legislation varies from province to province, some basic principles apply in all Canadian jurisdictions. First, employers and employees generally cannot contract out of the provisions of applicable employment and labour standards legislation. Second, employers are free to provide additional benefits or better employment conditions which then prevail over the provisions of the applicable legislation. The Commission des normes du travail (Labour Standards Board) is the body responsible for supervising the implementation and application of labour standards in the province of Québec.
The following are some of the basic entitlements frequently established by employment standards legislation:
(a) Minimum wage. All provinces have a minimum wage. In Québec, the current general minimum wage is $10.15 per hour (since May 1, 2013);
(b) Hours of work. Most employment standards statutes in Canada establish a maximum number of hours of work which an employee is permitted to work on a daily or weekly basis and other similar requirements;
(c) Overtime pay. Most employment standards statutes establish a threshold beyond which an overtime rate is payable. Regular workweeks in Québec usually last 40 hours and overtime work requires that a premium of 50% of the prevailing hourly wage be paid to the employee;
(d) Statutory holidays. Seven to twelve statutory holidays are commonly designated in each province. Employees generally receive these days off with pay and are frequently entitled to additional compensation and/or time off if they are required to work. The following are the most common statutory holidays:
New Year’s Day (January 1);
Third Monday in February (Alberta, Manitoba, Ontario, Prince Edward Island and Saskatchewan;);
Good Friday (Friday before Easter) or Easter Monday;
Victoria Day (Monday on or preceding May 24);
Saint-Jean-Baptiste Day (Québec; June 24);
Canada Day (July 1);
1st Monday in August (British Columbia, New Brunswick, Saskatchewan, Northwest Territories and Nunavut);
Labour Day (1st Monday in September);
Thanksgiving Day (2nd Monday in October);
Remembrance Day (November 11);
Christmas Day (December 25); and
Boxing Day (December 26)
(e) Vacation. The employment standards legislation of every Canadian jurisdiction requires employers to provide employees with a minimum of two weeks of vacation time per year. With the exception of Ontario and Yukon Territory, all other Canadian jurisdictions increase an employee’s vacation entitlement in accordance with the employee’s service. Employees in most Canadian jurisdictions, including Québec, provide employees with a separate entitlement to vacation pay; and
(f) Leaves of absence. Employment and labour standards legislation establishes rights to various job-protected leaves, including maternal/pregnancy and parental leave, sick or emergency leave, family medical/compassionate care leave and reservist leave. © Davis LLP 2013 22
4. Termination of Employment
Employees not represented by a Union
In Québec, a non-unionized employee can generally be terminated only with serious reason or, if no serious reason exists, when the employer provides the employee with reasonable notice of the termination of their employment or pay in lieu thereof. There is no legal concept of "at will" employment in Canada.
The amount of notice required on termination is established by applicable employment standards legislation and according to the CCQ. The ALS provides that Québec employers must give written notice to an employee before terminating his or her contract of employment or laying him or her off for six months or more. Such written notice shall be of one week if the employee has completed less than one year of uninterrupted service, two weeks if he has completed one year to five years of uninterrupted service, four weeks if he has completed five years to ten years of uninterrupted service and eight weeks if he has completed ten years or more of uninterrupted service. Since such written notice of termination constitutes a minimum standard only, the CCQ provides that employers must give notice of termination within a reasonable time period. While in some specific cases statutory notice for termination is not required, such notice may still be required under the CCQ. A Canadian employer can provide pay in lieu of notice in most circumstances. The amount of notice required under the CCQ is generally significantly more than that required under applicable employment or labour standards legislation and generally subsumes the minimum statutory entitlement for notice of termination. Thus, where an employer pays an employee an amount equivalent to the monetary value of the compensation the employee would have received during the reasonable notice period, the employer will not need to pay any additional statutory entitlement. Such monetary compensation generally includes compensation not only for salary or wages, but also for benefits, commissions, bonuses and other perquisites the employee would have received if he or she had continued to work through the reasonable notice period.
