Legal Aspects of Doing Business in Canada (Eighteenth Edition)

I. THE CANADIAN POLITICAL SYSTEM
A. INTRODUCTION 1
B. FEDERAL AND PROVINCIAL JURISDICTION 2

C. FEDERAL GOVERNMENT 3
D. THE TERRITORIES 3
E. PROVINCIAL GOVERNMENTS 4
F. MUNICIPAL GOVERNMENTS 4

II. THE CANADIAN CONSTITUTION
A. THE CHARTER OF RIGHTS 5
B. INTERPRETATION OF THE CHARTER OF RIGHTS 9
C. APPLICATION OF THE CHARTER OF RIGHTS 10
1. Corporations 10
2. Competition Act 11
3. Income Tax Act 12
4. Securities Act 12
5. Employment and Labour Relations 13
D. SUMMARY 14

III. FORMS OF BUSINESS ORGANIZATIONS 15
A. INTRODUCTION 15
B. SOLE PROPRIETORSHIP 15
C. PARTNERSHIP 16
D. CORPORATION 18
1. Formation Procedures 18
2. Capital Structure 19
3. Directors and Officers 20
4. Auditors 21
5. Taxation 22
E. BRANCH OF OPERATION 22
F. THE BUSINESS CORPORATIONS ACT 22
1. Overview of the Ontario Act 23
2. Rights of Dissent and Appraisal 25
3. Compulsory Acquisition - Going Private 26
4. Directors 26
5. Unanimous Shareholder Agreement 28
G. THE CANADA BUSINESS CORPORATIONS ACT 28
1. Comparison of the CBCA and the Ontario Act 29
2. Jurisdiction of Incorporation 28

IV. THE NORTH AMERICAN FREE TRADE AGREEMENT 31

V. INVESTMENT CANADA ACT 40
A. INTRODUCTION 40
B. TRANSACTIONS SUBJECT TO REVIEW UNDER THE ICA 41
1. Establishment of New Businesses 41
2. Acquisitions of Control 42
C. NET BENEFIT TO CANADA 43
D. WHO IS SUBJECT TO THE ICA 44
E. REVIEW PROCESS 46
F. RECENT AMENDMENTS TO THE ICA 46
G. CONCLUSION 47

VI. THE FAMILY LAW ACT 48

VII. IMMIGRATION LAW AND POLICY 51
A. INTRODUCTION 51
1. Jurisdiction 51
2. Current Policy 51
B. MEANS OF ENTRY INTO CANADA 52
C. VISITORS' VISA 52
1. Place of Application 52
2. Requirements 53
3. Restrictions and Conditions 53
4. Employment Authorizations 53
D. APPLICATIONS FOR PERMANENT RESIDENCE IN CANADA 57
1. Scope 57
2. Evaluation of Applications 58
3. Entrepreneurial Applications 59
4. Self-Employed Applicants 64
5. Review Considerations 65
6. Preparation for a Business Proposal 66
7. Processing the Application - Entrepreneurial/Self-Employed Applicants 67
Entrepreneurial/ Self-Employed Applicants 67
8. Investors 68
9. The Point System 69
E. CONCLUSION 70

VIII. AN OVERVIEW OF TAXATION IN CANADA 72
A. INTRODUCTION 72
B. RESIDENCE 72
C. PARTNERSHIPS 73
D. NATURE OF INCOME 73
1. Individuals 73
2. Corporations 75
E. THE GENERAL ANTI-AVOIDANCE RULE 78
F. THIN CAPITALIZATION RULES 80
G. BRANCH TAX 80
H. WITHHOLDING TAX 80
I. TAX TREATIES 81
J. OTHER TAXES AND DUTIES 82
1. Capital Tax 82
2. Land Transfer Tax 82
3. Provincial Sales Tax 82
4. Real Property and Business Taxes 83

I. THE CANADIAN POLITICAL SYSTEM

A. INTRODUCTION

Canada is an independent and self-governing member of the British Commonwealth and is presently comprised of ten provinces and three territories. The country operates under a federal system of government originally created under the Constitution Act, l867 (formerly, the British North America Act, 1867), a statute of the British Parliament which united Canada's four original provinces. On April 17, l982 the Canadian Constitution was "patriated", that is to say, re-enacted with certain amendments as a statute of the Parliament of Canada. The new Canadian constitution, contained in the Constitution Act, 1982, is discussed in greater detail in the following chapter.

A federal system represents, in essence, a division of powers and responsibilities between two autonomous levels of government - the federal or central government on the one hand and the provincial governments on the other. For a nation as large and diverse as Canada, the federal principle seems well suited to political exigencies. The federal and the provincial governments are, within their appropriate spheres of jurisdiction, independent and sovereign. In functional terms, the federal system was designed to reconcile the need for national unity and a strong central government with the desire for local or regional autonomy.

However, federalism as experienced in Canada has evolved to meet the present needs of a nation which is significantly different from the one that existed in 1867. The demands placed on the government and the immense financial resources of the central authority have forced a co-operative form of federalism upon the two levels of government in Canada, in which revenue collection and government expenditures have become, in essence, joint ventures. In certain circumstances law-making, theoretically divided between the federal government and the provinces along exclusive jurisdictional lines originally drawn in 1867, has become in practice the product of close contact between the federal and provincial governments.

