Guide to cross-border trade and investment

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Canada is bilingual, bi-juridical and multi-cultural. It is bilingual in that both English and French are federally mandated official languages. It is bi-juridical as all provinces and territories (other than the Province of Québec) draw from the Common Law system, derived from England. Québec (like the State of Louisiana) is governed by the Civil Law system, derived from the French Napoleonic Code, as reflected in the Civil Code of Lower Canada adopted in 1866 (one year prior to Confederation) and replaced as of January 1st, 1994 by the Civil Code of Québec (the “CCQ”).

Canada has several levels of government: federal, provincial and municipal. The allocation of jurisdiction between the federal and provincial governments was established under the British North-America Act of 1867 at the time of Confederation.
Generally speaking, most matters regarding private property, commerce and business fall under provincial jurisdiction, with the exception of federally regulated industries such as telecommunications and the railways.
The federal government also deals with matters of bankruptcy, competition, foreign investment, criminal and family law. However, unlike the United States, securities law is a matter of provincial jurisdiction and each province or territory therefore has its own regulator (e.g., the Québec Autorité des marchés financiers and the Ontario Securities Commission), but there is no federal regulator akin to the U.S. Securities and Exchange Commission.

A foreign investor must consider the Competition Act (Canada) in seeking to acquire an interest in a Canadian business, either by way of acquiring assets or shares.
In a share acquisition, if the acquirer and target, on a consolidated basis (including their respective affiliates), will have CAD $400,000,000 or more in aggregate value or gross revenues after completing the transaction, pre- notification is required and the acquirer must receive the approval of the Competition Bureau before it may proceed with the transaction.
In an asset deal, the transaction will be reviewable if the aggregate value of the Canadian assets to be acquired or of the annual Canadian sales generated by such assets exceeds CAD $35,000,000.
In both cases, even if the financial threshold is not met, the transaction will be reviewable if it is found not to be in the public interest or to create a concentration which would unduly reduce competition. The statutory exceptions include acquisitions of public companies, acquisitions of real estate, and transactions made in the ordinary course of business. As in the United States, the approval may be conditional upon the divestment by the acquirer and/or target of certain businesses.

A non-Canadian establishing a new business in Canada or acquiring control of an existing Canadian business must also consider the Investment Canada Act (Canada).
Any investment by a non-Canadian to establish a new business is subject to notification, either prior to or within 30 days of implementation. The information required to be provided includes identification of the investor, the projected number of employees at the end of the second full year of operation, the projected amount to be invested in the new business over the first two full years of operation, and the projected level of annual sales or revenues during the second full year of operation.
The acquisition of control (as defined by certain statutory formulae) of a Canadian business is reviewable if the assets of the entity or entities being acquired exceed certain thresholds. Luckily for members of the World Trade Organization (e.g., Americans), the usual threshold of CAD $5 million is replaced by an annually prescribed amount based on a comparative of the Canadian GDP (gross domestic product) in the current year to that of the previous year, which for 2006 has been set at CAD $265 million. Even if it is not reviewable, the transaction still requires notification, either before or within 30 days after its completion.
The acquisition of control by a non-Canadian of any Canadian business which is engaged in the production of uranium or provides any financial or transportation service or is a cultural business is automatically reviewable, without consideration of any threshold. A cultural business is defined as the publication, distribution and sale of books, magazines, periodicals or newspapers in print or machine readable form (other than merely printing or typesetting them), the production, distribution, sale or exhibition of film or video recordings, audio or video music recordings, music in print or machine readable form, or radio communication in which the transmissions are intended for the general public as well as radio, television and cable television broadcasting undertakings, satellite programming and broadcast network services.
There has recently been an increasing movement to standardize the securities regulations across Canada, such as the adoption as of September 1st, 2005 of National Instrument 45-106, which sets out the prospectus and dealer registration requirements and exemptions, and replaces the exemptions previously found in the provincial securities legislation.
For example, in Québec, prior to the adoption of the new National Instrument 45-106, if a corporation met the criteria to be a “closed company”, in that its charter permitted a maximum of 50 shareholders (not counting former or current employees, directors or officers), restricted share transfers (e.g., by requiring prior approval by the board of directors or shareholders) and prohibited any distribution of its shares “to the public” (not statutorily defined), then the Securities Act (Québec) did not apply.
Now, to the consternation of non-securities-literate business lawyers, the concept of a “closed company” has been replaced by the notion of a “private issuer”, which requires an examination of all share issuances and transfers to ensure that they have been made only to the permitted categories of potential shareholders (generally the founders, directors and officers and their respective family members as well as close personal friends and close business associates) as well as accredited investors (generally institutions or high net worth individuals or entities).