In addition to the minimum requirements established by employment and labour standards legislation, every employment relationship in Canada is governed by contract under the CCQ. This applies whether or not a written contract exists. The CCQ implies basic terms into every employment contract. The most significant of these is that the contract, and hence the employment relationship, cannot be terminated without serious reason, reasonable notice of termination, or pay in lieu of such reasonable notice. The length of reasonable notice under the CCQ is determined in accordance with factors relating to the individual employee, such as the employee’s age, length of service, type of position, level of compensation and the availability of replacement employment. The key issue considered by a Québec court is how long it will take the employee, acting reasonably, to secure alternate employment of a similar compensation level.
While an employer in Québec cannot "contract out" of statutory termination and severance pay entitlements owing to an employee, the employer is free to contract with the employee in regards to the employee’s reasonable notice entitlements on termination. Canadian employers are generally free to agree, before the employee begins employment, what the maximum compensation or notice period will be if the employee’s employment is terminated without serious reason. Such a contract or agreement limits the employee’s entitlement to just the statutory minimum employment standards established in the province, although clear evidence of such an agreement is required and it cannot be unduly harsh for the employee. It is preferable to have a statement in writing, signed by the employee, before he commences employment, agreeing to minimize liability in termination cases without serious reason. Employers should include an express term to this effect in each employee’s employment contract or offer letter. Written contracts are advisable for all non-union employees. The employee must have accepted this term of employment prior to commencing employment, or must receive new consideration (such as a pay increase or bonus) in exchange for agreeing to such a term of employment during the course of employment.
Any agreement with respect to termination entitlements will be void and unenforceable if the agreement does not meet the minimum requirements of applicable employment standards legislation. Therefore, employers should include notice requirements which are, at a minimum, consistent with applicable employment standards notice on termination in employment agreements. As a practical matter, employees who occupy managerial or executive positions, or who have specialized skills, may require longer to locate alternate employment and may therefore be entitled to increased common law reasonable notice. Advice should be sought with respect to these individuals’ employment contracts on a case-by-case basis.
Termination of employment differs significantly for unionized employees. Unionized employees can only be terminated for serious reason and/or pursuant to the terms of their collective agreement. While non-unionized employees can be terminated at the option of the employer (provided reasonable notice or pay in lieu of notice is provided and as long as the employer does not violate another statute with respect to the termination), union employees have recourse to the arbitration provisions of their collective agreement and will often be reinstated by arbitrators if serious reason for termination has not been found to exist. Most collective agreements provide for lay-off and recall of employees and even unionized employers can usually terminate employees if the employers permanently reduce the size of their operations.
5. Workers’ Compensation
Québec, like most provinces, has enacted workers’ compensation legislation which provides specific compensation to employees for work-related injuries and restricts the ability of injured workers to sue their employers for work-related injuries. These are essentially "no fault" insurance plans. Workers cannot agree to waive or forego benefits under these statutes and employers are often required to register regardless of the number of employees. Employers may also have an obligation to reinstate workers once they recover from their injuries.
The cost of workers’ compensation insurance depends upon the industry category of the specific business because it is assumed that businesses with similar operations share similar risks. Rates may also vary based on an employer’s accident/injury rates.
6. Human Rights Legislation
Although the specific prohibited grounds of discrimination vary somewhat from jurisdiction to jurisdiction in Canada, human rights legislation generally provides that employees must be free from discrimination or harassment on the grounds of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, religion, sex, sexual orientation, age, record of offences, marital status (including common-law and same-sex marriages), family status or disability. Under the human rights legislation of every jurisdiction in Canada, an employer must accommodate an employee to the point of undue hardship in respect of any of these prohibited grounds of discrimination. "Undue hardship" represents a very high standard in Canada. Employers are also permitted to establish bona fide occupational requirements for a position, even if those requirements result in discrimination on their face.
Human rights legislation often establishes an administrative body to investigate and/or hear complaints against employers and to provide penalties and fines for violations of the legislation. Even in the non-unionized context, employees terminated contrary to human rights legislation may be eligible for reinstatement and/or compensation.
7. Occupational Health and Safety Legislation
Occupational health and safety legislation regulates workplace safety and imposes various duties on a variety of parties in the workplace. Employers can be subject to conviction resulting in imprisonment and/or significant fines for breaching their obligations under this legislation. Occupational health and safety inspectors or officers generally have broad powers to inspect workplaces and workplace records.
