Types of Business Organisations

Businesses may operate in Canada as limited liability corporations (referred to as “companies” or “corporations”), unlimited liability corporations (though these are not available in all Canadian jurisdictions), co-operative corporations, general partnerships, limited partnerships, limited liability partnerships, sole proprietorships, and trusts (used as holding entities for investment purposes).

Corporations may incorporate federally under the Canada Business Corporations Act (CBCA) or provincially under statutes such as the British Columbia Business Corporations Act (BCBCA) or Ontario Business Corporations Act (OBCA). Federal corporations benefit from stronger name protection than their provincial counterparts; however, once incorporated, all corporations must register extra-provincially in each province and territory in which they do business.

Choice of Business Structure

Governance rights, financial participation rights, liability management and tax considerations are the primary factors that drive the choice of structure for most businesses. For example, sole proprietors may benefit from flow-through taxation, which allows business losses to offset personal income for income tax purposes. However, sole proprietors are personally responsible for all debts and obligations of their business. By contrast, where a corporation is used, a corporate shareholder’s liability is limited to their invested capital, and the corporation is taxed as a separate entity. Potential liability concerns associated with employment and ownership of assets will also influence the structure; where a corporation is used, the corporation acts as the employer and registered property owner, limiting personal liability of the business operator for associated claims.

Incorporation Requirements

While incorporation requirements vary by province, typically the first step is to reserve a name with the applicable corporate registry. If no name is desired, a corporate number, assigned by the corporate registry, may be used as the company name.

Once a name has been reserved, typically the incorporator must electronically file an incorporation application, which includes information concerning the name, registered office, directors and authorised capital structure of the company. The prescribed government filing fee varies by jurisdiction. Once filed, incorporation is quick; in British Columbia it takes effect as soon as the incorporation application is submitted, whereas federal and Ontario incorporations are typically approved within one business day.

Every corporation must have a registered and records office in its jurisdiction of incorporation. Registered and records office services are typically provided by law firms or accounting firms.

Ongoing Corporate Compliance

Corporate registries require annual reports to be filed but the information included varies between jurisdictions; required information includes the corporation’s current directors, officers, registered and records office, and, in some jurisdictions, the date of the last annual general meeting of the company (which must be held each calendar year). For BC, Ontario and federal corporations, any change in directors must be filed with the corporate registry within 15 days. Shareholder information is not filed with corporate registries in most Canadian jurisdictions, but there is a requirement to maintain a register of significant individuals, as described further in 1.5 Control Person Reporting.

Creation, Issuance and Alteration of Share Capital

Equity interests in Canadian corporations are represented by the issuance of shares. At incorporation, the corporation is required to set out its intended authorised share structure, specifying the name of each class of shares, the maximum number of shares of each class issuable by the corporation, whether the shares have a par value, and whether any special rights and restrictions are attached to each class. In some Canadian jurisdictions, a corporation may have an unlimited number of shares, which, if properly structured, eliminates the need to create additional shares each time shares are required to be issued.

In most Canadian jurisdictions, shares are without par value; ie, there is no minimum price at which shares must be issued and redeemed. British Columbia, Nova Scotia, Prince Edward Island, Quebec, and Yukon allow corporations to issue shares with or without par value. Where a class of shares has a par value, shares of that class must be issued at a price equal to or greater than the par value.

Shares cannot be issued unless the corporation has received full consideration for them; this usually means that shares cannot be paid for by way of promissory note or a promise of future services.

Key Considerations in Structuring Share Classes

By statute, all shares are deemed to carry the same rights unless stated otherwise in the constating documents of the corporation. Therefore, when structuring multiple classes of shares, it is important to differentiate between them by considering the voting rights, dividend rights, liquidation preferences, and redemption and retraction rights for each class. The special rights and restrictions must be set out in the constating documents and can usually only be amended by shareholder approval.

The ability of a corporation to declare and pay a dividend, redeem shares, or repurchase shares is regulated by the laws of the jurisdiction of incorporation, the corporation’s constating documents, and any applicable shareholder agreement. In most jurisdictions, the power to declare dividends, redeem and repurchase shares is held by the board of directors, but this power can be varied by way of shareholder agreement.

Typically, the ability to pay a dividend is subject to the directors of the corporation having determined that payment of the dividend will not render the corporation unable to pay its debts as they become due.

In order to increase transparency over beneficial ownership and expose and deter criminal activity, money laundering, and tax evasion, private corporations in all Canadian jurisdictions except Alberta, Northwest Territories and Nunavut are required to maintain a register of individuals with significant control (ISC). An ISC is an individual who directly or indirectly owns or controls at least 25% of the shares of the corporation, although the specific definition varies by jurisdiction.

The requirement to maintain an ISC register is relatively new in Canada, following similar developments in various European jurisdictions. At present, most Canadian provinces and territories allow such registers to be maintained privately, such that they are only accessible to directors of the corporation and applicable government agencies. However, the federal corporate registry now maintains a publicly searchable registry in respect of federally incorporated corporations. A similar initiative is underway in British Columbia, although the implementation date is not yet known.

Corporate governance in Canada is governed by a combination of federal and provincial corporate statutes and, for public corporations, provincial and territorial securities legislation and applicable stock exchange requirements. The applicable corporate statute generally depends on the corporation’s jurisdiction of incorporation. Although securities regulation is administered provincially and territorially, most governance requirements for public corporations are substantially harmonised across Canada.

This fundamental governance framework contemplates matters such as board powers, directors’ duties, conflicts of interest and shareholder remedies for corporate misdeeds. Public corporations are subject to additional securities disclosure and governance requirements, with National Policy 58-201 – Corporate Governance Guidelines and National Instrument 58-101 – Disclosure of Corporate Governance Practices providing a framework for recommended practices. Private corporations, however, have greater flexibility and are governed by their applicable corporate statute, constating documents and shareholder agreements.

Under Canadian corporate law, the principal fiduciary duty of directors is to act honestly and in good faith with a view to the best interests of the corporation. This fiduciary duty includes obligations to appropriately address conflicts of interest and to avoid improperly using corporate opportunities, property or confidential information for personal benefit.

The Supreme Court of Canada set out the core legal principles applicable to directors’ duties in two landmark cases, Peoples Department Stores Inc. (Trustee of) v Wise (2004) and BCE Inc. v 1976 Debentureholders (2008), which have been codified in the CBCA. In this regard, it is important to note that Canadian law treats director responsibilities differently than US law. Directors of a Canadian corporation owe their fiduciary duties to the corporation itself rather than to any single group such as shareholders, creditors or employees. In determining the corporation’s best interests, directors may, however, consider the interests of shareholders and other stakeholders, including employees, retirees and pensioners, creditors, consumers and governments, as well as the environment and the long-term interests of the corporation. Canadian courts will generally defer to directors’ business decisions where the directors have acted prudently, on a reasonably informed basis and within a range of reasonable alternatives.

