U.S. Private Equity and VC Investments in Canada - Stikeman Elliott

circumstances (the CBCA being broader than the OBCA). For
example, whether or not it otherwise carries voting rights, each share
of a CBCA corporation has a statutory right to vote in respect of a
number of events, including (among others) a long-form
amalgamation, “export” (continuance) to another jurisdiction and
the sale, lease or exchange of all or substantially all of the
corporation’s property. In addition, both the CBCA and the OBCA
also provide for class or series votes in certain circumstances.
Election of Directors
Holders of preferred shares or of a particular class or series of
preferred shares often negotiate the right to elect a specified
number of directors to the board of directors. Alternatively,
investors sometimes simply provide for a separate class or series
vote of preferred shareholders with respect to the election of
directors. In Canada, this type of provision is usually found in a
Unanimous Shareholder Agreement (see pages 17-19), rather than
in the articles. However, “nominee” directors in Canada are bound
by the basic duty – applicable to all directors – of acting in the best
interests of the corporation as a whole. This is so even where that
interest diverges from the interest of those who nominated the
director. Directors’ obligations are discussed below at pages 19-21.
It should also be noted that a number of Canadian corporate statutes
have residency restrictions on directors – for example, the CBCA
requires that at least 25% of the members of a board be resident
Canadians and the OBCA that resident Canadians comprise a majority
of the board (or, one of two in the case of an Ontario corporation with
only two directors). Notable exceptions include the New Brunswick
Business Corporations Act (NBBCA) – a CBCA-type statute – and the
Nova Scotia Companies Act (NSCA), which is based on the English
“memorandum and articles of association” model. OBCA and CBCA
corporations are often “continued” under the NBBCA or NSCA where
Canadian director requirements become an issue. “Continuance” is
generally a simple, quick and tax-neutral transaction.
Other director residency restrictions exist with respect to certain
regulated industries. For example, the federal Telecommunications
Act requires that at least 80% of the directors of a common carrier
must be resident Canadians.
STIKEMAN ELLIOTT LLP: U.S. PRIVATE EQUITY AND VC INVESTMENTS IN CANADA
9