Workers who believe that their work is unsafe are entitled to refuse to work pending review of their work conditions, which may require the involvement of an occupational health and safety officer or inspector.
Occupational health and safety legislation also imposes direct duties on officers and directors of employers by requiring them to ensure that the employer company complies with the legislation. Penalties are prescribed for both individual and corporate violations.
8. Labour Relations Legislation
Labour relations legislation governs the unions and unionized employees. Employees who exercise managerial functions with respect to labour relations matters are generally not considered employees and therefore, are often not unionized employees. Labour relations legislation generally deals with:
Certification/de-certification. The processes by which a union becomes certified to represent a group of employees or loses the right to represent a group of employees;
Collective bargaining. The process by which a union and an employer agree on terms of employment for all employees covered by a collective agreement;
Work stoppages. Rules regarding when a union can legally strike and when an employer can legally lock out its employees;
Grievance arbitration. Process for settlement of disputes between the parties during the lifetime of a collective agreement and without resort to a work stoppage; and
Unfair labour practices. Various rules regarding what employers can and cannot do, both during certification and de-certification drives and generally.
In general, the labour relations legislation of all Canadian jurisdictions favours "speedy" certification processes, which differ significantly from those applicable in the United States. In Québec, the body responsible for ensuring compliance with the provisions contained in the
Labour Code is called the Commission des relations du travail (Québec’s labour relations board). Additionally, this commission is responsible for deciding upon certifications of collective bargaining units in Québec.
9. Application of the Tobacco Act
By enacting the
Tobacco Act, Québec has demonstrated a serious commitment to forbidding the use of tobacco in enclosed spaces to which the public has admittance (i.e., bingo halls, movie theatres, etc.). Smoking is also prohibited in all enclosed spaces of the workplace (except when the workplace is situated in a dwelling). Moreover, the Tobacco Act establishes that smoking is prohibited outdoors within a nine-metre radius from any door leading to health and social services institutions, premises or buildings placed at the disposal of a school, childcare centres or day care centres and enclosed places where community or recreational activities intended for minors are held. The Minister of Health and Social Services may appoint inspectors or analysts to ensure compliance of the Tobacco Act. It is critical then for any employer to comply with the obligations imposed under this legislation, especially when starting a business in Québec and when drafting internal work policies concerning the use of tobacco products.
K. LANGUAGE REQUIREMENTS IN QUÉBEC
The French Charter states that French is the official language of Québec. This particular legislation, also known as Bill 101, protects the use of the French language in the province of Québec by establishing rules that must be respected by businesses, individuals, public institutions and others. Every new or established business in Québec must be aware of the obligations imposed by the French Charter. Given the broad scope of the French Charter, Québec business transactions may require a particular analysis based on language requirements. In this section, we provide some of the most essential language requirements that investors should be aware of when doing business in Québec:
(a) Contracts. Adhesion contracts (i.e., contracts pre-determined by one party and standard printed form contracts) must be in French unless the parties have expressly requested that the contract be written in another language. Consumer contracts are governed by both the Consumer Protection Act ("CPA") and the French Charter. By virtue of the CPA, consumer contracts must be drawn up in French unless the parties expressly agree that the contract be drawn up in another language. Contracts entered into by the Québec civil administration (government), including the related subcontracts, shall also be drawn up in French. Such contracts and the related documents may be drawn up in another language when the civil administration enters into a contract with a party outside of Québec;
(b) Advertising. The French Charter provides that catalogues, brochures, folders, commercial directories and any similar publications (including web-sites) must be drawn up in French. Such documents may be in two separate versions, one exclusively in French, the other exclusively in another language, provided that the French version is available under no less favourable conditions of accessibility and quality than the version in the other language; and
(c) Product Labelling. As a general rule, every inscription on a product, on its container or wrapping, or on a document or object supplied with it (directions for use, warranty certificates, etc.) must be drafted in French. However, the French inscription may be accompanied with a translation or translations, but no inscription in another language may be given greater prominence than that in French. However, some exceptions apply to this general rule.
