doing business in canada - Davies Ward Phillips & Vineberg LLP

apply for Canadian citizenship. (Permanent residents may apply for Canadian citizenship after three years inCanada.)The rules for determining whether a corporation is a "Canadian" under the ICA are complex and essentiallyrequire a determination of whether the individuals who are the ultimate controlling shareholders of thecorporation are "Canadians". Where shares in a corporation are owned by a partnership, joint venture or certaintrusts, the ICA deems such shares to be owned by the partners, joint venture members or beneficiaries. This"look through" principle does not apply to corporations.Determining whether shareholders are Canadian may be practically impossible in the case of a widely-heldcorporate acquiror, in which case the determination may be based on the citizenship or permanent residentstatus of the members of the board of directors of the acquiror. In this case, a corporation would be "Canadian"only if it is not controlled in fact through ownership of its voting shares and at least two-thirds of the membersof its board of directors are Canadians.There are also special rules for determining whether partnerships and trusts are "Canadian"."ACQUISITION OF CONTROL"The ICA includes detailed provisions defining the concept of an "acquisition of control". In summary, theseprovisions provide that control can be acquired only through the acquisition of (i) voting shares of a corporation;(ii) "voting interests" of a non-corporate entity (which for partnerships and trusts means an ownership interestin the assets of the entity that entitle the owner to receive a share of the profits and to share in the assets ondissolution); or (iii) all or substantially all of the assets of a Canadian business. The acquisition of shares of anon-Canadian company with a Canadian division, but no Canadian subsidiaries, is not an "acquisition of control"of a Canadian business within the meaning of the ICA.For the purposes of determining whether an investor has acquired control of a corporation, the followinggeneral rules apply:• acquisition of a majority of voting shares is deemed to be acquisition of control;• acquisition of one-third or more, but less than a majority of voting shares is presumed to be acquisitionof control, unless it can be shown that the acquired shares do not give control in fact to the investor;and• acquisition of less than one-third of voting shares is deemed not to be acquisition of control.Similarly, for the purposes of determining whether an investor has acquired control of a non-corporate entity,the following general presumptions apply:• acquisition of a majority of voting interests is deemed to be acquisition of control; and• acquisition of less than a majority of voting interests is deemed not to be acquisition of control.Foreign Investment 41