Directors’ standard of care is an objective standard pursuant to which directors must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Directors are generally not personally liable if a corporation incurs a loss or fails to fulfil a contract. However, directors may be held personally liable for breach of fiduciary duty/duty of care, statutory liabilities, tortious conduct, or fraud.

For private corporations, board composition is primarily governed by the applicable corporate statute, constating documents and any shareholder agreement. All companies require at least one director, while public companies must have at least three. Although most Canadian jurisdictions do not have director residency requirements, at least 25% of the directors of a federally incorporated corporation must be resident Canadians, or, if the corporation has fewer than four directors, then at least one must be a resident Canadian.

There is no statutory requirement for independent directors for private companies. However, federally incorporated distributing corporations are subject to diversity disclosure requirements relating to their boards and senior management, on a comply-or-explain basis.

Canadian securities laws impose additional governance guidelines for public companies, including recommendations that a majority of directors (including the chair) be independent, and that audit committees be composed of at least three members, each of whom must be independent and financially literate.

Canada does not currently have a mandatory ESG, sustainability or climate-related reporting regime applicable to all corporations. ESG-related obligations arise from a combination of securities laws, sector-specific regulation and laws of general application.

The Canadian Sustainability Standards Board has issued Canadian Sustainability Disclosure Standards, which are aligned with the International Sustainability Standards Board framework. These standards are voluntary and do not themselves create mandatory disclosure obligations.

Certain federally regulated financial institutions are subject to climate-related governance, risk management and disclosure requirements under the Office of the Superintendent of Financial Institutions’ Guideline B-15 – Climate Risk Management. In addition, the Competition Act regulates false or misleading environmental representations and imposes requirements relevant to certain environmental benefit claims, creating potential liability in relation to “greenwashing”.

Under securities law, reporting issuers must disclose material environmental, climate-related and other ESG risks in the same manner as other material information, including through their annual information forms, MD&A, financial statements and other continuous disclosure documents.

As a matter of good governance and risk management, boards should ensure that material ESG and sustainability matters are properly identified, assessed and integrated into the corporation’s overall strategy and risk-management framework.

Canadian corporate law generally requires an interested director or officer to disclose their material interests in material contracts or transactions involving the corporation. Interested directors are generally restricted from voting on the relevant matter, subject to specific statutory exceptions. Failure to comply with these requirements may affect the transaction and expose the interested director or officer to potential liability.

Public companies may also be subject to securities law requirements governing related-party transactions, including a requirement for enhanced disclosure, an independent formal valuation and/or approval by disinterested minority shareholders. Private companies generally have fewer disclosure requirements, although the applicable corporate statute, constating documents and any shareholder agreement may impose approval or procedural requirements.

Shareholder rights in Canada are set out under the corporate statute of a corporation’s jurisdiction of incorporation. Although the principal corporate statutes are broadly similar across Canada, there are important differences from jurisdiction to jurisdiction. The discussion below generally describes the position under the CBCA and comparable provincial corporate statutes.

Voting Rights

Holders of voting shares generally have the right to vote on key corporate matters. Each voting share typically carries one vote at shareholder meetings. In certain circumstances, holders of otherwise non-voting shares may also have statutory voting rights. Shareholders may vote in person or by proxy. Typical matters voted on by shareholders include:

• election of directors;
• appointment of auditors or, where permitted, dispensing with appointment of auditor;
• approval of certain shareholder proposals; and
• approval of fundamental changes to the corporation.

A corporation may restrict a shareholder’s right to vote on certain matters by creating classes of shares with different voting rights and restrictions.

Access to Information

Shareholders have the right to receive certain corporate information including:

• annual financial statements;
• specified corporate records including the articles, by-laws, minutes of shareholders’ meetings and certain corporate registers; and
• financial disclosures for public companies.

The scope of a shareholder’s access to information can also vary depending on the class of shares they hold.

Approval of Fundamental Changes

Shareholders generally have the right to approve major corporate changes and transactions. For certain fundamental changes (such as amalgamations, continuations, liquidation, dissolution and the disposition of all or substantially all the assets of the corporation), the CBCA requires approval by a special resolution of the shareholders which is typically at least two-thirds of the votes cast by voting shareholders.

In certain situations, shareholders that would normally not have voting rights due to their class of shares will have a right to vote if the fundamental change would disproportionately affect their share class.

Other Rights

Other rights may include the right to receive dividends when declared by the directors, and the right to participate in distributions of the corporation’s remaining property on dissolution, again subject to the rights and priorities attaching to the corporation’s share classes.

Statutory Remedies

Statutory remedies available to shareholders include the following:

• Dissent Rights: Shareholders who dissent from certain specified fundamental changes may, if they comply with the applicable statutory procedures, require the corporation to purchase their shares for their fair value.
• Oppression Remedy: This is a particularly important Canadian remedy. A “complainant” may seek relief where corporate conduct is oppressive, unfairly prejudicial to, or unfairly disregards the interests of, a security holder, creditor, director or officer. Canadian courts have broad remedial discretion, and the analysis commonly focuses on the complainant’s reasonable expectations.
• Derivative Actions: Shareholders may, with leave of the court, bring or defend an action in the name and on behalf of the corporation where the corporation itself has failed to do so. Typical grounds for a derivative action include breach of fiduciary duty, conflicts of interest or fraud by its directors or officers.
• Winding-Up/Dissolution Applications: In certain situations, such as a lengthy shareholder deadlock, shareholders can apply to the court to have the corporation dissolved. Courts generally view this remedy as drastic and will typically only grant it where less severe remedies do not adequately address the issue.

In Canada, shareholder agreements are commonly used to supplement corporate statutory requirements and to safeguard the investments of shareholders. Shareholder agreements are especially prevalent in closely held private corporations where shareholders desire greater certainty regarding governance, ownership and exit rights.

Common shareholder agreement provisions include:

• special shareholder approvals required for fundamental changes;
• rules regarding director appointments and board composition;
• pre-emptive and anti-dilution rights with respect to the issuance of new shares;
• buy/sell mechanisms;
• dispute resolution procedures;
• processes for dealing with retirement, death and disability of shareholders;
• non-competition, non-solicitation and confidentiality provisions; and
• valuation methods.

Shareholders in private companies can also use shareholder agreements to control and restrict who can become a shareholder. Common transfer restrictions include tools such as rights of first refusal, pre-emptive purchase rights, shotgun buy-sell provisions, and tag-along and drag-along rights.

Shareholder agreements are generally recognised and enforced by courts as legally binding contracts.

Unanimous Shareholder Agreements and Provincial Considerations

Under the CBCA and certain other provincial statutes, all shareholders may enter into a unanimous shareholder agreement (USA) that restricts, in whole or part, the powers of the directors to manage or supervise the management of the corporation. To the extent that a USA transfers such powers from the directors to shareholders, the shareholders assume the corresponding rights, powers, duties and liabilities of the directors. A USA must be executed by all shareholders for it to be effective.