B. FEDERAL AND PROVINCIAL JURISDICTION

In general, section 91 of the Constitution Act, 1867 grants the federal government legislative authority over all matters relating to the regulation of national and international trade and commerce, banking and currency, the conduct of foreign affairs, national defence, navigation and shipping and criminal law. Section 92 of the Constitution Act, 1867 grants the provincial governments legislative authority over matters relating to education, health, municipal affairs, property and civil rights and other matters of local concern. However, there are some areas of overlap. For example, courts have held that labour relations, an area which generally falls under provincial jurisdiction, will come under federal jurisdiction with respect to employees in federal enterprises such as banks, shipping concerns and other transportation companies. Further, most of the legislation respecting the sale or transfer of corporate securities and the regulation of stock exchanges has been enacted by the provinces, although the field of anti-combines or anti-trust legislation is the responsibility of the federal government.

To finance its responsibilities, the federal government was originally given, and still has, the right to levy taxes by any means, whereas the provincial governments' power of taxation was limited to direct taxation within the particular province. However, the division of taxation powers has in recent years come under the stresses of social, technological and political changes that were unforeseen when the system was first established. A wide variety of social assistance programs, put into place by the provinces in areas of exclusive provincial jurisdiction, have escalated in expense. As a result, the provinces have had to seek federal assistance, usually by means of cost-sharing arrangements, to meet their increasing fiscal burden. At the same time, in order to finance its expenditures, the federal government has sought greater revenues from the exploitation of natural resources, previously considered to be a provincial tax source. Some have argued that it is apparent that the current revenue and cost-sharing arrangements have resulted in an obscuring of the traditional lines of federal provincial jurisdiction. In brief, the practical realities of managing a country of the size and complexity of Canada have forced federal and provincial governments to engage in a different, perhaps more creative, form of federalism than that which the founders of the nation might have envisaged.

C. FEDERAL GOVERNMENT

The current federal Parliament, or legislature, is a bicameral body: it comprises two bodies, a lower chamber known as the House of Commons and an upper chamber known as the Senate. The present House of Commons has 301 members, who are popularly elected at irregular intervals of no more than 5 years, pursuant to the electoral system. The Senate has 104 members, who are appointed until the mandatory retirement age of 75 by the Governor-General on the advice of the federal government of the day. The House of Commons is, by constitutional convention, the more influential of the two legislative bodies.

The Prime Minister is the head of government and is usually the leader of the majority political party in the Hose of Commons. If no party is able to fill a majority of seats (currently, 151) or more with elected members, then a minority parliament exists. In the case of a minority parliament, the party with the most seats in Parliament will usually depend upon the support of smaller parties on an issue-by-issue basis to govern. If two or more parties with a majority of the seats between them are willing to form a coalition, then Parliament will be governed by a majority coalition. But this is rare. Since Confederation, there has only been one coalition government in Canada. The federal cabinet is appointed by the Prime Minister from the members of his/her party then sitting in the House of Commons or the Senate. In a coalition government, members of cabinet are appointed from all parties in the coalition. Each cabinet minister usually heads a department or a ministry of the Government.

Canada's head of the state is the Sovereign of the United Kingdom, presently Queen Elizabeth II. The personal representative of the Sovereign in Canada is the Governor-General. However, the Governor-General is now only a ceremonial position, filled by a person recommended to the Sovereign by the Prime Minister and the Cabinet. Further, the Governor-General acts only on the advice of the Prime Minister and the Cabinet.

Canada's capital is located in the City of Ottawa, Ontario. The capital city lies on the border between the provinces of Ontario and Quebec, the two most populous provinces and which historically have had divergent interests.

D. THE TERRITORIES

Canada's three territories, the Northwest Territories, the Yukon Territory and Nunavut, are located in the northern part of the country. While they have local administration, their affairs are to a great extent regulated by the federal government. There is an ongoing debate in Canada as to whether or not the territories should be accorded provincial status.

E. PROVINCIAL GOVERNMENTS

Each provincial legislature consists of a one chamber, or unicameral, elected assembly. Members are elected through the use of the plurality electoral system in each riding.

The provincial Prime Minister, more commonly referred to as the Premier, heads the provincial government. This position is usually filled by the leader of the political party which wins a majority of the seats in the legislative assembly. The cabinet is selected by the Premier from among the members of his/her party, except where a coalition government makes it necessary to appoint cabinet ministers from more than one party.

The head of the provincial state is the Sovereign of the United Kingdom. The Sovereign is personally represented in the province by the Lieutenant-Governor. However, this is now a largely nominal and ceremonial position, filled by a person recommended to the Sovereign by the federal government and acting only on the advice of the Premier and Cabinet

F. MUNICIPAL GOVERNMENTS

Municipal governments in all provinces are established and regulated by provincial law. They are normally governed by elected councils, composed of a mayor, a board of control and aldermen. These councils are usually concerned with matters of local interest such as education and local services including the police, fire-fighting and sanitation.

