What is the Investment Canada Act? Part Two: Acquiring a Canadian business

When a foreign investor purchases assets or voting interests of a corporation, partnership, trust or joint venture in order to take control of a Canadian business, they may be required to file either a notice or application for review and approval.

This requirement is dependent on the circumstance at hand, and there are numerous exceptions outlined under the Investment Canada Act. If the transaction falls within one of the general exceptions under the Act, neither obligation will arise. These general exceptions include:

  • The purchase of less than one-third of the voting shares of a corporation carrying on a Canadian business.
  • The acquisition of control of a Canadian business through the realization of security for a loan.
  • A change, through a corporate reorganization, in the immediate control of a Canadian business, but not a change in ultimate control.

If a foreign investor purchases the control of a Canadian business, it will be subject to a pre-closing review under the Investment Canada Act in cases where none of the exceptions apply and the business being purchased possesses assets that exceed outlined limits. The review threshold, outlined by the World Trade Organization (WTO), is adjusted annually and was set at $1 billion on June 22, 2017.

Indirect acquisition of a Canadian business

The Investment Canada Act treats indirect acquisitions of control differently.

A transaction is not reviewable if either the seller or the purchaser is WTO-controlled—unless it involves the acquisition of control of a Canadian company that is a cultural business—if control of a corporation, partnership, trust or joint venture carrying on a Canadian business is acquired indirectly from the sale of its larger parent corporation. The review threshold of the transaction is $50 million in book value of assets of the Canadian business if neither the seller nor the investor is controlled by the WTO. However, the review threshold is adjusted to $5 million in book value of assets if the assets of the Canadian business represent more than 50 percent of those involved in the transaction.

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