Additionally, widely held Canadian companies that are not majority owned by Canadians may seek to qualify as Canadian-controlled under the Investment Canada Act (ICA) by having at least two-thirds of their board members be Canadians. Investments in Canadian businesses by a Canadian-controlled entity are not subject to either the “net benefit” or “national security” review provisions of the ICA, regardless of the size of the investment or nature of the target business. For an entity to qualify as a Canadian-controlled entity under the ICA, it must satisfy one of two criteria: either (a) a majority of the entity’s voting interests must be held by a Canadian or Canadians, or (b) where non-Canadians own a majority of the entity’s voting interests, at least two-thirds of its board members must be Canadian. In either case, it must also be established that the entity is not controlled in fact by a non-Canadian or a voting group of non-Canadians. The ICA defines a “Canadian” as either a (i) Canadian citizen or (ii) permanent resident — excluding those who have resided in Canada for more than one year after becoming eligible for Canadian citizenship. Notably, this is a different standard from the one set by the CBCA, which generally requires the individual to reside in Canada. Canadian public companies that are also listed on U.S. exchanges may seek to qualify as foreign private issuers (FPIs) in order to benefit from less stringent reporting requirements under the Canadian-U.S. multijurisdictional disclosure system compared with U.S. domestic issuers. Importantly, a Canadian FPI is not subject to U.S. proxy rules and can instead rely on Canadian proxy rules. To qualify as an FPI, a Canadian company must either
1. have over 50% of its voting securities owned by non-U.S. residents; or 2. if the majority of voting securities are U.S.-owned, the company must ensure > the majority of its executive officers or directors are not U.S. citizens or residents;
> fewer than 50% of its assets are located in the United States; and > its business is not administered principally in the United States.
If the company determines that 50% or less of its outstanding voting securities are held by U.S. residents, it would qualify as an FPI and it need not consider the second criterion. However, if the company determines that over 50% of its outstanding voting securities are held by U.S. residents or it is unable to make the determination, it must ensure all three conditions of the second criterion are met, including ensuring that the majority of its directors are not U.S. citizens or U.S. residents. Generally speaking, the SEC’s rules only require the company to confirm its FPI status once a year, on the last day of a company’s second fiscal quarter (i.e., June 30 for companies with a December 31 fiscal year-end).
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Davies | dwpv.com
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