The French Charter also contains particular provisions that apply in an employment and labour context. Employers in Québec should be aware of the following:
(d) Communications. Workers have the right to carry on their activities in French. This general right imposes particular obligations on Québec employers. In this regard, employers are required to draw up written communications to their employees in French and to publish offers of employment or promotion in French. Given the foregoing, any work policy and procedure, employment handbook, job openings and/or notices of promotion must be drafted in French. Employment application forms, order forms, invoices, receipts and quittances must also be drawn up in French.
French communications and the abovementioned documents may be accompanied by a version drafted in a language other than French provided that the French version appears at least as prominently as that of the other language.
(e) Knowledge of French. Employers are precluded from making knowledge, or a specific level of knowledge, of a language other than French mandatory for obtaining employment, unless the nature of the work duties requires knowledge of that language. Furthermore, employers are prohibited from dismissing, laying off, demoting or transferring an employee for the sole reason that he is exclusively French-speaking or that has insufficient knowledge of a language other than French.
(f) Francization. A Québec business that employs fifty persons or more for a period of six months must register with the Office québécois de la langue française. If the Office considers that the use of French is respected at the workplace, it will issue a "francization certificate". In the event that the Office does not issue this certificate, it will notify the employer to adopt a francization program. For those firms employing one hundred or more persons, a permanent francization committee must be formed. This francization committee will be responsible, among other things, for the monitoring of the business’s language situation and ensuring that the use of French remains generalized at all levels of the business.
L. ENVIRONMENTAL LAWS
Canadian lawmakers regulate the environment at three different government levels: federal, provincial and municipal. The federal and provincial governments have enacted legislation, regulations, policies and guidelines, and municipalities have passed by-laws, all geared to the protection of air, land, surface and groundwater. These laws regulate hazardous and/or toxic substances, pollution, waste, the import, export and transportation of dangerous goods, brownfields development, spills and clean-ups, among many other things. The most important environmental legislation in Québec is the Environment Quality Act. Many regulations adopted under this Act and other statutes also deal with relevant environmental issues, such as air emission control and wastewater treatment.
In addition, approval of various government agencies with responsibility for the environment is required to carry out many activities and formal environmental assessment is often a precursor to many public and private developments. Both of these require varying degrees of public participation in their processes. Consequently, in order to promote sustainable development in Québec, certain projects are required to proceed with an environmental assessment that can be subject to public consultations (before the Bureau des audiences publiques en environnement, also known as BAPE) and information mechanisms prior to obtaining a certificate of authorization.
Corporations in management or control of a property, which includes land and improvements on the land, (or formerly in management or control of a property) are subject to a broad range of potential statutory and civil liability arising out of non-compliance with environmental laws or contamination at the property. Similar liability can rest with current or former directors and officers. There are two principal sources of statutory liability imposed by environmental laws in Canada, "offence liability" and "remediation liability". Offence liability generally arises from provisions in environmental laws that create offences for causing or permitting unlawful pollution or failing to report it. Remediation liability generally arises from provisions in environmental laws authorizing a regulatory agency to order corporations to conduct remediation of their current or former properties (whether or not the corporation caused such contamination).
In order to enforce these two types of statutory liability, government officials have broad powers of investigation and inspection, and have access to a number of investigative techniques, including certain search and seizure powers.
Corporations also have potential civil liability for any contamination at the property that causes harm to third parties. This liability is enforced through the civil courts by private lawsuit.
Secured creditors can also be held liable for environmental matters, though the circumstances in which secured creditors can be held responsible for environmental matters are significantly narrower than the liability faced by corporations and their directors and officers, unless secured creditors step into the shoes of the debtor. Generally speaking, the liability does not arise by virtue of the making of a loan but, rather, it arises due to the involvement the secured creditor may have with the property of the debtor as a result of the debtor’s default and/or insolvency.
Given the Canadian regulatory regime, and its emphasis on corporate responsibility for environmental issues associated with a property, regardless of who caused the contamination, and the extension of this liability to directors and officers, thorough due diligence is important prior to any transaction that may result in the acquisition of property or a business that may be subject to environmental regulation at any one of the three government levels.
M. ABORIGINAL LAW
In Canada, Aboriginal law often affects the development of land and natural resources. This is of particular interest to businesses involved in the energy, forestry, mining and transportation sectors with respect to businesses and developments on lands covered by treaties, Indian reserve lands and areas subject to Aboriginal land claims.
