Canada has a sophisticated capital markets system. Securities of both Canadian and foreign public companies can be listed and traded on several of Canada’s stock exchanges. The largest stock exchange in Canada is the Toronto Stock Exchange (TSX).
Regulatory standards imposed by Canadian securities regulators and the rules set by stock exchanges are generally comparable, but not identical to the U.S. standards. Securities laws in Canada are regulated provincially, and each province has its own securities regulator as well as its own legislation. The securities laws are largely harmonized through the use of national and multilateral instruments adopted by an organization which is comprised of all the provincial securities regulators, known as the Canadian Securities Administrators.
When debt or equity securities are offered to the public in Canada, unless a statutory or discretionary exemption is available, a prospectus must be filed with the applicable securities regulatory authority in each province or territory in which the securities are to be offered, which is reviewed by the principal regulator. The prospectus must be provided to potential investors and must contain full, true and plain disclosure of all material facts concerning the nature of the securities being offered and the business being carried on by the issuer including all pertinent risk factors. An issuer filing a prospectus and listing its securities on a Canadian stock exchange will become a “reporting issuer” and thereafter be subject to continuous and timely disclosure obligations including the requirement to prepare and file quarterly and annual financial statements, together with related management’s discussion and analysis, as well as annual information forms and reports related to material changes affecting the issuer. There are also various obligations placed on directors, officers and insiders of issuers, including the requirement to file reports of purchases and sales of securities of the issuer.
There are a number of statutory prospectus exemptions where, often times, minimal or no disclosure is required. For example, the requirement to prepare a prospectus can be avoided where securities are offered on an exempt basis to specified or “accredited investors” by way of a private placement. Although no disclosure document is statutorily mandated, if a document that constitutes an “offering memorandum” is provided to investors, then statutory liability for a misrepresentation (being a material misstatement or omission) applies. Securities sold on an exempt basis are generally subject to restrictions. Issuers with equity securities listed on certain Canadian exchanges can take advantage of Canada’s short form prospectus distribution system which enables issuers to file shorter prospectuses and enables capital to be raised in the public markets in less time.
Certain foreign issuers (including U.S. issuers) that have become reporting issuers in Canada may generally satisfy their ongoing disclosure obligations in Canada by filing in their home jurisdiction. Stock exchanges import additional requirements on listed issuers.
Canadian and U.S. securities regulatory authorities have implemented a multi-jurisdictional disclosure system (MJDS) which enables securities of large U.S. issuers to be offered to the public in Canada using a U.S. registration statement that has only been reviewed by the U.S. Securities and Exchange Commission.
The requirements of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (MI 61-101) and takeover bids are not addressed in detail in this blog due to its brevity. In brief, MI 61-101 establishes procedural protections for minority (or disinterested) shareholders in connection with certain transactions (business combinations, related party transactions, insider bids and issuer bids) where there is a potential for conflicts of interest. Takeover bids and tender offers involve an acquirer making an offer to target shareholders to acquire some or all of their shares.
In line with the U.S.’s Sarbanes-Oxley Act of 2002, Canada’s securities regulators have published a series of corporate governance related instruments. The various instruments, in brief, require CEO and CFO certification of public companies’ annual and interim filings, regulate the role and composition of audit committees, and prescribe disclosure in respect of audit committees. For example, TSX listed issuers are required to have an audit committee composed of at least three directors all of whom must be independent and financially literate.
In addition, the instruments set out a list of non-binding corporate governance guidelines that reporting issuers are encouraged to develop and implement. Recognizing that many corporate governance matters cannot be prescribed using a “one size fits all” approach, the instruments are not intended to prescribe what an issuer must do, but instead are intended to reflect “best practices.”
In the next topic of this blog series, we will explore Canadian competition law.
Successful international expansion requires a robust strategy and an experienced partner. Canada has unique considerations when it comes to feasibility analysis (e.g. product/service adaptation), structuring (e.g. priority of regions and optimum corporate structures) as well as its laws. Dickinson Wright’s capabilities and extensive network make us an excellent partner to facilitate your growth in the ever-expanding and lucrative Canadian market.
This article is published to inform clients and contacts of important aspects and developments in Canadian law. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright lawyer if you have specific questions or concerns relating to any of the topics covered here.