II. THE CANADIAN CONSTITUTION

A. THE CHARTER OF RIGHTS

Prior to the enactment of the Canadian Charter of Rights and Freedoms (the "Charter of Rights") as part of the Constitution Act, 1982, the Canadian constitutional system was based on the supremacy of the Parliament, like the British parliamentary system. In theory, the federal Parliament and the various provincial legislatures had, between them, absolute power to legislate with respect to all matters. In other words, the "legislative pie" was completely divided up between the two levels of government pursuant to the Constitution Act, 1867 which set out the particular heads of power, or areas of responsibility, in relation to which each level of government was competent to legislate. There was no notion of basic rights and freedoms belonging to the people that were beyond the legislative reach of both levels of government. The rights and freedoms now enshrined in the Charter were not protected by constitutional entrenchment. Rather, there existed certain constitutional conventions whereby both levels of government, in their respective legislative capacities, would voluntarily respect fundamental individual rights and freedoms and would, in effect, restrain themselves from legislating in such a manner as to abrogate or diminish such rights.

Accordingly, before the enactment of the Charter, legislation (including regulations and orders-in-council) could only be challenged on the grounds that it was beyond the legislative competence of the particular level of government which enacted it. Only legislation that encroached upon the legislative jurisdiction of another level of government could be challenged successfully. Subordinate legislation was also susceptible to challenge on the ground that it represented an improper delegation of the law-making power. However, such legislation could not be attacked solely on the basis that it infringed any of the basic rights of the people. Legislation can still be challenged on this jurisdictional basis.

The Constitution Act, 1982 did not change the division of the legislative powers between the federal government and the provinces. However, the Charter of Rights effected a revolutionary change in Canadian constitutional law by entrenching certain individual rights as part of the supreme law of Canada, thereby placing such rights beyond the legislative reach of any government, and providing recourse to the courts for remedies in the event that such rights are infringed.

The Canadian Charter of Rights provides as follows:

Section 1: "Guarantee of Rights and Freedoms"

The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

These freedoms include:

Section 2: "Fundamental Freedoms"

Everyone has the following fundamental freedoms:
(a) Freedom of conscience and religion;
(b) Freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication;
(c) Freedom of peaceful assembly; and
(d) Freedom of association;

Section 3: "Democratic Rights"

Every citizen of Canada has the right to vote in an election of members of the House
of Commons or of a legislative assembly and to be qualified for membership therein;

Section 6: "Mobility Rights"

(1) Every citizen of Canada has the right to enter, remain in and leave Canada;
(2) Every citizen of Canada and every person who has the status of a permanent resident of Canada has the right
(a) to move to, and take up residence in any province; and
(b) to pursue the gaining of a livelihood in any province.

Sections 7-14: "Legal Rights"

7. Everyone has the right to life, liberty and security of the person and the right not to
be deprived thereof except in accordance with the principles of fundamental
justice.

8. Everyone has the right to be secure against unreasonable search or seizure.

9. Everyone has the right not to be arbitrarily detained or imprisoned.

10. Everyone has the right on arrest or detention:

(a) to be informed promptly of the reasons therefore;
(b) to retain and instruct counsel without delay and to be informed of that right;
(c) to have the validity of the detention determined by way of habeas corpus and to be released if the detention is not lawful.

11. Any person charged with an offence has the right:

(a) to be informed without unreasonable delay of the specific offence;
(b) to be tried within a reasonable time;
(c) not to be compelled to be a witness in proceedings against that person in respect of the offence;
(d) to be presumed innocent until proven guilty according to law in a fair and public hearing by an independent and impartial tribunal;
(e) not to be denied reasonable bail without just cause;
(f) to the benefit of a trial by jury where the maximum punishment for the offence is imprisonment for five years or a more severe punishment;
(g) not to be found guilty on account of any act or omission unless, at the time of the act or omission, it constituted an offence under Canadian or international law or was criminal according to the general principles of law recognized by the community of nations;
(h) if finally acquitted of the offence, not to be tried for it again, if finally found guilty and punished for the offence, not to be tried for it again; and
(i) if found guilty of the offence and if the punishment for the offence has been varied between the time of commission and the time of sentencing, to the benefit of the lesser punishment.

12. Everyone has the right not to be subjected to any cruel and unusual treatment or
punishment.

13. A witness who testifies in any proceedings has the right not to have any
incriminating evidence so given used to incriminate that witness in any other
proceedings, except in a prosecution for perjury or for the giving of contradictory
evidence.

14. A party or witness in any proceeding who does not understand or speak the
language in which the proceedings are conducted or who is deaf has the right to
the assistance of an interpreter.

Section 15: "Equality Rights"

(1) Every individual is equal before and under the law and has the right to the equal
protection and equal benefit of the law without discrimination and, in particular,
without discrimination based on race, national or ethnic origin, colour, religion, sex,
age or mental or physical disability.

(2) Subsection (1) does not preclude any law, program or activity that has as its object
the amelioration of conditions of disadvantaged individuals or groups including those that are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

Sections 17, 19, 20: "Official Languages"

These sections guarantee the right of every Canadian to use the English or French
languages in any debates or proceedings of Parliament and the Legislature of New
Brunswick and in any pleading in or process issuing from any court established by
Parliament or the Province of New Brunswick; and the right to communicate and
receive available services from any court established by Parliament or the Province
of New Brunswick; and the right to communicate and receive available services
from the federal government in English or French (subject to certain practical
limitations).

Section 23: "Minority Language Education Rights"

This section guarantees citizens of Canada who form part of an English or French
linguistic minority in the province in which they reside, as well as their children, the
right to receive primary and secondary education in that language in that province,
when the number of such citizens in that province is sufficient to so warrant.

