PPSA Registration


In this post we discuss how and why you may want to do a PPSA Registration. We are assuming that you, the reader, are a holder of a “security interest” in property.

Security Interest?

Very simply, a security interest is one legal expression describing your economic right to the value in someone else’s property. If someone borrows money from your company to purchase a car, you may get a security interest in, and file a lien on the vehicle. If your company invests in another company using convertible debt, in the agreement you sign, that company may grant your company a right to the economic value in its intellectual property through a security agreement.

In the examples above, if you are able to secure your interests properly using the Personal Property Security Act (the “PPSA”), if the debtor can’t repay you, your claim against the secured assets (the car, the Intellectual Property) will get preference over other claimants that do not have such a registration. The PPSA provides a framework for the registration, recognition and enforcement of these secured interests and provides rules for a pecking order between the different registered secured interests. Each Canadian province has its own PPSA rules and regulations which are broadly similar.

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The board of directors of your corporation


In this post, we want to explain to you (in case you were a little unsure,) what a board of directors is, how directors are appointed, and what some of their duties and responsibilities are. A board of directors of a company is one or more people appointed by the shareholders to manage the business affairs of the company. A well-chosen board of directors can be a great asset to your organisation, allowing you to focus your time and energy on developing ideas, products, services ( and money!), the board can strategise on taking the business to the next level and making sure the overall management of the company is appropriate. And so, all good owners, officers, senior managers, directors, and shareholders will be well served to understand the broad (Canadian) legal aspects of the creation and functioning of a board.

What are Directors and what do they do?

Corporations in Canada can be incorporated federally under the Canadian Business Corporations Act (the “CBCA”) or provincially under the corresponding provincial legislation. Your company is required by law to have a board of directors. Section 2 of the CBCA defines director as:

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What is a Bring-Down Certificate?

In this post, we shall discuss what a bring-down certificate is and what it entails. A bring-down is a provision requiring the representations and warranties that were made at the time of signing of an agreement to be made again on the closing date (or at another specified date). A bring-down condition is generally satisfied by the delivery of a certificate signed by an officer of a company certifying that the representations and warranties are true and correct as of the date of the certificate, subject to the conditions set out in the agreement. The bring-down certificate is delivered at the time of closing of a transaction. In transactions of a financial nature, this certificate may be delivered at the time funding is required.

Buyers often request as a condition to closing, a bring-down certificate from the seller in which the seller confirms that all the representations and warranties are still accurate as of the closing and that no obligations have been breached. The continued accuracy of the seller’s representations and warranties is made a condition of closing. Essentially, the certificate “brings down” the representations and warranties to closing. Since representations and warranties are usually intended to reflect the situation that exits on the day the agreement is signed, a bring down certificate is requested by the buyer to cover the period between the date the agreement is signed and the closing date. If a breach or non-compliance is discovered prior to closing, the buyer has the right not to proceed. The buyer shall also have the right to ask for damages.

For a transaction where the operative agreement (such as a merger agreement or purchase agreement) has to be signed before the closing, the certificate is signed by an officer of a company and delivered at the time of closing.

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Promissory Notes & Warrants

In this post, we will briefly discuss Promissory Notes and Warrants and their characteristics. Promissory Notes are a type of negotiable instrument. Negotiable instruments are legal documents guaranteeing the payment of money.  A Warrant is a right to buy stock in a company at a future date at a pre-determined price.

A small business can protect itself from the many risks involved in giving loans to clients by making use of a Promissory Note. Anytime you extend credit to a client, you get the client to sign a Promissory Note guaranteeing payment.

What is a Promissory Note?

In Canada, Promissory Notes are governed by the Bills of Exchange Act (the BEA), which provides that they are unconditional promises in writing, made by one or more persons to another, engaging to pay a certain sum of money subject to certain requirements as to the promise. Section 176 of the BEA defines a Promissory Note as follows:

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Two ways to do Mergers and Acquisitions

In this post, we will briefly discuss and compare two Canadian procedures used to acquire a corporation (the “Target“) : a take-over bid and a plan of arrangement. A “Take-over Bid” is an offer to buy a company’s shares in order to gain control of the company’s business. A “Plan of Arrangement” is a court-sanctioned procedure that allows a companies to combine or effect one or more fundamental changes. We will look at the advantages and disadvantages of both these procedures. Both procedures are governed by the corporate legislation under which the Target is incorporated (federally or provincially.) 

What is a take-over bid?

A Take-over Bid is a direct offer that is (as generally defined in securities law*) made to security holders of more than 20% of the outstanding securities of the Target. The bidder (“Acquirer“) may offer securities or cash or combination of both as consideration.  A Take-over Bid can often be a hostile takeover, i.e. where the management of the target company is unwilling to agree to the takeover but the Acquirer continues to pursue it by directly approaching the shareholders.

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Can Crowd-funding be a source of funding for you?

Crowd-funding as a way to raise money via the internet and social media for a wide variety of new ideas and projects is gaining popularity. On March 20, 2014, the securities commissions in several Canadian provinces* published a proposed prospectus exemptions as follows:

1. Crowd-funding Exemption: This is an integrated crowd-funding prospectus exemption, which will be available to reporting issuers and non-reporting issuers.
2. Start-Up Exemption: This is a start-up crowd-funding exemption available only to non-reporting issuers.

A reporting issuer is a company that has issued shares to the public and is required to continuous disclose their activities and financial status, as required by securities legislation. A non-reporting issuer (one that has not issued shares to the public) does not have to comply with disclosure requirements.

