Contracts and Compliance: Legal Essentials for a Successful Business Purchase in Canada

October 3, 2023

Navigating the complex world of business purchases in Canada?

 

In this article, we will explore the key considerations and requirements you need to know about contracts and compliance in Canada.

 

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By familiarizing yourself with the regulatory landscape, navigating the Investment Canada Act, addressing cultural business and post-COVID policies, complying with the Competition Act, and managing labor and employment considerations, you can confidently navigate the legal aspects of your business purchase.

 

Understanding the Regulatory Landscape

 

You should be aware that each province and territory in Canada has jurisdiction over securities regulation. Securities laws are similar across most jurisdictions, with a uniform approach provided by National Instruments and Multilateral Instruments.

 

These instruments help ensure consistency in securities regulation across the country. When it comes to distributing securities, a prospectus or exemption is required.

 

Navigating the Investment Canada Act

 

Whether you’re planning to buy a business in Mississauga, British Columbia or anywhere in Canada, it is important to be aware of the thresholds that determine whether notification or review under the Investment Canada Act is required.

 

If a transaction is deemed reviewable, it requires approval from the applicable Minister. Factors such as the parties involved, investment value, and type of Canadian business are considered in determining reviewability.

 

The Act applies to non-Canadians who want to acquire control of Canadian businesses. The definition of a Canadian business is broad and includes businesses with a place of business or assets in Canada.

 

It is important to understand these thresholds and requirements to ensure compliance with the Investment Canada Act when acquiring a Canadian business.

 

Complying With the Competition Act

 

Investors should be aware that mergers may be subject to review under the Competition Act if they substantially prevent or lessen competition. The Competition Act is Canada’s federal legislation on competition law. It includes notification requirements and substantive merger review.

 

The Competition Tribunal has the authority to order the dissolution or prevention of a merger if it is found to have a negative impact on competition. However, it is important to note that efficiency gains may be taken into consideration when assessing the impact of a merger.

 

This means that if the merger can lead to increased efficiency, it may still be allowed even if it has some negative impact on competition.

 

Post-Covid Business Acquisition Policies

 

As Canada navigates the post-Covid economic revival, its business acquisition policies have seen significant modifications to stimulate growth and steady recovery.

 

The government has been proactive, introducing measures to strengthen screening of foreign direct investments, particularly those that could open risks to critical supply chains and infringe upon Canada’s ability to combat potential health crises.

 

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Key sectors, such as healthcare and technology, are under increased scrutiny to safeguard national interests. Simultaneously, regulations related to competition, security reviews, and creditor protection have become more stringent in this new milieu.

 

The goal is to balance the need for attracting foreign investment and the necessity to protect domestic entities, thereby ensuring that Canada’s post-Covid business acquisition landscape is set on a robust and resilient foundation.

 

Managing Labor and Employment Considerations

 

To effectively manage labor and employment considerations, it’s important for you to understand the differences in employment laws between provinces and territories in Canada.

 

Each province and territory has its own set of regulations and minimum notice requirements for termination of employment.

 

Quebec, in particular, has significant differences in its employment laws compared to other regions. It’s crucial to be aware of these variations when navigating labor and employment matters during a business purchase.

 

In share purchases or amalgamations, the identity of the employer remains unchanged, but in asset purchases, there is a change in the employer’s identity. Asset purchases offer flexibility for the purchaser to select which employees to retain and under what terms.

 

Conclusion

 

To sum up, it’s clear that a comprehensive understanding of contracts, compliance, and regulatory adjustments is key to navigate this complex landscape of business acquisition in Canada.

 

Even more so, in the post-Covid era where both opportunities and challenges have been reshaped. Your business acquisition journey in Canada, though filled with legalities and ever-evolving policies, can be immensely rewarding if handled accurately.

 

Equipped with the knowledge, you are better prepared to strike the right balance between entrepreneurial passion and statutory obligations. Always remember that informed decisions today lay the groundwork for business success tomorrow.

 

FAQs

 

Q: What Are the Penalties for Non-Compliance With Securities Laws in Canada?

 

If you don’t comply with securities laws in Canada, you may face penalties. These can include fines, imprisonment, or regulatory sanctions. It’s important to understand and follow the rules to avoid these consequences.

 

Q: Are There Any Specific Industries or Sectors That Are Exempt From the Review Requirements Under the Investment Canada Act?

 

No, there are no specific industries or sectors exempt from the review requirements under the Investment Canada Act. All non-Canadian acquisitions of Canadian businesses are subject to notification or review.

 

Q: How Does the Cultural Business and post-COVID-19 Policy Impact Foreign Investments in Canada?

 

The cultural business and COVID-19 policy in Canada affects foreign investments by increasing scrutiny on investments related to public health or critical goods and services. State-owned enterprises and investors tied to foreign governments also face enhanced scrutiny.

 

Q: What Factors Are Considered When Determining Whether a Merger Will Substantially Lessen Competition Under the Competition Act?

 

When determining if a merger will substantially lessen competition under the Competition Act, factors such as the impact on market share, barriers to entry, and the ability to exercise market power are considered.

 

Q: Can an Employer Unilaterally Change the Terms and Conditions of Employment After a Business Purchase?

 

Yes, an employer can unilaterally change the terms and conditions of employment after a business purchase. However, such changes can constitute constructive dismissal, and new consideration must be provided regardless of the type of purchase.

 

Q: Do I need a lawyer to manage the legal formalities of business acquisition in Canada?

 

While it’s not a legal mandate to have a lawyer, it’s highly advisable to engage professional legal help during a business purchase in Canada. Given the complexity of the process, a lawyer with expertise in this sector can provide invaluable guidance. They can help minimize risks, negotiate deals, ensure adherence to all legal requirements, and protect your interests throughout the acquisition process. Therefore, having a lawyer can significantly simplify your business buying journey.

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