Aboriginal rights are those which have been traditionally exercised by Aboriginal peoples, including customs, traditions, fishing, hunting, gathering and other activities. In some instances, these rights extend to the underlying title to the land.
Undertaking business activity in relation to lands subject to Aboriginal interests and claims requires specific knowledge about and experience in dealing with such issues, as well as an understanding of the collaborative and respectful approaches necessary to achieve success in respect to such activities. For example, developments on lands subject to Aboriginal claims or interests may be subject to a legally required consultation process, the particulars of which vary from case to case.
N. BANKRUPTCY, INSOLVENCY AND RESTRUCTURING
In Canada there are two major federal statutes governing commercial liquidation and restructuring, the Bankruptcy and Insolvency Act (the "BIA") and the Companies’ Creditors Arrangement Act (the "CCAA").
The BIA can be used as both a liquidation and restructuring mechanism. There are two distinct processes available to insolvent companies under the BIA. There is ‘bankruptcy’ which is a liquidation process involving the appointment of a "Trustee in Bankruptcy", a licensed professional who supervises the liquidation of the assets of the company and the distribution of the resulting proceeds in accordance with a statutory priority scheme. A bankruptcy process can be initiated by the debtor or a creditor.
There is also a ‘proposal’ process under the BIA, in which the debtor can, in a court supervised process, stay any proceeding against it for a period of time and within a specific time period put forward an offer, called a "proposal", to its creditors for some form of compromise which is ultimately voted upon by the creditors. The proposal process involves the appointment of a licensed professional to serve as "Proposal Trustee". The nature and content of the proposal is somewhat limited by statutory requirements but otherwise is limited only by what is necessary to get the support of more than half of the voting creditors that must also represent more than two-thirds of the dollar value of the claims held by the voting creditors. In the event, the proposal is not accepted by the requisite number of creditors, the debtor is deemed to be bankrupt. If the proposal is accepted by the requisite number of creditors and approved by the court, the debtor needs only to comply with the terms of its proposal to have all of its liabilities existing at the time it filed deemed fully and finally satisfied.
The CCAA provides for a process very similar to the BIA proposal process but with additional flexibility. The CCAA process is only available to companies that have total liabilities exceeding five million dollars. The CCAA process is typically initiated by the debtor and is generally used in the larger and more complex restructurings as it allows the court a great deal of discretion in determining the process, procedure and impact of a CCAA proceeding. The CCAA process involves the appointment of a licensed professional to serve as "Monitor". Ultimately, the goal of a CCAA proceeding, like the proposal process, is for the debtor to put forward an offer to its creditors for some form of compromise which is ultimately voted upon by the creditors. Under the CCAA the debtor’s offer is called a "plan of arrangement". Again for the plan of arrangement to be considered effective, the plan must get the support of more than half of the voting creditors that must also represent more than two-thirds of the dollar value of the claims held by the voting creditors. Like a proposal, if the plan is accepted by the requisite number of creditors and approved by the court, the debtor needs only to comply with the terms of the plan to have all of its liabilities existing at the time it filed for protection deemed fully and finally satisfied. Unlike the proposal process, if the plan is voted down the debtor does not automatically become bankrupt but is, practically speaking, left with very few alternatives.
In some circumstances, a process known as a "receivership" is used to liquidate or realize upon the assets of an insolvent debtor, sometimes in conjunction with bankruptcy and sometimes as a standalone process. A receivership can be initiated by a party such as a secured creditor that has a contractual right to appoint a receiver without the involvement of the courts or a receivership can be initiated by a court order. In either instance, an individual or firm is appointed for a specific purpose or purposes from as broad as running the business of the debtor to as narrow as selling a specific assets of the debtor. If the receiver is running the business of the debtor it is usual referred to as a receiver manager.
There are also alternative procedures under the Canada Business Corporations Act, the Québec Business Corporations Act and the Winding-Up and Restructuring Act that may be used to restructure companies in certain atypical circumstances.
In Québec, there is a register that contains a list of companies that are considered to be non-admissible to enter into public contracts (Registre des entreprises non admissibles aux contrats publics ("RENA")). The main objective of RENA is to prevent corruption and collusion in the public sector by denying permission to companies found responsible for certain infractions from doing business with the government. The infractions and the inadmissible period for such companies are determined by the Regulation entitled Règlement sur le registre des entreprises non admissibles aux contrats publics (in force since June, 2012). Companies listed in RENA are not admissible to enter into contracts with public institutions.