In contrast to the CBCA and other provincial legislation, the Business Corporations Act (British Columbia) does not recognise the statutory concept of a USA. Instead, the articles of a British Columbia company may transfer, in whole or in part, the powers of the directors to one or more other persons.

Dispute Resolution

The legal mechanisms and remedies for resolving shareholder disputes in Canada are generally described in 3.1 Shareholder Rights. In addition, a corporation may include dispute resolution provisions in its shareholder agreement stipulating that any disputes be resolved through mediation or arbitration.

The mechanisms for solving partnership disputes depend on the partnership agreement, nature of the dispute and the applicable provincial partnership legislation. Such disputes are commonly addressed through a combination of contractual remedies, alternative dispute resolution methods and court proceedings where necessary.

In Canada, M&A and takeover bids (the Canadian equivalent of tender offers) are governed by the following legal regimes:

• federal and provincial corporate statutes;
• provincial securities laws;
• stock exchange rules;
• the federal Competition Act which provides the Competition Bureau the power to challenge transactions that are likely to substantially lessen or prevent competition;
• the federal Investment Canada Act which governs investments in Canadian businesses by non-Canadians;
• industry-specific regulations in which the target operates, for example, sectors such as banking, insurance and transportation; and
• contract law.

Structural Considerations

The key structuring considerations for public and private M&A transactions in Canada are driven by several factors including:

• whether the target is public or private;
• whether the transaction is friendly or hostile;
• the proposed ownership percentage;
• tax implications;
• regulatory approvals;
• financing;
• minority shareholder protections;
• timing; and
• deal certainty.

The choice of structure is particularly significant in public M&A. Friendly acquisitions are commonly completed by a statutory plan of arrangement, while a takeover bid involves an offer directly to shareholders and may be used in either a negotiated or unsolicited transaction. Amalgamations and other statutory transaction structures may also be used.

• Plans of Arrangement: A plan of arrangement is the most commonly used structure for negotiated public M&A transactions because of its flexibility and ability to facilitate the acquisition of 100% of a target in a single transaction. The arrangement is governed by the corporate statute of the target’s jurisdiction of incorporation and is subject to court supervision. The target first obtains an interim court order establishing procedural matters. Following the required shareholder approval, the target applies for a final court order approving the arrangement.
• Statutory Amalgamations: An amalgamation occurs when two corporations amalgamate into a single entity pursuant to the relevant corporate legislation. Amalgamations allow for the immediate combination of operations and require shareholder approval.

Private company acquisitions are typically structured as the acquisition of the shares in the target, or the acquisition of assets from the operating entity.

• Share Purchases: In a share purchase, the purchaser acquires the shares of the target from its shareholders. The target corporation continues to own its assets and remains responsible for its liabilities, with the purchaser indirectly acquiring the economic benefit and risk associated with those assets and liabilities through its ownership of the target.
• Asset Purchases: In an asset purchase, the purchaser acquires specified assets directly from the target and generally assumes only those liabilities expressly agreed to be assumed, subject to liabilities that may transfer by operation of law.

Takeover Bids

In Canada, a takeover bid is the equivalent of a tender offer and occurs when a purchaser makes an offer directly to the target’s shareholders to acquire their shares. Subject to specified exemptions, the takeover bid regime generally applies where an offer would result in the bidder and its joint actors beneficially owning 20% or more of the outstanding securities of a class of voting or equity securities. Takeover bids require adequate disclosures to be made to the target’s shareholders and generally include (i) a takeover bid circular setting out the conditions of the bid; and (ii) a directors’ circular from the target board within 15 days after the date of the bid. Bids must be made equally to all holders of the class. A takeover bid must generally remain open for at least 105 days, though this may be shortened in certain circumstances.

More than 50% of the shares owned by persons other than the bidder and its joint actors must be tendered to the bid before the bidder can acquire any securities tendered.

Recent Developments

Recent changes to the Competition Act and the Investment Canada Act have had significant impacts on M&A practices. For more information, please see 8.1 Competition and Merger Control and 8.2 Foreign Investment Restrictions and Sector-Specific Rules.

Canadian courts continue to play an important role in developing M&A law, particularly in relation to directors’ duties, shareholder remedies, contested transactions and the approval of plans of arrangement. Although corporate statutes differ among federal and provincial jurisdictions, Canadian courts frequently consider jurisprudence from other Canadian jurisdictions where the statutory provisions and underlying principles are similar.

Regulatory Framework

Rather than a single national securities regulator, securities regulation in Canada is governed at the provincial/territorial level, with each jurisdiction maintaining its own securities legislation. However, the Canadian Securities Administrators (CSA) acts as an umbrella agency, co-ordinating and harmonising securities regulation across jurisdictions, while the Canadian Investment Regulatory Organization (CIRO) oversees trading activity on Canadian equity and debt marketplaces.

While securities regulation is largely harmonised, jurisdiction-specific differences remain and must be considered when offering securities in Canada.

There are several stock exchanges in Canada, with the Toronto Stock Exchange (TSX) being the most senior exchange. Stock exchange listing requirements and securities regulation operate as two overlapping layers of regulation, and a public company, as a reporting issuer, must generally comply with both. Exchange rules supplement, rather than replace, securities law.

Fundamental Securities Principles

The Canadian securities regime is based on two pillars: registration of market participants, and prospectus disclosure.

Registration requires persons who are in the business of trading in securities to register under provincial securities statutes. Registration includes educational, as well as “know your client” and ongoing compliance components. While the test for determining whether a person is “in the business of trading” is multifaceted, generally if a person is compensated for trading activity, they are deemed to be in the business of trading.

The second pillar of the securities regime is the disclosure of information to prospective investors via a prospectus. Prospectus reviews are conducted by the principal regulator of the applicable reporting issuer. There are additional, ongoing disclosure requirements which are addressed further below.

Securities offerings may be made without a prospectus where an issuer relies on a prospectus exemption. Common exemptions include:

• the accredited investor exemption, which covers certain institutional and high net worth individual investors;
• the private issuer exemption, which applies to closely held issuers that offer to a specified group of permitted purchasers;
• the family, friends and business associates exemption, which facilitates early-stage private company investments from specified individuals; and
• the offering memorandum exemption, which allows for broader capital raising subject to prescribed disclosure requirements.

For non-reporting issuers that issue securities under an available prospectus exemption, the securities may be subject to an indefinite hold period unless another prospectus exemption is available for the resale. For reporting issuers, such securities may be subject to hold period rules. Non-compliance carries significant regulatory and even criminal consequences.

The continuous disclosure regime applicable to reporting issuers is largely set out in National Instrument 51-102, which requires reporting issuers to provide timely and periodic disclosure, including annual and interim financial statements, management’s discussion and analysis, annual information forms, business acquisition reports, information circulars, executive compensation disclosure and material contracts.