These rights and freedoms are given legal effect by virtue of subsection 52(1) of the Constitution Act, 1982 which provides that the Constitution of Canada (which, as noted, includes the Charter of Rights) is the supreme law of Canada and that any law which is inconsistent therewith is, to the extent of such inconsistency, of no force or effect. Subsection 52(1) allows a person subjected to any proceedings under any law of Parliament or of the provincial legislatures to oppose any such proceedings on the basis that the law in question is inconsistent with the Charter of Rights or with any other part(s) of the Constitution Act, 1982 and therefore is of no force or effect.

Subsection 24(1) of the Charter of Rights permits a person whose rights and freedoms guaranteed thereunder have been infringed or denied to apply to a court of competent jurisdiction for such remedy as the court considers appropriate and just in the circumstance. An application under this section is limited to the protection of the rights and freedoms guaranteed under the Charter of Rights and permits a person whose Charter rights have been infringed to take positive action to protect those rights.

B. INTERPRETATION OF THE CHARTER OF RIGHTS

The Charter of Rights entrenches certain basic principles into the Constitution Act, 1982 without attempting to formulate specific rules for the application of those principles. In any of the proceedings described above, one of the prime issues relevant to the interpretation of the Charter of Rights will be the extent to which the challenged legislative enactment represents "reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society", in which case it is permissible according to section 1 of the Charter of Rights. Consequently, the responsibility for formulating such rules and applying the broad principles of the Charter of Rights to particular circumstances has been imposed upon the courts.

Two important conclusions follow from the foregoing paragraph. First, it is difficult to predict with certainty how the Charter of Rights will affect any particular individual right until that right and the laws affecting it have been considered by the higher levels of courts across the country. Second, the development of the constitutional law of Canada relating to the Charter of Rights will be a long and gradual process. In the United States, this judicial process has been evolving for over 200 years with new developments still occurring every day. A similar process is occurring in this country, with accompanying public debate over whether the courts have in effect become legislators when they employ an expansive view in interpreting the Charter of Rights and the remedies to be granted pursuant to it.

What makes it more difficult to predict how the Charter of Rights will be interpreted is the fact that its enactment represents a marked departure from Canadian judicial traditions. Historically, Canadian courts, following their British heritage, have generally preferred to avoid an active policy-making role. Consequently, despite the fact that the Charter effectively bestowed upon the courts a significant policy-making role it had been generally anticipated that the Canadian courts would approach this new role conservatively. However, experience over the past twenty years has shown that Canadian courts have not hesitated in giving full force to the Charter of Rights and to interpret its provisions liberally - especially those provisions dealing with legal rights (i.e. sections 7 to 14) and mobility rights (i.e. section 6). Whether Canadian courts are engaging in the kind of full blown judicial activism that has occurred in the United States Supreme Court remains an open question.

Some of the issues that the Canadian courts will have to address in interpreting the Charter of Rights are of particular interest to the businessperson. They are discussed below.

C. APPLICATION OF THE CHARTER OF RIGHTS

1. Corporations
Under Canadian law, a corporation is a legal "person" and has the capacity, rights, power and privileges of a natural person. On reading the Charter of Rights, one is impressed by the range of subjects to whom the rights contained therein have been made available, as suggested by the use of the terms "every person", "everyone", "every citizen of Canada", or "every individual". The words "everyone", "every" or "any person" have been held to include corporations in some circumstances, but not in others. Where the substantive provisions in the Charter of Rights describe rights which are, on their face, inapplicable to corporations. For example, subsection 11(f) grants "every person" the right to a jury trial for an offence punishable by 5 years imprisonment. However, a corporation cannot be imprisoned, therefore, notwithstanding section 11(f), a corporation will not be entitled to a jury trial. Similarly, the terms "every individual" (used in section 15) and "every citizen" (used in sections 3, 6 and 23) have been interpreted to exclude corporations. In sum, corporations are entitled to the fundamental freedoms and legal rights guaranteed by sections 2, 7 to 12, 14 and 17, insofar as they are practically applicable to corporations, but not the democratic, mobility, equality and minority language, and educational rights set out in sections 3, 6, 15 and 23.

The Charter of Rights only affects the activities of the various levels of government, and their respective agencies. The Charter of Rights represents a compact between the various levels of government, on the one hand, and the people of Canada, on the other. It also represents a compact between the various levels of government. However, non-governmental bodies and private individuals are not obligated to comply with the Charter of Rights. Regulation in the private sector is achieved through specific legislation by the federal and the provincial governments; for example, the Human Rights Codes enacted by many of the provinces.

2. Competition Act
The right to be secure against unreasonable search and seizure, contained in Section 8 of the Charter of Rights, may have considerable impact on business corporations. This section applies to corporations as well as to individuals, and has been invoked to limit the wide powers of search granted to the Director under the predecessor to the Competition Act, the Combines Investigation Act. That Act permitted investigators to enter and search premises under the authority of a warrant issued by the Director of the Combines Investigation Branch. On the basis of the Charter of Rights, the courts have imposed the requirement that such a warrant must be issued by an independent judicial tribunal. The tribunal must be satisfied, based on sworn evidence, that there exist reasonable and probable grounds for believing that an offence has, in fact, been committed and that relevant evidence is likely to be found. This requirement is now contained in the new Competition Act. Upon obtaining a judicial warrant, the Director may enter upon the premises named in the warrant and may search for any records or other documentation or things and copy or seize same for examination or copying. For a search warrant to be considered reasonable it must comply with the statutory requirements. However, mere technical breaches will not be of great assistance to persons subjected to such investigation because evidence, once it is obtained, is admissible in court even if the search and seizure was in violation of the Charter of Rights. This is true unless the circumstances are such that the court finds that to admit the evidence would bring the administration of justice into disrepute.