Canada’s immigration laws and polices are designed to attract experienced businesspeople and skilled workers to Canada. Canada’s comprehensive business immigration program includes both non-immigrant and immigrant status divisions. Pursuant to the
Canada-Québec Accord on Immigration, Québec is responsible for establishing the selection criteria of its business immigrants and skilled workers while the Federal government is responsible for establishing the admissibility criteria applicable to such individuals (i.e., security, health grounds, financial reasons, criminality, etc.).
1. Non-Immigrant Status
It is usually unnecessary to be a citizen or resident of Canada to invest in Canada, and of course not all investors or businesspeople wish to immigrate to Canada. People who do not wish to immigrate to Canada may enter and stay in the country from time to time as temporary residents. Categories of temporary residents include business visitors and temporary foreign workers.
Business visitors are persons who wish to conduct business activities in Canada but will not be competing against the Canadian labour force. These are persons who wish to conduct business activities on behalf of a foreign business, not a Canadian business, and will not be earning any personal income in Canada from their activities.
An individual who wishes to enter Canada to work must apply for a work permit. "Work" is defined under the Immigration and Refugee Protection Regulations as "an activity for which wages are paid or commission is earned, or that is in direct competition with the activities of Canadian citizens or permanent residents in the Canadian labour market". Those wishing to apply for a work permit are generally required to have a job offer from a Canadian employer. A work permit is usually only issued for a specified job, employer and time period.
Generally, obtaining a work permit is a two step process, consisting of:
the employer obtaining a Labour Market Opinion ("LMO") from Service Canada. Service Canada will assess the economic effect of the job offer on the Canadian labour market and provide a confirmation either for an individual job or for a group of jobs. Generally speaking, before applying for an LMO, an employer must have tested the local labour market to ensure that no qualified Canadians are available to fill the particular position; and
the foreign national obtaining a work permit from a Canadian Embassy, High Commission or Consulate abroad, or at the port of entry (i.e. Canadian international airport or land border crossing). Individuals from certain designated countries who require a Temporary Resident Visa ("TRV") in order to enter Canada, must apply for their work permits abroad, while individuals who are TRV exempt may apply abroad or at a port of entry.
There are many exceptions to the need for obtaining an LMO from Service Canada before applying for a work permit, including:
intra-company transferees, senior executives and managers or specialists coming to work for a subsidiary, affiliate or branch;
professionals under NAFTA (including management consultants, engineers, accountants, computer systems analysts, lawyers, graphic designers); and
workers whose employment will bring "significant economic benefit" to Canada.
2. Immigrant Status
Some investors may wish to immigrate to Canada (i.e. become Canadian permanent residents). Permanent residents of Canada are not required to leave the country by a specified date and can remain in Canada indefinitely. Unlike temporary workers whose work permits are usually tied to a specific employer, occupation and province/territory, permanent residents have full working rights, meaning they can work for any employer, in any occupation and in any province/territory. For the most part, permanent residents have the same rights and responsibilities as citizens. The key difference is that permanent residents have to meet a continuing residency obligation in order to maintain their permanent resident status: they must be physically present in Canada for a total of two years out of every five years. After meeting certain eligibility conditions, permanent residents may opt to apply for Canadian citizenship.