A key obligation for issuers is the timely disclosure of material changes to its business, operations or capital. When a material change occurs, the issuer must promptly disseminate a news release and file a material change report within the prescribed timeframe. Listed issuers must also comply with applicable stock exchange timely disclosure requirements. These obligations are, for the most part, harmonised under the NI 51-102 framework and exchange rules, although specific enforcement mechanisms are administered provincially.

Disclosure documents are generally filed electronically through the online SEDAR+ platform.

Canadian securities law prohibits trading in securities while a person is in possession of a material fact or material change that has not been generally disclosed, and prohibits tipping such information to others. These core prohibitions are substantively harmonised across all Canadian jurisdictions.

“Reporting insiders” of reporting issuers (further discussed in 5.4 Shareholder Disclosure) are required to file online insider reports, disclosing any changes in ownership, control, or direction over securities and related financial instruments.

Securities regulators have broad investigative and enforcement powers to address market abuse, insider trading and other securities law violations and regularly collaborate with law enforcement agencies for enforcement purposes. They may compel the production of documents and information, examine records and transactions, and conduct examinations and hearings. Regulators may issue or seek temporary orders, trading halt orders and cease-trade orders to prevent ongoing misconduct or protect investors and market integrity.

Following enforcement proceedings, regulators may impose administrative penalties, disgorgement of profits or losses avoided through misconduct, cease-trade orders, and prohibitions or restrictions on an individual’s or company’s participation in the capital markets. For more serious misconduct, the securities regulators may refer matters for quasi-criminal or criminal prosecution, with courts able to impose fines, imprisonment, disgorgement and restitution.

In Canada, the disclosure of substantial shareholdings and changes in shareholder interests is primarily governed by the “early warning system”, together with separate insider reporting requirements.

The early warning regime applies generally to persons or entities that acquire beneficial ownership of, or control or direction over, 10% or more of a class of voting or equity securities of a reporting issuer. After the initial 10% threshold has been reached, additional disclosure is required whenever the holder acquires or disposes of securities representing 2% or more of the outstanding securities of the relevant class or experiences a change in a material fact contained in its most recently filed early warning report. A report is also required when the shareholder’s ownership falls below 10%, at which point the early warning reporting requirements cease unless the 10% threshold is again reached.

Failure to make a required early warning report or insider report is a contravention of applicable securities laws, for which securities regulators can bring administrative enforcement proceedings, and more serious contraventions can constitute offences under securities statutes.

Under corporate law, directors and officers have statutory duties that provide a foundation for corporate compliance. Please refer to 2.2 Directors’ Duties and Liabilities. For reporting issuers, this is supplemented by securities law, under which reporting issuers must establish and maintain disclosure procedures and internal controls over financial reporting.

Canada does not have a single, nationally applicable whistle-blower regime for securities law violations, and there is no general Canadian requirement applicable to all private companies to establish a formal whistle-blowing hotline or internal whistle-blowing programme. Several provincial securities regulators have established whistle-blower programmes through which individuals may report suspected securities law violations directly to the regulator. The programmes generally seek to encourage the reporting of misconduct by providing confidentiality and/or anonymity and protection against retaliation.

While Canada does not prescribe a single corporate governance framework that all companies must adopt for managing compliance risk, companies should assess their ownership structure, size of the business, regulatory status and applicable corporate and securities legislation to determine the appropriate framework. For reporting issuers, National Policy 58-201 – Corporate Governance Guidelines sets out guidance for corporate governance best practices, and National Instrument 58-101 – Disclosure of Corporate Governance Practices sets out disclosure requirements.

The recommendations for reporting issuers under NP 58-201 include matters such as composition of the board, position descriptions and written board mandates, ongoing education for board members, the adoption of a code of conduct, use of a nominating committee, executive compensation process, director assessments and diversity disclosure requirements. NI 58-101 adopts a “comply-or-explain” disclosure model with respect to these matters.

In Canada, the principal laws and regulations governing secured transactions are found in provincial and territorial personal property security legislation, provincial real property law, and the federal Bank Act, Bankruptcy and Insolvency Act and Companies’ Creditors Arrangement Act.

Personal Property

In all provinces and territories, except Quebec, security over personal property is primarily organised around the concept of a single, functional security interest under provincial Personal Property Security Acts (PPSAs). The Quebec equivalent is the hypothec governed by the Civil Code of Quebec.

The PPSAs apply to security interests in personal property such as equipment, inventory, receivables, bank accounts and other movable assets and generally apply to any transactions that in substance secure payment or performance of an obligation, without regard to its form and without regard to the person who has title to the collateral.

Real Property

Security over land is governed by provincial and territorial real property statutes and land title systems. Real property security is generally registered in the relevant provincial land registry or land title office, and the primary forms of real property security are:

• mortgages;
• charges; and
• assignments of rents or leases.

Bank Act Security

The Bank Act is a federal regime governing security interests in very specific types of property, and its use is limited to the banks listed in the statute’s schedules. Examples of sectors for which the Bank Act is used include:

• agriculture;
• fisheries; and
• inventory financing.

Insolvency Legislation

The federal Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act do not create security interests, but instead govern priority, enforcement and realisation rights when a debtor becomes insolvent.

Types of Security

Common types of security interests include:

• general security agreements;
• specific/fixed security interests;
• pledges;
• floating charges;
• assignments by way of security;
• mortgages;
• hypothecs (Quebec); and
• purchase-money security interests (PMSIs).

Attachment and Perfection

In Canada, a security interest must first attach to collateral before it can be perfected. Attachment occurs when (i) value is given by a secured party; (ii) the debtor has rights in the collateral; and (iii) the parties have entered into an enforceable security agreement.

Once attached, a security interest is perfected when all steps under the relevant PPSA have been completed for the specific type of perfection. Perfection may occur by way of possession of the relevant collateral, registration in the applicable provincial Personal Property Registry, or control of the collateral.

Priority

Secured interests in Canada are generally governed by the rule that the first creditor to perfect a security interest in collateral has first priority, with a few exceptions. The PPSAs expressly subordinate unperfected security interests to perfected security interests.

Enforcement

A creditor’s enforcement rights are derived from the relevant PPSA and security agreement and become effective upon an event of default as defined in the specific security agreement. Upon an event of default, creditors generally have the right to seize or take possession of collateral, sell collateral, collect receivables, enforce control arrangements and/or appoint a receiver.

Acquisition Financing

Corporate acquisition financing is typically structured as a combination of senior secured debt, mezzanine debt, vendor take-back financing and/or equity contributions from the purchaser or related party. The financing and security packages are designed to ensure lenders have effective recourse to the corporation’s assets while allocating priority among various creditors and generally include:

• general security agreements;
• guarantees;
• share pledges;
• real property security;
• intercreditor agreements; and
• assignments of collateral.

In acquisition financing, registration of security is critical to establish priority against third-party creditors. Prior to financing, lenders will conduct searches of security registers to identify existing encumbrances that must be discharged, subordinated or subject to intercreditor arrangements to ensure priority.