The Charter of Rights' impact on corporations is again seen at work vis-à-vis the Competition Act. The Competition Act once contained a provision permitting an accused to be found guilty despite the existence of a reasonable doubt as to their guilt in the mind of the trier of fact. However, the courts have since struck down this provision as violating the Charter right contained in section 11(d), the presumption of innocence.

Subsection 2(b) of the Charter of Rights, which provides for freedom of expression, may also have an impact upon the Competition Act. Its application may cause certain provisions of the Competition Act, in particular the part which deals with Restrictive Trade Practices and which makes certain types of advertising and trade practices illegal, to be unconstitutional as amounting to an abridgement of freedom of expression. However, the courts have been reluctant to interpret business advertisement as true "expression" in this context, and present judicial view would likely be to interpret these restrictions as "demonstrably justified in a free and democratic society," and thus permissible under section 1 of the Charter of Rights.

3. Income Tax Act
Representatives of the federal Minister of National Revenue have wide powers of investigation under subsection 231.4 of the Income Tax Act . Such investigations are often carried out by federal police who are granted authority to enter premises, and to examine, copy and remove books, records, and documents. Similar considerations to those mentioned with respect to the Competition Act will apply and these types of investigations may be held to be unreasonable if they are conducted without prior judicial authorization or if they go beyond the limited scope for which such authorization may have originally been granted.

4. Securities Act
The various provincial Securities Acts permit the respective securities commissions to issue "cease-trading orders" in respect of the securities of any corporation where it is suspected that a violation of the Act or regulations has occurred. Such orders, although made before there has been a determination of whether or not a violation has in fact occurred, can have a very serious effect on the corporation as well as on the owners of the securities in question. It was previously thought that such orders might be susceptible to the argument that they violate the right of the corporation in question to be presumed innocent until proven guilty. However, it is now clear that this right, together with other rights granted in Section 11 of the Charter of Rights, apply only in criminal and quasi-criminal proceedings in respect of which an accused may potentially be imprisoned as a penalty. It is not applicable to regulatory activities such as the issuing of a cease-trading order.

Subsection 11(d) of the Charter of Rights also requires that a finding of guilt be made only after a fair and public hearing before an independent and impartial tribunal. In practice, securities commissions (as will as numerous other regulatory bodies) have different branches which will carry out the functions of investigation and prosecution as well as adjudication, thus giving rise to an argument that they lack impartiality. Again, it appears to be established that proceedings before such bodies are not subject to constitutional challenge, as the rights contained in the Charter of Rights have been interpreted as being applicable only to criminal or quasi-criminal proceedings in which the accused may potentially be imprisoned as a penalty.

5. Employment and Labour Relations
Various provincial statutes which regulate the professions (i.e. law, medicine, dentistry) and other regulated fields of work often contain a provincial residency requirement for persons seeking to be licensed to carry on those business or professional activities. Some of these requirements have been held to run afoul of subsection 6(2) of the Charter of Rights, which guarantees mobility rights and, in particular, the right of all citizens and permanent residents to pursue a livelihood in any province. For example, a Quebec law which granted preference for jobs in construction and hydro-electric industries to Quebec workers, has been held to be invalid on the basis of this provision. However, subsection 6(2) has been held to apply only to mobility between provinces, and professional organizations (such as law societies) are permitted to limit membership to citizens or permanent residents of Canada.

With respect to labour unions, the Charter of Rights may affect one's right to choose to belong or not to belong to such bodies by virtue of the freedom of association provision contained in subsection 2(d). In addition, current rules regarding "secondary picketing" and "closed shops" may be affected. At present, it is unlawful for union members to picket an employer who is not directly involved in a dispute in respect of which the picketing is taking place. This prohibition has been upheld under the Charter of Rights, where the picketers sought to induce other employees to breach the terms of their employment contracts.

Certain pension schemes which provide for a minimum age for participation and different age requirements for men and women may come under attack as being in violation of subsection 15(1) of the Charter of Rights, which provides for equality regardless of age or sex. However, mandatory retirement provisions have been upheld as non-discriminatory, or justifiable under section 1.

Employees who are transferred in the course of their duties may be interested in section 23 of the Charter of Rights, which provides that the children of such employees will have the right to be instructed in the language of their parents (that is, French or English), although that language may be that of the linguistic minority in their new province of residence.

D. SUMMARY
As a result of the enactment of the Charter of Rights a great number of issues of interest and significance to businesspersons can be expected to arise. The issues just enumerated represent merely a sample of those which may be anticipated in the future.