In general, employment law is much more protective of (if not overtly biased in favor of) employees in Canada (and particularly in the Province of Québec) than is the case in the United States.
There are provincial as well as federal privacy laws which protect an employee’s right to privacy and personal information, and the rights of an employee are enshrined not only in labor standards legislation but also in human rights legislation [e.g., the Charter of Human Rights and Freedoms (Québec), which prohibits discrimination in the hiring and treatment of employees].
Acts and policies which are taken for granted in the United States (e.g., drug testing and video or other forms of electronic surveillance, including monitoring of electronic or telephone communication) must be carefully reviewed to ensure compliance with more stringent Canadian laws.
In certain jurisdictions (such as the Province of Québec), the purchaser of a business is deemed to be a continuing employer and inherits the employees under their current employment conditions, including compensation, seniority, vacation and other benefits. Unlike the United States, employees of an acquired business cannot generally be terminated at will and considerable paid time in lieu of notice may be required.

Under the Immigration and Refugee Protection Act (Canada), foreign nationals may work temporarily in Canada under certain conditions, generally being a job offer, a confirmation of the job offer and a work permit.
Once a foreign national receives a job offer, it must be approved by Human Resources and Development Canada. Upon approval of the job offer, an immigration officer will decide if the foreign worker qualifies for the work permit and assess the person's health and security requirements. A work permit is usually valid only for a specified job, employer and time period. In most cases, applications must be submitted from outside of Canada.
Some temporary foreign workers do not require work permits, including:

  • some commercial speakers, seminar leaders and guest speakers;

  • some performing artists, students, athletes, sports officials, journalists and providers of emergency services;

  • business visitors; and

  • diplomats, consular officers and other representatives or officials of other countries.

Other exemptions exist and the applicable conditions may vary. Also, one has to keep in mind that additional procedures apply for foreign workers who intend to work in Quebec.

It is an offence for Canadian employers to hire anyone who is not authorized to work in Canada. The employer who hired this person will be deemed to know that s/he is not authorized to work in Canada if the employer fails to exercise due diligence to determine whether or not his/her employment is authorized under the law. A person committing this offence may be found sentenced to a fine of up to CAD$50,000 and/or to imprisonment for up to 2 years.

The North American Free Trade Agreement (“NAFTA”)
Under NAFTA, citizens of Canada, the United States and Mexico can gain quicker and easier temporary entry into the three countries to conduct business-related activities or investments. All provisions are equally available to citizens of the three countries. Permanent residents of these countries who are not citizens are not covered by the NAFTA provisions.
NAFTA applies to four specific categories of business persons: business visitors, professionals, intra-company transferees and persons engaged in trade or investment activities, all of whom can enter Canada without meeting the labour market test (i.e., validation of their job offer is not required).
NAFTA waives the need for employers in Canada to obtain confirmation from the Human Resources Development of Canada in regard to hiring US or Mexican businesspersons for a position in Canada.

A business visitor:

  • must enter Canada to take part in a specific activity listed in NAFTA, including technical or scientific research, attendance at a convention or trade fair, sales of products or services (but not delivery at the time) and after-sales service;

  • cannot seek to join the domestic labour market -- the principal source of remuneration remains outside the country the business visitor is entering; and

  • does not require an employment authorization (work permit).

A professional:

  • must be qualified to work in one of the more than 60 professions listed in NAFTA (e.g., accountants, computer systems analysts, engineers, and technical writers); and

  • requires an employment authorization (work permit).

An intra-company transferee:

  • must have been employed for at least one year in the preceding three-year period for the U.S. or Mexican employer who now wishes to effect the transfer;

  • must be transferred to Canada to work temporarily for the same or an affiliated employer;

  • works only at the executive or managerial level, or has specialized knowledge; and

  • requires an employment authorization (work permit).

A trader or investor:

  • is a businessperson carrying on substantial trade in goods or services principally between Canada and his/her country of citizenship, or is a businessperson conducting substantial investment activities in Canada, in a supervisory or executive capacity, or in a capacity that involves essential skills;

  • meets additional requirements under NAFTA; and

  • requires an employment authorization (work permit).

For more information on this topic, please consult our firm’s dedicated immigration website (

Real estate is a matter of provincial jurisdiction. Because all provinces other than Québec are governed by Common Law, the issues found and concepts applied in Canadian real estate in those jurisdictions would be familiar to most American practitioners. Under Québec’s Civil Law, the concepts are somewhat different, as is the nomenclature.
For example, “real property” in Common Law is called “immovable property” in Civil Law, “personal property” under Common Law is called “movable property” in Civil Law, and a “fixture” in Common Law is an “immovable by destination” in Civil Law. However, the distinctions go beyond mere nomenclature to the nature of the rights themselves.
A mortgage under Common Law is a dismemberment of title, and a mortgagor has a real right in the mortgaged real property. In Civil Law, the analogous encumbrance is called a hypothec, and the hypothecary creditor has only the rights set out in the CCQ (i.e., to take the hypothecated property in payment, which extinguishes the debt, or to have it seized and sold either by private or judicial sale, or to have it put under administration, which is similar to receivership).
Security on personal property in the Common Law provinces is governed by legislation resembling the U.S. Uniform Commercial Code provisions, with registration of a notice in the personal property security register of the jurisdiction in which the personal property is situate.
Security on movable property in the Province of Québec is granted by way of a movable hypothec, with or without delivery of the hypothecated movable property to the hypothecary creditor or its agent. Where there is delivery, the movable hypothec need not be published (registered). In all other circumstances, notice of movable hypothecs, as well as of leases for a term exceeding one year and of title retention agreements, must be published in the Registry of personal and movable real rights in order to be opposable to third parties (including the bankruptcy trustee of the debtor or grantor of the hypothec).
Similarly, a lease creates a real right under Common Law, but only a personal right in Civil Law.
Finally, other than the limited recognition of civil trusts under the CCQ, the distinction between beneficial and legal ownership is not truly recognized in Civil Law.