In circumstances where a corporation engages multiple creditors for an acquisition, an intercreditor agreement is put in place to address the priority ranking of security interests, enforcement standstills, payment restrictions, notice rights with respect to events of default, sharing of proceeds and rights during restructurings or insolvency proceedings.

Canada’s push for greater ownership transparency with respect to the ownership of corporations and land has impacted financing practices across the provinces and territories. Please refer to 1.5 Control Person Reporting. For more information regarding anti-money laundering legislation, see 9.2 Anti-Money Laundering, Sanctions and Corruption.

The transparency requirements affect financing practices as lenders now have enhanced due diligence requirements with respect to client identification and verification, ownership structures and anti-money laundering compliance. Lenders must also keep detailed records regarding their due diligence efforts and must submit reports to FINTRAC in certain specified circumstances. These new obligations increase compliance costs and administrative responsibilities for lenders in Canada.

As a general rule, a corporation has the capacity to enter into contracts with any other person. The essential requirements to form a legally binding contract are offer and acceptance, consideration having been given, certainty of the essential terms of the contract, and an intention to create legal relations.

While a contract generally need not be in writing, certain specific types of contracts, such as those dealing with real property, must be documented in writing in order to be binding under Canadian law.

Contractual interpretation starts with reading the plain language of the contract. The text is then read with reference to the factual matrix and commercial reasonableness. The factual matrix refers to the surrounding context that sheds light on the parties’ intentions, although it cannot override the contract’s clear wording. The principle of commercial reasonableness avoids interpretations that are inconsistent with business common sense.

A contract may be found invalid where the essential requirements of formation are missing, where a contract was entered into under mistake, or where a significant imbalance in bargaining power gives rise to the doctrine of unconscionability.

The primary remedy for breach of contract in Canada is damages. Expectation damages place the injured party in the position it would have been in had the contract been performed. Where the injured party has changed its position in reliance on the contract, reliance damages place the injured party in the position it would have been in had it never entered into the contract.

Where damages would be an inadequate remedy for a breach of contract, a court may order equitable remedies such as specific performance and an injunction.

A contract may be terminated:

• by mutual agreement of the parties;
• in accordance with its termination clause, which may allow one party to terminate by giving notice to the other; or
• by way of repudiation, in which case the innocent party may choose to accept the repudiation, in which case the contract is terminated, or to not accept it, in which case the contract continues.

A contract may also be terminated where it becomes impossible to perform. This can occur either due to the occurrence of force majeure, or due to frustration, a common law doctrine that arises where an unforeseen and radical change in circumstances renders performance impossible.

Patents, trade marks, and copyright are governed by federal legislation. Trade secrets, confidential information, and know-how have no legislative regime and are instead protected contractually. As best practice, all intellectual property assignments and licences should be in writing and, where applicable, registered with the Canadian Intellectual Property Office.

Under the Copyright Act, copyright created in the course of employment is owned by the employer, and joint authors own the work equally. However, ownership of patents, trade marks and trade secrets created in commercial relationships is governed by common law rather than statute. The best practice for any commercial relationship is to include express intellectual property assignment provisions in the governing agreement.

In Re Thaler, 2025 CACP 8, the Patent Appeal Board held that an AI system could not be recognised as an “inventor” under Canadian patent law and that only humans could be inventors. Ownership of AI-generated content remains an area of law that continues to be under development and is being closely monitored.

Remedies for infringement of patents, trade marks, and copyright are provided for in the applicable legislative framework and could include injunctions, damages, an accounting of profits, and, in the case of trade mark infringement, destruction of offending goods, packaging, labels and advertising material.

Federal statutes governing consumer protection include:

• the Canada Consumer Product Safety Act, regulating consumer product safety;
• the Competition Act, regulating anti-competitive practices;
• the Consumer Packaging and Labelling Act, regulating packaged consumer products;
• the Motor Vehicle Safety Act, regulating the manufacturing and importation of motor vehicles and equipment; and
• the Food and Drugs Act, establishing standards for food quality.

All provinces and territories have enacted consumer protection legislation governing consumer contracts. Because requirements vary by jurisdiction, the discussion below focuses on Ontario, British Columbia, and Alberta.

Cooling-Off Periods

Ontario, BC, and Alberta consumer protection legislation provide identical ten-day cooling-off periods for direct sales, letting consumers cancel without reason within ten days of receiving a written copy of the contract. Each jurisdiction extends this to one year if the contract fails to meet statutory requirements or omits required information.

For distance sales, BC provides a 30-day cancellation period if certain statutory requirements are not met. Alberta provides a ten-day cooling-off period, letting consumers cancel without reason, and a one-year extended cancellation right in certain circumstances.

Unfair Practices

Unfair practices are defined somewhat differently across Canadian jurisdictions, but generally include deceptive and unconscionable representations, exerting undue pressure, taking advantage of a consumer’s inability to understand the transaction, and using exaggeration or ambiguity about material facts.

Disclosure Requirements

Across all jurisdictions, consumer protection legislation generally requires suppliers to disclose information in a clear, comprehensible and prominent manner.

Enforcement of Consumer Protection

The Competition Act provides both criminal and civil remedies for misleading advertising, which could include administrative penalties of up to CAD15,000,000 and imprisonment for up to 14 years. 

Provincial regulators, such as Consumer Protection Ontario, Consumer Protection BC, and Service Alberta supervise consumer protection legislation and receive consumer complaints.

The federal Competition Act governs merger review and pre-merger notifications, and is administered and enforced by the Competition Bureau.

Pre-Merger Notification

A transaction will generally require a pre-merger notification where both of the following financial thresholds are met:

• Transaction-Size Threshold: The value of the target’s assets in Canada, or revenues from sales in, from, or into Canada generated from those assets exceed CAD93 million.
• Party-Size Threshold: The combined assets in Canada or revenues from sales in, from, or into Canada generated from those assets of the parties to the transaction and their affiliates exceed CAD400 million.

A share acquisition will generally require a pre-merger notification where the acquiror, together with their affiliates, would acquire:

• in the case of a public corporation, more than 20% of the voting shares, or, where more than 20% is already owned, acquisition of more than 50% of the voting shares; or
• in the case of a private corporation, more than 35% of the voting shares, or, where more than 35% is already owned, acquisition of 50% or more of the voting shares.

Once a complete pre-merger notification is filed, an initial 30-day waiting period is triggered. If the Competition Bureau requests a Supplementary Information Request (SIR), a second 30-day waiting period is triggered once the SIR is complied with.

The Competition Bureau assesses whether the transaction is likely to substantially prevent or lessen competition in a relevant Canadian market. Relevant factors include the level of economic concentration in the relevant industry, the parties’ respective market shares, the conditions and barriers affecting entry into the market, and the transaction’s anticipated anti-competitive effects.