III. FORMS OF BUSINESS ORGANIZATION

A. INTRODUCTION

This chapter provides an overview of the different types of business entities which may be used for investment purposes by foreign businesspersons in Canada. These are as follows:

(a) a sole proprietorship;
(b) a partnership, including a general partnership and limited partnership;
(c) a corporation; and
(d) a branch operation.

Numerous different combinations of these fundamental structures may be utilized as well. This discussion, however, will be limited to a description of these four basic forms of business organizations.

The business entity most suitable for a foreign businessperson in a particular set of circumstances will, of course, vary depending upon the nature of these circumstances and the individual businessperson's requirements. Factors such as exposure to liability, taxation, financing, management, control and continuity of business operations may influence the form of business entity which is ultimately selected. In our experience, the foreign businessperson will generally choose a corporation as the preferred vehicle to conduct business in Canada.

B. SOLE PROPRIETORSHIP

The simplest form of business entity is the sole proprietorship. A sole proprietorship, as the name implies, is a business entity owned by the proprietor. In essence, it is merely an extension of the legal rights and obligations of the individual owner. The owner is personally liable for all debts, obligations and losses of the business and is entitled to all the profits realized therefrom. Any profits realized from the business are taxed personally in the hands of the proprietor, at the proprietor's individual tax rates.

There is no federal or provincial requirement to register the sole proprietorship, unless it is carried on under a name other than the individual's name. If one intends to carry on a sole proprietorship under a name other than the owner's personal name or with the word "company" as part of its name, a declaration in prescribed form must be filed in accordance with the laws of the province where the business is conducted.

In keeping with the simplicity of this structure and the paucity of regulations governing this form of business arrangement, no auditor is required. Adequate financial books and records are to be maintained for tax purposes as well as to satisfy any regulations which might be applicable.

From the point of view of taxation issues, the foreign businessperson may choose to carry on business in Canada as a sole proprietor during the initial stages of the operations, when the business is expected to be unprofitable. In this manner, the proprietor may use business losses arising from the sole proprietorship as deductions from his or her taxable income.

C. PARTNERSHIP

Partnership is another unincorporated form of business entity which may be utilized by the foreign businessperson to carry on business in Canada. A partnership is the relationship that subsists between two or more persons carrying on business in common with a view to profit. Most of the provinces of Canada have enacted legislation respecting the partnership, its formation, continuation and dissolution.

A partnership may be used as a business entity for most commercial activities; however, federal and provincial legislation prohibit certain business activities, such as banking, savings and loan, and insurance, from being carried on in partnership form. Any person, including any incorporated business entity, with the legal capacity to enter into a binding contractual agreement may legally enter into a partnership.

A partnership may take the form of either a general partnership or a limited partnership. In a general partnership, each partner is the agent of the partnership and of his other partners in relation to the business of the partnership. The partners are jointly and severally liable for all debts and obligations of the partnership incurred while they are partners.

A limited partnership is composed of one or more general partners, who manage the business of the limited partnership and who are liable for the debts, liabilities and obligations of the limited partnership, and one or more limited partners, who take a passive role in the business of the limited partnership. In most provinces of Canada, the liability of each of the limited partners is limited to the amount of capital contributed by them to the limited partnership. In order to maintain this limited liability, limited partners may not operate or manage the limited partnership. The limited partnership will be operated and managed solely by the general partner and will be bound by all agreements made by the general partner on its behalf.

Both the general and the limited partnership are required, in most provinces, to be registered with the requisite provincial authority after its formation by filing or registering a declaration or certificate in prescribed form. Any changes with respect to the original partnership declaration or certificate must also be filed with the provincial authority. Subject to legislative requirements of certain provinces respecting registrations and failure to register, a general partnership may, in fact, be created and legal obligations and liabilities imposed upon the partners by their business conduct, even in the absence of registration with the provincial authority. In contrast, a limited partnership may only be formed when a declaration or certificate is filed with the appropriate provincial authority; if the declaration or certificate is not so registered, the limited partnership does not exist under its enabling legislation and all the partners will be treated as general partners.

In the case of both the general partnership and the limited partnership, provincial legislation sets forth the duties and obligation among the partners. These provisions may be altered by a written agreement executed by all of the partners. In the absence of any written agreement to the contrary, the provisions contained in the provincial legislation will apply to the obligations and duties of the partners among themselves.

As in the case of the sole proprietorship, both the general partnership and limited partnership have no legal obligation to prepare audited financial statements. However, proper books and records of the business of the partnership must be maintained. The tax considerations governing partnerships are dealt with later in Chapter VIII.

D. CORPORATION

1. Formation Procedures
A limited company, or corporation, is a business entity whose members (the shareholders) are not, in most instances, responsible for any debt, liability, act or default of the corporation for an amount which exceeds the amount paid by the shareholders for their shares in the capital stock of the corporation. The corporation is formed by incorporation under statute. In Canada, a business corporation may be incorporated either federally, under the Canada Business Corporations Act, or provincially, under the companies legislation of a particular province, or by special Act of either the Parliament of Canada or the legislature of one of the provinces. Generally speaking, incorporation grants a business entity the capacity and the rights, powers and privileges of a natural person.