Corporate Law
In Canada, one may incorporate federally under the Canada Business Corporations Act (the “CBCA”), or provincially under the corporate statute of a particular province or territory. Other than the Province of Québec, most provinces have adopted Business Corporations Acts, which largely mirror the CBCA. The Québec Companies Act has been modernized under Part IA somewhat from its original letters patent basis, and in many respects resembles the CBCA, but there are important distinctions, the most crucial being the absence of a statutory oppression remedy.
Unlimited liability companies (ULC’s), which are similar to the U.S. limited liability companies (LLC’s), can be formed only in the Provinces of Nova Scotia and, more recently, Alberta. These entities permit flow-through treatment for profits and losses to their shareholders under U.S. tax law (and are sometimes known as “check the box” entities, on the basis of the election they can make to retain their corporate identity but be taxed as if they were partnerships). However, the Canadian versions do not provide limited liability protection as is the case in the United States, and it is therefore common practice to interpose a single-purpose holding corporation between the ULC and the true shareholder(s).
The Nova Scotia ULC (or NSULC) is based upon an older statute, and is more cumbersome than the more modern Albertan version, which was created under new legislation modeled on the CBCA (e.g., in Nova Scotia, amalgamation of a ULC with another entity requires court approval, whereas in Alberta it is done by filing articles of amalgamation with the government, like any other corporation). It is anticipated that the Alberta ULC, which also has the advantage of being significantly less costly to create and maintain than the NSULC, will become increasingly popular and may eventually replace the NSULC entirely.
Generally speaking, one would incorporate under the CBCA if one expects to carry on business in more than one Canadian province or territory. Alternatively, one would consider provincial incorporation if it is anticipated that the operations will be limited to that jurisdiction, as there are savings to be achieved by making corporate filings and otherwise complying only with the provincial rules, rather than filing annual returns and other notices at both the federal and provincial (or territorial) levels.
Any business not incorporated under the laws of a particular province or territory (including Canadian federal incorporations) must be registered or licensed if it wishes to carry on business in that jurisdiction. While the definition of ”carrying on business” varies slightly from one jurisdiction to another, there are usually factual tests based on having a physical presence there, such as having an office, employees who report to work there, a local telephone listing, etc., without the mind, management and control of the entity necessarily being there.

Charter of the French Language (Québec)
Pursuant to this statute, French is the official language in the Province of Québec, although other languages (e.g., English) may be used in certain circumstances and under certain conditions. Employees have the right to work in French, and knowledge of another language cannot be made a pre-requisite of employment unless it can be justified by the nature of the person’s duties and functions.
Workplace communication must be in French, although it may also be in other languages as well. Businesses having 50 or more employees must obtain a francisation certificate attesting to their use of French in the workplace, which must be confirmed by triennial reports. Businesses having 100 or more employees must establish a francisation committee composed of management and employees, with the mandate of ensuring French is used in the workplace as required.
Publicity and advertising must be in French, although it can also be in another language provided that the French version is predominant, as defined by regulation (e.g., larger type or otherwise more prominent in its appearance).
Markings on products intended to be sold in Québec must be in French and may be in other languages, and software offered for sale in Québec must be available in a French version upon no less onerous conditions.
The web site of any business being conducted in Québec, whether or not its head office is there and regardless of where the web site is controlled must operate in French (as well as in other languages, if so desired).
Finally, in order to obtain provincial registration to carry on business in the Province of Québec, the entity must register and operate under the French version of its name, unless the English element is trade-marked and it can be shown that it cannot be readily translated (e.g., “Second Cup” does not work as “Deuxième Tasse”), in which case the English trade-mark may be used but must be accompanied by a French element (e.g., “Café Second Cup”).

Consumer Protection Legislation
Each province has its own consumer protection legislation, which must be carefully examined if an American business which deals with the consumer market wishes to establish a Canadian presence.
Certain permits may be required, depending on the nature of the business, certain types of contracts must be made in writing and in some cases in a prescribed form, and consumers have certain statutory rights of rescission of certain types of contracts within certain delays.
The types of businesses governed by the Consumer Protection Act (Québec), by way of example, include contracts of sequential performance (e.g., education, fitness studios, etc.), contracts for the provision of credit, long-term leases of goods, contracts for the sale or repair of automobiles and motorcycles, and sales by itinerant vendors.

Franchise Legislation
Certain provinces, such as Ontario, have adopted specific legislation governing the operation of franchises and the relationships between franchisors and franchisees, including the imposition of disclosure requirements. These must be carefully considered if an American business is looking to establish a Canadian franchise, to ensure that the disclosure, contracts and ongoing relationship and operations comply with any applicable Canadian requirements.

© 2006 Robinson Sheppard Shapiro L.L.P.

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