Failing to supply information required by the pre-merger notification provisions, without “good and sufficient cause”, constitutes an offence and may result in a fine. Additionally, if the parties close a notifiable transaction before the waiting period expires, civil consequences include dissolution of the merger, disposition of assets or shares, or administrative monetary penalties.

Anti-Competitive Conduct

Under the Competition Act, certain forms of anti-competitive conduct constitute criminal offences punishable by up to 14 years’ imprisonment or a fine in the discretion of the court, or both.

The Competition Act also authorises the Competition Tribunal to order administrative monetary penalties for anti-competitive conduct. Penalties for an initial order can be up to the greater of CAD25,000,000 (CAD35,000,000 for subsequent orders) and three times the value of the anti-competitive practice derived, or where that amount cannot reasonably be determined, 3% of the person’s annual worldwide gross revenues.

Foreign Investment Review

Both the acquisition of control of a Canadian business and establishment of a new Canadian business by a non-Canadian are subject to the Investment Canada Act (ICA) and require, at a minimum, notification under the ICA. A non-Canadian is defined as a person who is not a Canadian citizen or a permanent resident, and includes any entity that is not Canadian controlled.

Net Benefit Review

An acquisition of control of an existing Canadian business by a non-Canadian may require an Application for Review where the target’s enterprise value exceeds the applicable threshold. In 2026, the thresholds are:

• CAD2.179 billion for private-sector trade-agreement investments; and
• CAD1.452 billion for private-sector WTO investments.

Different thresholds apply if the Canadian business is a cultural business. In such a case, the threshold is generally CAD5,000,000 in book value for direct investments and CAD50,000,000 in book value for indirect investments. A cultural business is an enterprise involved in activities such as:

• publishing, distributing, or selling books, magazines, periodicals, or newspapers;
• producing, distributing, selling, or exhibiting film, video, or audio music recordings; or
• radio communications, broadcasting, and satellite programming services.

There is no associated filing fee for the application.

An Application for Review must be submitted before the transaction completes. Once submitted, a waiting period of 45 days is triggered while the Minister of Innovation, Science and Economic Development assesses whether the proposed investment will provide a “net benefit” to Canada.

If the Minister ultimately determines that an investment is not likely to be of net benefit to Canada, the investor will be notified that the investment cannot proceed, or, if already implemented, the investor must divest itself of control.

National Security Review

The national security review regime operates separately from the net benefit review process. The regime applies to any direct or indirect investment by a non-Canadian that raises national security concerns, irrespective of the investment’s monetary value or an acquisition of control. If an investment is found to be harmful to national security, the federal government may prohibit the transaction, authorise it subject to conditions, or order divestiture.

Foreign Ownership Restrictions in Certain Industries

Canada restricts ownership in specific industries, such as:

• Telecommunications: Carriers are generally required to be incorporated in Canada. At least 80% of the directors must be Canadians, and 80% of the voting interest must be Canadian-owned.
• Broadcasting: The Canadian broadcasting system must be effectively owned and controlled by Canadians.
• Air Transportation: To qualify for an air service licence, a corporation must satisfy Canadian ownership and control requirements, and no single non-Canadian can own or control, directly or indirectly, more than 25% of the voting interest of the business. Similar Canadian control requirements apply to Canadian air carriers.
• Residential Real Estate: Non-Canadians are generally prohibited from purchasing certain residential property until 1 January 2027.

Productivity Mega Deduction

On 15 September 2026, Prime Minister Mark Carney announced the Productivity Mega Deduction, which will allow businesses to immediately claim a capital cost allowance deduction for 100% of the cost of eligible new investments. The prime minister announced that “Canada’s marginal effective tax rate on new business investment will fall from roughly 13% to 6.4% – the lowest of any major economy in the world and less than half the rate in the United States” and that qualifying assets include “fibre-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft and vehicles, patents, rail track, bridges, and roads”.

Canada’s privacy and data protection framework includes several federal and provincial statutes that may apply based on the type of entity handling the information, where the organisation operates, whether it is federally regulated, what type of information is involved, and whether the information crosses provincial or national borders.

The federal Privacy Act governs how federal government institutions collect, use, disclose, retain and provide access to personal information and provides individuals with a right to access that information.

The Personal Information Protection and Electronic Documents Act (Canada) (PIPEDA) is the primary federal privacy law applicable to the private sector. It regulates how organisations collect, use and disclose personal information in the course of commercial activities. However, where a province has enacted privacy legislation that is substantially similar to PIPEDA, and the personal information remains within that province without crossing provincial or national borders, the provincial law governs. Currently, Alberta, British Columbia and Quebec have enacted provincial privacy legislation that is recognised as substantially similar to PIPEDA.

In Canada, health information is a heavily regulated sector, and Ontario, New Brunswick, Nova Scotia and Newfoundland and Labrador have all enacted health privacy statutes that apply to hospitals, physicians and other health information custodians. Financial institutions and telecommunication providers also face additional sector-specific privacy regulations.

PIPEDA contains key obligations with respect to the handling of personal information, including that the organisation must obtain meaningful consent to information collection and handling, collect only the necessary personal information for the intended purpose, retain the information only as long as needed, and protect the information through appropriate safeguards.

PIPEDA requires organisations to notify affected individuals and the Office of the Privacy Commissioner of Canada when a data breach creates a real risk of significant harm.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) governs Canada’s anti-money laundering and anti-terrorist financing (AML/ATF) framework. The PCMLTFA applies to a broad range of reporting entities in Canada, including financial institutions, money services businesses, securities dealers, mortgage sector participants, real estate professionals, casinos, dealers in precious metals and precious stones, certain accountants and notaries, title insurers, and other prescribed businesses and professionals.

Canada’s primary sanctions legislation includes the Special Economic Measures Act, the United Nations Act and the Justice for Victims of Corrupt Foreign Officials Act, which authorise the government to impose economic sanctions on foreign states, individuals and entities.

The Export and Import Permits Act governs the export and import of goods in Canada.

These statutes apply to all businesses with a nexus to Canada, and depending on the applicable regulations, businesses may be prohibited from:

• business dealings with designated persons;
• facilitating prohibited transactions;
• providing certain financial services; and
• engaging in specific imports, exports and investments involving sanctioned jurisdictions.

Businesses are expected to maintain risk-based controls and conduct appropriate due diligence to ensure compliance with the above-noted legislation, including by screening customers, classifying goods prior to shipping, obtaining permits where required and providing voluntary disclosure when a violation is discovered. Penalties for non-compliance may result in criminal prosecution, including fines and/or imprisonment.

The Corruption of Foreign Public Officials Act and the Criminal Code of Canada govern Canada’s anti-corruption and anti-bribery framework. Businesses with a nexus to Canada are expected to implement compliance programmes to prevent, detect and respond to bribery and corruption risks. Effective programmes generally include the following:

• written policies and procedures;
• accountability for compliance performance;
• country-based risk assessments;
• due diligence on third parties;
• financial controls;
• internal training; and
• reporting and investigations.

