Article

Top 10 Considerations for Australians  Acquiring a Canadian Business

Top 10 Considerations for Australians Acquiring a Canadian Business

By Karyn Bradley and Vanessa Grant, Gowlings | January 14, 2014

1.    We Both Speak English, but Our Accents are Different

  • Don’t assume things are just the same in Canada
  • Make sure you are clear on the provincial jurisdictions in which the seller does business
  • Nine provinces and three territories are common law jurisdictions
  • One province (Quebec) is a civil law jurisdiction

2.    Actually, We Also Speak French

  • In Quebec, in addition to the nuances of civil law, there are legally mandated French language provisions

3.    Employees Have More Rights than You Might Think

  • Consider your integration planning with respect to Canadian employees when you are negotiating the deal
  • If you are terminating employees, you should consider whether to factor employee termination costs into your purchase price
  • There is no concept of “at will” employment in Canada and Canada is an “employee friendly” jurisdiction

4.    Tax is Inevitable

  • Focus on tax planning early and often, both as part of the transaction and as part of your integration planning
  • The good news is that corporate tax rates in Canada are generally lower than US tax rates
  • The bad news is that Canadian resident corporations are taxable on their worldwide income from every source
  • Don’t just concentrate on income tax, but consider transfer pricing, commodity taxes, import-export duties associated with the business, etc.

5.    We Protect Our Culture

  • Foreign investment legislation is designed to encourage foreign investment on terms that are beneficial to Canada
  • Watch out for business which may be “cultural businesses”, which include book publication, film production, music publication etc.
  • Generally, if a “cultural business”, the transaction will be reviewed if a transaction exceeds $5 million

6.    Due Diligence Considerations

  • Privacy
    • Under Canadian privacy legislation, you can’t disclose “information about an identifiable individual” to a third party without consent, even if you have a non-disclosure agreement
    • For due diligence purposes, this makes it difficult to diligence employees
    • Practical solutions include disclosure of title, length of service and compensation, but not employee names, ages, etc.
  • Regulatory
    • Regulation is different in Canada in a number of industries
    • Confirm regulatory compliance early; we have seen steep reductions in the purchase price at the last minute because the regulatory approvals were not in order
  • IP
    • Creators of IP have “moral rights” in Canada – a concept that does not exist in the US.  (It’s not as interesting as it sounds)

7.    Approvals to Get the Deal Done

  • Ensure you are clear on what shareholder or other owner approvals are required in order to complete the acquisition and the related timing issues
  • Corporate approval thresholds for fundamental transactions vary from province to province
  • Certain types of fundamental change may require giving shareholders a right to be paid the fair value of their shares in cash if they “dissent”
  • There may also be a shareholder agreement which adds another lawyer of corporate approvals

8.    Bringing Your Employees Across the Border

  • Come on up! Intra-company transferees are generally permitted to work in Canada for a three to seven year period, depending on the type of employee (specialized or executive, for example)
  • Consider this in connection with your integration planning, as certain corporate and ownership rules need to be met

9.    What about Advertising?

  • Unlike certain special provisions in the US, use of competitor’s logos or packaging in comparative advertising Is largely prohibited in Canada

10.    Hey! Why Don’t I Use My Regular Lawyer for This Deal

  • Leaving aside the different laws, Canadian (local) lawyers will add value by knowing the local environment, the local market for deal terms and, sometimes, the business folks on the deal

 

Karyn Bradley is the Office Managing Partner in Gowlings' Toronto office. She is a Partner in the Business Law Group and chair of the National Precedents Committee. karyn.bradley@gowlings.com

Vanessa Grant is a business law partner in Gowlings’ Toronto office. Her practice focuses on corporate finance, mergers and acquisitions, corporate governance and private equity. vanessa.grant@gowlings.com

Gowling Lafleur Henderson LLP is one of Canada's leading diversified law firms  with more than 2,000 people, including more than 750 legal professionals, in offices across Canada, and in Beijing, Moscow and London  www.gowlings.com

 

 

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When I heard The MBO Group had done such a great job helping one of my key suppliers arrange for the managers to buy their business from the US parent – I asked The MBO Group to help me find and buy businesses as part of my expansion. Within 8 months we completed two transactions and another one 4 months later. [read full testimonial]

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