Crowd-funding Exemption

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Qualifying Amalgamation Defined

Two British Columbia credit unions, Delta Credit Union and First Heritage Savings Credit Union (together the “Predecessors”) amalgamated to form Envision Credit Union (“Envision”). The parties structured the amalgamation in such a way so as to avoid coming under the purview of section 87 of the Income Tax Act (the “ITA”). Under the ITA, there are two types of amalgamations: Qualifying Amalgamations and Non-Qualifying (or Statutory) Amalgamations. Qualifying Amalgamations are those that meet the requirements of section 87 of the “ITA”. All other amalgamations are outside the scope of section 87. The 3 basic requirements of a ‘qualifying amalgamation’, according to the ITA, are as follows:

  • all of the property of the predecessor corporations immediately before the merger must become property of the amalgamated corporation by virtue of the merger;
  • all of the liabilities of the predecessor corporations immediately before the merger must become liabilities of the amalgamated corporation by virtue of the merger; and
  • all of the shareholders, who owned shares of the capital stock of any predecessor corporation immediately before the merger, must receive shares of the capital stock of the amalgamated corporation because of the merger.

If the requirements of section 87 of the ITA are met, then certain tax attributes of the amalgamating corporations “flow through” to the amalgamated corporation. It was this flow through that Envision attempted to avoid, by structuring the amalgamation in such a way, so as to prevent it from being a qualifying amalgamation under section 87. The taxpayer was trying to “double claim capital cost allowance and [produce] an enhanced capacity for a lower tax rate on a portion of its income”. The predecessors formed a subsidiary (“619”). They intended to avoid the implications of section 87 by having the beneficial interest in certain real properties (“Surplus Properties”) to pass on to Envision at the exact moment of amalgamation. In exchange for the Surplus Properties, 619 issued shares to the predecessors, which flowed through to Envision as a result of the amalgamation. The amalgamation was carried out under the Credit Union Incorporation Act, 1996, (“CUIA”). According to section 20(1) and section 23(a) of the CUIA, an amalgamated credit union is a continuation of the predecessor credit unions. Envision contended that the provisions of Section 87 did not apply to this amalgamation and it was not a qualifying amalgamation as not all of the property of the predecessors had passed on to Envision. Envision also contended that credit unions can contract out of section 23 of the CUIA. Envision argued that it is possible for predecessor credit unions to specify that certain property will not be subject to the rule in section 23(b) of the CUIA and will instead pass to a third party, at the exact moment of amalgamation. Envision takes the position that section 23(b) of the CUIA is only operative on property that the amalgamation agreement has not otherwise provided for. In this case, because the predecessor credit unions had agreed that the surplus properties would pass to the subsidiary, 619, section 23(b) could not cause Envision to be seized of those surplus properties.

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NRC-IRAP – source of funding?

The National Research Council (NRC) is an agency of the Government of Canada which conducts scientific research and development. The Industrial Research Assistance Program was set up the NRC for advancement of technological innovation. The NRC-IRAP provides advisory and financial assistance to help small and medium sized enterprises (SMEs) build their innovation capacity and create high paying jobs through a grant program. This programme is regarded world wide as one of the best programs of its kind. The NRC-IRAP is also an important source of early source of funding for startups.
The NRC-IRAP brings together a diverse network of organizations, services and programs to help Canadian SMEs to develop their technologies. The programme will provide your startup customised solutions via expert technical and business advice, financial assistance, access to business information, contacts, and national and international networks.

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Articles of Incorporation – Canada

The Articles of Incorporation is a legal document, filed with the federal or provincial government in Canada that sets out a corporation’s purpose and regulations. It is one of the documents that provide the legal structure of your corporation.
Section 4 of the Ontario Business Corporations Act; and Section 5 of the Canada Business Corporations Act deals with the Articles of Incorporation. A corporation may be incorporated by one or more individuals or some other legal entity like another corporation (or another legal entity) by appropriately filling out and signing the Articles of Incorporation. The Articles of Incorporation are sent to the “Director”, i.e. the relevant ministry in either the Federal government or a Provincial government, which then endorses a certificate of incorporation. The certificate of incorporation is conclusive proof that the corporation has been incorporated on the date set out in the certificate.

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Federal or Provincial Incorporation?

Here is a quick way to decide if you want to opt for federal or provincial incorporation. Remember you can always change to your provincially incorporated company to a federal one as and when you expand your business.

Recognition & Protection of Name: Federal incorporation may be considered a sign of distinction by companies you contract with outside Canada, although it is unclear how often this is true. Tough tests will be applied before allowing you to use a particular company name. If your business is incorporated in a particular province or territory, it is only entitled to operate in that jurisdiction and has no name protection outside that province or territory. If you decide to change to federal incorporation at a later stage, your company name may not be available. Federal incorporation allows your business to operate using its corporate name across Canada, which is especially beneficial if you decide to expand your business to other provinces or territories. Section 9 of the CBCA provides for protection of corporate name. It is important to note that this name protection is similar to, but is not as strong as trade-mark protection.

Extra Provincial Licence: A federally or provincially incorporated business will, generally be required to register or obtain an extra-provincial licence in each province in which it carries on business. However, doing business in Ontario does not require any corporation incorporated anywhere in Canada to hold an extra-provincial license. Keep in mind that there will be other filings requirements such as under other Ontario legislation such as the Corporations Information Act. 

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