Regulators focus on the detection, prevention and enforcement of anti-money laundering, sanctions and corruption legislation through regulatory supervision, the exchange of information with international partners, providing training and outreach to organisations, reviewing transactions to identify risks, and strengthening civil and criminal penalties.

Environmental Regulation

The environmental regulatory regime in Canada is divided between federal, provincial and territorial governments, with municipalities also playing a role in land use and local permitting. Major projects may require federal or provincial environmental or impact assessments, as well as approval by local First Nations governments.

Provincial environmental legislation generally imposes broad liability for contaminated sites. Current and former owners, operators and other parties may potentially be responsible for investigation and remediation costs, often regardless of fault.

Companies may face multiple climate-related and environmental compliance risks, including regulatory enforcement for breaches of environmental legislation, civil claims relating to contamination or pollution or regulatory scrutiny relating to environmental and sustainability disclosure.

Health and Safety

The Canada Labour Code is the primary federal legislation governing employment and workplace standards for federally regulated employers and industries such as telecommunications, airlines and railways. Most employers in Canada, however, are subject to the applicable provincial or territorial employment and occupational health and safety regime. There are a number of health and safety obligations that can apply to employers, including obligations to provide appropriate training, supervision, and protective equipment to employees and establishing workplace safety policies and procedures.

Licensing and Permitting Requirements

Licensing and permitting requirements will vary depending on the business, industry and location. Some common requirements include municipal business licences and zoning approvals, import/export licences, or environmental permits and operating approvals. Certain industries are subject to extensive regulatory oversight, such as the energy sector, which may require federal, provincial and local approvals, the financial sector, which is provincially regulated, or pharmaceutical businesses, which may require federal licences and approvals relating to drugs, medical devices, manufacturing and distribution.

Following the prorogation of the federal Digital Charter Implementation Act in January 2025, including the Artificial Intelligence and Data Act, Canada does not currently have legislation specifically regulating artificial intelligence.

For private-sector organisations, AI regulation is governed by existing legal frameworks, including those relating to privacy and human rights. In 2023, the federal government developed the Voluntary Code of Conduct on Advanced Generative AI Systems (the “Code”) to help organisations manage AI-related risks. The Code is built on six principles: safety, accountability, transparency, fairness and equity, human oversight and monitoring, and validity and robustness.

In 2025, the Implementation Guide for Managers of Artificial Intelligence Systems (the “Guide”) was published to support implementation of the Code. Under the Guide, managers of AI systems are encouraged to, among other guidelines:

• promote transparency by clearly labelling as AI any system that could be mistaken for a human;
• promote safety by conducting comprehensive risk assessments and involving diverse stakeholders, and evaluating risks such as bias and data protection; and
• promote accountability by implementing policies and training procedures to ensure personnel understand their responsibilities and risk-management obligations.

To be clear, the Code and Guide represent a voluntary best practices framework and, at present, do not carry the force of law.

Multiple regulatory compliance regimes apply to businesses across Canada, and are dependent upon the nature and size of the business, its activities, and factors such as its environmental impact and whether or not it is a public company. Please refer to:

• 5 Capital Markets;
• 7.4 Consumer Protection;
• 8 Foreign Investment; and
• 10 Employment and Labour.

In Canada, employment and labour law varies among federal and provincial/territorial jurisdictions. The Canada Labour Code governs all federally regulated employers such as banks, broadcasting, postal services and federal Crown corporations. Provincially/territorially regulated employers are governed by the employment standards legislation of the province or territory in which they operate and in which their employees are located.

Key Elements

The key elements of Canadian employment and labour laws are as follows:

• employment standards, which cover the minimum wage, hours of work, overtime pay, vacation time, leaves of absence, termination and severance notice requirements, statutory holidays and record-keeping obligations;
• human rights legislation, which prohibits discrimination in employment based on protected grounds such as race, sex, age, disability and religion;
• occupational health and safety statutes, which detail employer health and safety duties;
• workers’ compensation schemes, which provide no-fault benefits for workplace injuries and illnesses;
• labour relations and collective bargaining legislation, which govern matters specific to unions;
• the common law of employment in all provinces, except Quebec, pursuant to which courts imply a duty of “reasonable notice” of termination, unless validly limited by a written contract; in Quebec, the Civil Code of Quebec concept of good faith and reasonable notice applies;
• privacy legislation with respect to the collection, use, disclosure and safeguarding of employee personal information;
• pay equity and employment equity legislation requiring equal pay for work of equal value; and
• immigration and temporary foreign worker legislation that governs the hiring of foreign workers.

Termination of Employment

The key legal considerations for employers with respect to termination of employment are as follows:

• Statutory Notice and Severance Requirements: Generally, employers must provide advance written notice of termination or pay in lieu of notice or a combination of both. The length of the notice period generally depends on the employee’s length of service. An employment agreement that provides less than the applicable minimum statutory standard for notice may be found unenforceable.
• Termination for Cause: An employer may terminate employment without notice only where it can establish just cause. Termination for cause requires egregious misconduct. Such termination can often lead to litigation and therefore employers are strongly encouraged to obtain legal advice prior to the termination for cause.
• Wrongful Dismissal: Wrongful dismissal claims in Canada primarily arise when an employer terminates an employee without providing the employee’s full legal entitlement to notice or compensation or when an employer terminates for cause but cannot substantiate the claim. Issues may also arise where the facts show the true reason for termination is one that is unlawful, despite a different lawful reason being provided at termination.
• Constructive Dismissal: Constructive dismissal occurs when an employer unilaterally makes a fundamental change to a term of employment, causing an employee to resign. Constructive dismissal can also arise from workplace conduct permitted or created by employers such as harassment, bullying and discrimination.
• Duty of Good Faith in Termination: In Canada, employers owe a duty of good faith and fair dealing to employees with respect to termination. When terminating employees, employers must be truthful, candid, preserve employee dignity, be respectful and avoid misleading statements.
• Mass Terminations: Several jurisdictions in Canada impose additional obligations on employers when terminating multiple employees within a specified time period which may include enhanced notice requirements and employee representative notification requirements.

Executive Compensation

In Canada, executive compensation arrangements are generally structured to attract and retain talent, align with shareholder interests, provide tax efficiencies and meet corporate governance requirements. Key considerations include the following:

• Compensation Structure: An executive compensation arrangement typically includes a combination of:
1. base salary;
2. short-term incentives;
3. long-term incentives;
4. retirement and pension plans;
5. benefits; and
6. termination and severance entitlement.
• Equity Incentive Plans: Common forms of equity awards include stock options, restricted share units (RSUs), performance share units (PSUs) and deferred share units (DSUs). For equity incentives, employers must consider several factors including vesting schedules, performance metrics, limits on dilution and clawback provisions.
• Change of Control Provisions: Executive compensation arrangements generally include change of control provisions to retain key personnel during acquisitions, provide certainty for executives following a transaction, reduce potential conflicts and clearly set out severance rights.
• Tax Implications: Tax considerations are a primary driver of the structure of executive compensation, for both the employee and the employer, including:
1. the taxable employment benefit upon the exercise of stock options;
2. the triggering of forfeiture of restricted stock in certain circumstances;
3. the design of RSUs, PSUs and DSUs to avoid salary deferral arrangement rules; and
4. cross-border tax issues for multinational corporations.

