doing business in canada - Davies Ward Phillips & Vineberg LLP

The Civil Code of Québec provides for a single form of consensual security: the hypothec (mortgage). Ahypothec is a charge on movable (personal) or immovable (real) property (which may include future property)which is granted to guarantee the performance of any obligation (present or future) and subsists so long as suchobligation continues to exist. Security interests created by hypothecs are set up against third parties bypublication in registries established for that purpose or by delivery of the property secured. Further publicationsare required in certain circumstances, such as a debtor name change.The federal government has authority to legislate over personal property security in limited areas such asshipping, railways and certain security taken by Canadian banks. Although the federal intellectual propertystatutory schemes do not deal comprehensively with the taking of security interests, security agreements cangenerally be filed against intellectual property with the Canadian Intellectual Property Office. If a debtor'sintellectual property is of significant value, a lender will generally register security against it both provinciallyand federally.SECURITIES LAWREGULATORY FRAMEWORKIn Canada, securities regulation is within provincial jurisdiction and each province and territory has securitiesregulatory legislation which is, broadly speaking, comparable to that of the United States. Although there aredifferences in the applicable legislation between jurisdictions, the regulatory regimes are generally similar andfurther harmonization initiatives are ongoing. The securities laws, regulations and rules and the policies of thesecurities commissions in Ontario and Québec are similar to each other in most respects. In addition, theCanadian federal government has recently released proposed federal securities legislation which, whenimplemented, would replace provincial legislation in those provinces which “opt in”. A number of provinces,including Ontario, support this federal initiative, although others (including Québec) oppose it.A "security" is broadly defined in Ontario securities legislation as, among other things, any documentevidencing title to or an interest in the capital, assets, profits or property of a person or company. In addition, anumber of different types of agreements and instruments involving monetary consideration are specificallyincluded in the definition of "security", including, among other things, notes, stocks, bonds, debentures,certificates of interest, transferable shares and options or any option, subscription or other interest in or to asecurity. Depending on the circumstances, both equity and debt financing instruments may come within thedefinition of "security" and may therefore be subject to applicable provincial securities legislation.Any person or corporation engaged in the business of trading or giving advice regarding securities must beregistered under the relevant provincial securities legislation unless an exemption from this requirement isavailable.Generally, in each Canadian jurisdiction, a distribution of securities must be qualified by a prospectus that isfiled with and cleared by the relevant securities regulatory authority, unless an exemption from this requirementis available. A distribution of securities includes, among other things, a trade by an issuer in previously unissuedsecurities and a trade in securities from a person who is a "control person" in respect of the issuer. A person ispresumed to be a "control person" in respect of an issuer if that person holds more than 20% of the votingrights attached to the securities of the issuer. In addition, securities legislation in the various Canadianjurisdictions deems certain trades in securities that were previously acquired under an exemption from theprospectus requirements, called "first trades", to be distributions. Securities of an issuer that is a reportingissuer under Canadian securities laws (that is, an issuer that is subject to periodic reporting requirements) thatwere acquired under an exemption from the prospectus requirements are generally freely tradable, dependingon the exemption relied upon, after a four-month hold period.Financing a Business Operation 27