Incorporation under federal or provincial companies legislation is accomplished by filing the constating documents, declaring the characteristics of the corporation, with the appropriate authority, and receiving a certificate or similar instrument issued by such authority evidencing the incorporation. The process of incorporation is, relatively speaking, quick and inexpensive. For example, in Ontario the constating document, the articles of incorporation, may be composed of as little as six pages prepared in response to ten inquiries. The corporation is incorporated by means of a Certificate of Incorporation obtained in the office of the Ministry of Consumer and Business Affairs, which can be issued shortly after filing the constating documents and upon payment of the required incorporation fee.

A corporation incorporated under the provisions of the Canada Business Corporations Act ("CBCA") may carry on business throughout Canada, subject to the laws of general application of any province in which it carries on business. In Ontario, a federal corporation is entitled to carry on business without obtaining an extra-provincial license. Moreover, pursuant to recent legislation, corporations incorporated under other provincial statutes now have the capacity to carry on their business, conduct their affairs and exercise their powers in the Province of Ontario as well, without further action required in Ontario. However, corporations incorporated outside of Canada are always required to obtain an extra-provincial license before beginning operations.

2. Capital Structure
Under federal and provincial companies legislation, the authorized capital of a
corporation must be set out in the constating documents, or amendments thereto. The authorized capital may consist of one or more classes of shares which have no par value or, if permitted under the particular legislation, may have a stated par value. If the authorized capital of the corporation consists of one class of shares, the rights of the holders are equal in all respects and include the rights to vote at all meetings of shareholders to receive any dividend declared by the corporation upon dissolution. However, should the constating documents provide for more than one class of shares, one class of shares must have the right to vote at all meetings of shareholders and to receive the remaining property of the corporation upon dissolution and the constating documents should provide, with respect to the other class or classes of shares, the rights, privileges, restrictions and conditions attaching to the shares of each such class or classes of shares. The rights, privileges, restrictions and conditions attaching to the other classes of shares may provide for preferential payment of dividends, preferential treatment on dissolution or liquidation of the corporation, right of redemption by the corporation, restriction on or prohibition from voting and the right to convert to another class of shares of the corporation, although private, or "non-offering", corporations (that is, corporations that do not offer their securities to the public) do have shareholder number limits. However, at least one shareholder is, and in some provincial jurisdictions at least three shareholders are, required. It is the shareholders of a corporation who elect the directors.

3. Directors and Officers
Under the provisions of the corporate statutes, the mandate to manage, or supervise the management of, the business and affairs of the corporation is granted to the board of directors. Most of the provincial statutes and the federal statute require that a majority of the directors of most corporations shall be resident Canadians. As well, no person may be a director of a corporation who is less than eighteen years of age, is of unsound mind, or who has the status of a bankrupt.

The directors and officers of a corporation are required to exercise their authority and discharge their duties honestly and in good faith with a view to the best interests of the corporation and are required to exercise the care, diligence and skill that a reasonably prudent person would exercise.

Directors of a corporation have a responsibility not only to the shareholders of the corporation but also to its employees and creditors, the government, and even, in some cases, the public. For example, directors and officers of corporations who have participated or acquiesced in remitting late or failing to remit employees' Canada Pension Plan or Employment Insurance deductions are personally liable, with the corporation, for the applicable penalties Where a corporation commits an offence under the Income Tax Act, an officer, director or agent of the corporation who directed, authorized, assented to, acquiesced in, or participated in the commission of the offence is a party to and guilty of the offence, and is liable to be punished for the offence whether or not the corporation has been prosecuted or convicted.

In Ontario, directors are jointly and severally liable to the employees of the corporation for all debts not exceeding six months' wages that become payable while they are directors for services performed for the corporation and for the vacation pay accrued while they are directors for not more than twelve months, whether under the Employment Standards Act and the regulations thereunder, or under any collective agreement made by the corporation. This liability for employee wages exists only if a director is sued while he or she is director, or within six months after he or she ceases to be a director, and the action against the director is commenced within six months after the debts became payable, and the corporation itself is sued in the same action and execution against the corporation is returned unsatisfied in whole or in part. Also, the director is liable if before or after the action is commenced the corporation goes into liquidation, is ordered to be wound up or makes an authorized assignment under the Bankruptcy and Insolvency Act (Canada), or a receiving order under the Bankruptcy and Insolvency Act (Canada) is made against it, and in any such case, the claim for the debts is proved.

Both the CBCA and the Ontario Business Corporations Act (the "Ontario Act") permit all of the shareholders of a corporation to enter into a written unanimous shareholder agreement which restricts, in whole or in part, the powers of the directors to manage, or supervise the management of, the business and affairs of the corporation. Where a unanimous shareholder agreement restricts the powers of the directors to manage or supervise the management of the business and affairs of the corporation the directors are relieved of their duties and liabilities to the extent of such restriction.

4. Auditors
The shareholders of a corporation are required, in most cases, to appoint an auditor in each fiscal year of the corporation for the purpose of examining the financial statements required by the applicable corporation statute to be placed before shareholders and reporting thereon as prescribed and in accordance with generally accepted auditing standards. The auditor must be independent of the corporation, all of its affiliates, and of the directors or officers of the corporation and its affiliates. The corporation may be exempt from the audit requirements under certain conditions which are expressly stated in the applicable corporation statute. For example, under the Ontario Act a corporation is exempt from the auditor requirements in respect of the fiscal year in which the corporation is a non-offering corporation, where all shareholders of the corporation consent to the audit exemption in writing, and where the corporation has assets and sales and sales or gross operating revenues not exceeding $100,000,000 as shown on the financial statements of the corporation for the preceding year.