Enforceability of Restrictive Covenants

In Canada, non-competition and non-solicitation covenants are treated as restraints of trade and therefore carefully scrutinised by courts. The enforceability of these restrictive covenants is dependent on whether they arise in employment agreements, which are subject to greater judicial scrutiny, or in commercial contracts, such as the sale of a business, which are more likely to be upheld. Courts will only enforce what is legitimately necessary to protect the business.

In Ontario, employers are prohibited from entering into employment agreements that include non-competition clauses. However, this prohibition does not apply to executive employment agreements. Further, in May 2026, a federal bill was introduced to amend the Canadian Labour Code, which, if passed, would also prohibit non-competition clauses for certain federal employees.

In Canada, land ownership is primarily governed by provincial and territorial law, with the result that specific rules vary by jurisdiction. Canada generally uses an electronic land title (Torrens-style) registration system, under which a government-maintained land registry records the ownership of and registered interests in real property. However, some jurisdictions historically used a registry or “deed registration” system based on recording instruments and tracing the chain of title rather than registering an indefeasible title, and these registry lands may still exist.

First Nations lands are subject to separate federal land-registration regimes, dependent upon the location of the real property and the particular First Nation’s self-governing status. These registries are maintained federally.

Interests in Real Property

Fee simple title is the most common form of real property ownership. The registered owner of land generally has the right to possess, use, lease, sell and transfer the property, subject to applicable laws, registered interests, easements and other restrictions.

A person may also have a leasehold interest in land. This enables the holder to possess and use land for a specified period under a lease, while the underlying title remains with the landlord or lessor.

A significant proportion of Canadian land is owned by the federal or provincial/territorial Crown rather than private parties. Crown land can be subject to leases, licences, permits and other rights granted to private parties without transferring fee-simple ownership.

Indigenous peoples in Canada may hold title to lands based on historic occupation and use, as recognised under Section 35 of the Constitution Act, 1982. The Canadian legal system recognises Aboriginal title as a unique collective right to the use of and jurisdiction over a group’s ancestral territories. The Crown has a duty to consult and, where appropriate, accommodate First Nations groups when proposed government action may adversely affect asserted or established Aboriginal or treaty rights.

Foreign Ownership of Real Property

There is no general Canadian prohibition on foreign ownership of commercial, industrial or most other non-residential real estate. A foreign corporation may generally hold Canadian real property directly or through a Canadian subsidiary, subject to applicable provincial registration, tax and regulatory requirements. However, the Prohibition on the Purchase of Residential Property by Non-Canadians Act, in effect until 1 January 2027, prohibits “non-Canadians” from purchasing residential property, subject to certain exceptions.

Provincial and territorial legislation, including in Ontario and British Columbia, can impose additional restrictions, taxes and registration requirements on foreign purchasers. Alberta restricts foreign ownership of certain rural land under its Foreign Ownership of Land Regulations.

Please refer to 11.1 Requirements for Land Ownership for a summary of the legal framework relating to real property in Canada.

Principal Considerations

The principal considerations in structuring an acquisition or disposition of commercial real property include the form of transaction, land title and survey matters, physical and environmental condition of the property, financing, tax, zoning and development restrictions, and allocation of liabilities between the parties.

Typical real estate due diligence includes real property surveys, review of existing leases, an environmental site assessment, confirmation of property taxes, and review of existing property insurance. Title insurance is widely used in Canadian commercial real estate transactions to manage risks associated with title defects.

Depending on the location and past use of real property, an environmental review is particularly important as the purchaser of a contaminated site can be liable for third-party claims arising from such contamination, as well as remediation of the land, even if the purchaser did not own the property at the time the contamination occurred.

Commercial Mortgage Financing

In addition to general due diligence matters, which in a financing will mirror the due diligence performed by the purchaser itself, key issues in commercial mortgage financing include:

• the creation and perfection of the lender’s security,
• priority over competing interests, and
• the lender’s enforcement rights following a default.

A lender will generally take a registered mortgage or charge over the borrower’s interest in the real property, registered in the applicable provincial or territorial land registry.

Priority is generally determined by the applicable land registration and secured transactions legislation, and will depend on the order of registration (with first priority generally given to the first to file), statutory priority rules and the terms of intercreditor or subordination agreements.

In the event of borrower default, the lender’s remedies depend on applicable provincial law and the contractual mortgage terms, but may include the lender’s power of sale, judicial sale, foreclosure, appointment of a receiver and enforcement of related personal property security.

Commercial Leases

Commercial leases are typically structured as triple net leases, in which the tenant bears the economic burden of the property’s principal operating expenses in addition to base rent. Such operating expenses typically include property taxes, insurance and maintenance/operating costs, as well as, in many cases, management fees.

Key features of commercial leases include:

• term of the lease as well as any rights of the tenant to renewal or extension;
• tenant’s possession date of the property;
• any obligations of the landlord and tenant with respect to renovations of the property;
• amount and payment terms of base rent, including whether any free rent periods apply;
• a detailed description of additional rent;
• the tenant’s rights and obligations with respect to any common areas of the property;
• the tenant’s permitted use of the premises;
• the maintenance and repair obligations of each party;
• the impact of damage or destruction of the real property in whole or in part;
• provisions governing assignment or subletting of the property; and
• events that will give rise to a default, and the landlord’s rights of termination arising from such a default.

Tenants may also negotiate options to renew, expansion rights, rights of first refusal or rights of first offer in respect of additional premises or a future sale of the property.

Commercial leases commonly prohibit assignment or subletting without the landlord’s prior written consent. The lease should address when consent is required, the circumstances in which it may be withheld, conditions imposed on an assignment, continuing liability of the original tenant and whether a change of control of the tenant is deemed to constitute an assignment.

Common landlord remedies on tenant default include re-entry and termination of the lease, recovery of unpaid rent and damages, enforcement of security or guarantees, and, where available, distress. Where a landlord wishes to make use of the distress remedy, care should be taken to strictly comply with statutory requirements since courts have found failures to comply with procedural requirements to invalidate the intended remedy.

First Nations Rights

Recognition of First Nations land rights and the substantive involvement of First Nations in land-use and development decisions have become increasingly important considerations in commercial real estate transactions. Depending on the location and circumstances, proposed real property development and other activities on land may be affected by Aboriginal or treaty rights, asserted or established First Nations title, and the Crown’s duty to consult and, where appropriate, accommodate First Nations groups.