There are numerous ways to apply for permanent residence in Canada. Here are the most common permanent residence categories for Skilled Workers:
Federal Skilled Worker Program: Foreign workers who have (i) at least one year of work experience in one of the designated eligible occupations (24 eligible occupations have been listed this year); or (ii) a valid offer of arranged employment (approved job offer); or (iii) met the eligibility criteria under the PhD stream. Once eligibility to apply for the program is confirmed, an individual must pass a point assessment based on six factors (namely, work experience, education, language ability, age, arranged employment and adaptability) to be approved;
Federal Skilled Trade Class: This new program aims to attract foreign workers qualified in a skilled trade who plan to live outside the province of Québec. In order to apply for this program individuals must (i) have at least two years of full-time work experience in a skilled trade; (ii) meet the job and language requirements; and (iii) have a one year employment offer or a certificate qualification in that skilled trade issued by a provincial or territorial body. This year there are 43 occupations listed as skilled trades;
Provincial Nominee Programs: Most provinces in Canada administer programs designed to attract Skilled Workers who will yield local economic benefits. Once a Skilled Worker is nominated by a province, CIC will expedite the processing of the individual’s permanent residence application. Québec does not participate in the Provincial Nominee Program due to agreements concluded with the Federal government. Although Québec does not have a nominee program, Québec has established the Québec Skilled Worker Program;
Canadian Experience Class: Foreign workers who have at least one year of skilled work experience in Canada, and foreign graduates who received a qualifying diploma, degree or trade or apprenticeship credentials and have at least one year of skilled work experience in Canada, and have sufficient language proficiency, may consider applying for permanent residence under this class;
Québec Skilled Worker Program: Applicants must first obtain a Québec Selection Certificate which is issued by the province based on particular selection criteria. Similar to the Federal Skilled Worker Program, candidates must pass a point based assessment. Points are awarded for schooling, work experience, age, knowledge of French and English, previous stays in Québec and a family relationship with a Canadian citizen or permanent Québec resident, valid employment offer, number of children under the age of 22, specific characteristics regarding an accompanying spouse or common-law spouse, financial self-sufficiency capacity and adaptability.
Individuals may also become permanent residents of Canada by investing in the country. Canada’s Business Immigration Program and Québec’s Economic Class Program seek to attract experienced business people who will support the development of a strong and prosperous economy. Among the business programs we find the:
Federal Entrepreneur Program: Foreign nationals who have business experience and have legally obtained a minimum net worth of $300,000 can apply under this program. In respect of an entrepreneur selected by a province, the minimum net worth is established by the laws of the province. In addition, entrepreneurs must comply with certain conditions after obtaining their permanent resident status (for example, controlling and actively managing a qualifying Canadian business for at least one year after becoming a permanent resident). As of July 1, 2011, there is a temporary moratorium on accepting new entrepreneur applications;
Québec Entrepreneur Program: Candidates must (i) have net assets of at least 300,000$ and at least two years of experience running a business (industrial, agricultural or commercial); and (iii) manage said business, alone or with the accompanying spouse or common-law spouse, controlling at least 25% of its capital equity. Other elements, such as age, language skills, personal qualities and French proficiency are also considered to assess candidates applying under this program.
The two program components (acquisition and business project) aim to create or acquire a business in Québec that the applicant will manage on a daily basis. An applicant, alone or with the accompanying spouse or common-law spouse must control at least 25% of the capital equity with a value of at least $100,000;
Federal Investor Program: An applicant must have (i) business experience; and (ii) a minimum net worth (the fair market value of all of the assets of the investor and his or her spouse or common-law partner minus the fair market value of all of their liabilities) of $1,600,000. In addition, the applicant must make a $800,000 investment to CIC and pass certain eligibility and admissibility requirements. CIC will return to the applicant this investment, without interest, about five years after payment. As of July 1, 2012, there is a temporary moratorium on accepting new investor applications;
Québec Investor Program: To qualify as a Québec investor, an applicant must have, alone or with his or her accompanying spouse, net assets of at least $1,600,000 (excluding the amounts received by donation less than 6 months before the date on which the application was filed) and, similar to the Federal Investor Program, candidates must intend to reside in Québec and enter into an agreement containing an undertaking to make an investment of $800,000 with an authorized broker or trust company. This investment will be returned to the applicant after a five years term without interest. Other factors such as age and language skills are also considered by the Government of Québec to assess these applications.
Moreover, applicants must have "experience in management" in a farming, commercial or industrial business, or in a professional business where the staff (excluding the applicant) occupies at least the equivalent of 2 full-time jobs, or for an international agency or a government or its departments or agencies.
"Investor’s management experience" is defined under the
Regulation Respecting the Selection of Foreign Nationals as "the assuming, for at least 2 years in the 5 years preceding the application for a selection certificate, of duties related to the planning, management and control of financial resources and of human or material resources under the investor’s authority; the experience does not include the experience acquired in the context of an apprenticeship, training or specialization process attested to by a diploma".