Under the provisions of the CBCA, a corporation whose securities are or were part of a distribution to the public and remain outstanding, and are held by more than one person, is required to file a copy of its financial statements, auditor's report and any further information respecting the financial position of the corporation with the Director appointed by the Minister for the purposes of the CBCA. A wholly owned subsidiary may apply for an exemption from this requirement if it falls within the exception provided for in the CBCA. The provincial statutes do not require public disclosure of financial statements, auditor's reports unless the corporation is an offering corporation.

5. Taxation
Unlike a partnership or a sole proprietorship, where the profits and losses realized from the business are taxed directly in the hands of the sole proprietor or in the hands of the individual partners, a corporation is a separate entity for income tax purposes. The principles governing the taxation of corporations in Canada are described more fully in Chapter VIII.

E. BRANCH OF OPERATION

As an alternative method for carrying on business in Canada, a foreign company may establish a branch operation. The branch must be registered or licensed in each province where it intends to carry on business activities. Each provincial statute varies in its definition of what constitutes "carrying on business". Proper books and records of the branch operation must be maintained and all taxes and reporting documents must be filed with the requisite federal, provincial and municipal regulatory authorities in the same manner as those required from corporations incorporated in Canada or any of its provinces. The foreign company will, of course, be responsible for the liabilities and obligations of its branch operation in Canada with respect to all debts and contractual obligations entered into on behalf of the branch by its proper agents, representatives and managers.

F. THE BUSINESS CORPORATIONS ACT,
R.S.O. 1990, c.B.16 (the "Ontario Act")

In the preceding paragraphs, we reviewed the principal business structures which could serve as the form of Canadian business operations carried on by a businessperson. We reviewed, in general terms, the Canadian legislative requirements in relation to corporations and, in particular, those with respect to formation procedures, capital structure, directors and officers, the appointment of auditors and taxation considerations. The following section focuses on the company legislation of Ontario as contained in the Ontario Act. Most of the provisions of the Ontario Act came into force on July 29, 1983 pursuant to the Business Corporations Act, 1982, (Ontario) and the following discussion highlights certain significant sections of the current Ontario Act.

1. Overview
The Ontario Act has provided a measure of uniformity between Ontario's business corporation statute and the companies legislation of Canada and the other provinces.

The Ontario Act contains the following:
(a) A list of ancillary corporate powers and statutory requirements to provide corporate objects in the articles is no longer required, as corporations are now granted the powers of a natural person.
(b) The concept of constructive notice was abolished under the Business Corporations Act, 1982, (Ontario), so that no person is now deemed to have knowledge of the contents of documents concerning corporations by reason only that the documents have been filed.
(c) Codification of the indoor management rule. This rule permits third parties to rely upon officers, directors or employees having the authority to bind the company where their actions would imply that they have such authority.
(d) An offering corporation may restrict the issue, transfer or ownership of its
shares if a specified level of ownership is necessary, as a securities dealer, or if a
level of Canadian ownership is necessary to assist the corporation to qualify to receive licenses or benefits under any Canadian statute which may be prescribed.
(e) The sale of restricted shares is permitted where restrictions are attached in order
to qualify the corporation for special grants, licenses, etc.
(f) An extended opportunity has been granted to shareholders to have proposals put before shareholders in meetings and the cost thereof, in certain circumstances, is to be borne by the corporation.
(g) Provision for the exercise of director's responsibilities by the shareholders through unanimous shareholder agreements.
(h) The requirement that at least one-third of the directors of an offering corporation shall not be officers or employees of the corporation or any of its affiliates.
(i) Provisions have been made for a floating number of directors with the minimum and maximum numbers being set.
(j) Provisions have been made to permit a corporation, a shareholder or, in the case of an offering corporation, the Ontario Securities Commission, to apply to the court for an order setting aside a material contract and requiring a director or officer to account to the corporation where he did not disclose his interest therein as required and thereby made a profit or gain.
(k) Provision has been made to allow corporations to purchase insurance to protect a director from the consequences of failure to exercise a proper standard of care.
(l) Provision has been made for liability of insiders of non-offering corporations.
(m) Provision has been made to require retention of accounting records for only six years from the end of the period to which they relate.
(n) The audit exemption for a non-offering corporation has been increased in that a non-offering corporation is exempt from audit requirements in a financial year if all of the shareholders consent in writing.
(o) Provision has been made for the "three-cornered" or "short form" amalgamation of a holding company and one or more of its wholly-owned subsidiaries.
(p) Dissenting shareholders have the right to have their shares purchased by the corporation, a right which encompasses offering corporations as well as non-offering corporations.
(q) Provision has been made in the Ontario Act for expropriation of the shares of a minority shareholder of an offering corporation, where 90% of non-insiders accept a "take-over" bid or 90% of the holders of a class of security accept an "issuer bid".
(r) Provision has been made so that where 90% of a class of shares of an offering corporation have been acquired by an affiliate, a holder of any of the remaining 10% may force the purchase of his shares.
(s) Provision has been made to protect minority shareholders in "going private" transactions in offering companies subject to exemption on application to the Ontario Securities Commission.
(t) The prescribed time within which an application for revival may be made when a corporation has been dissolved for default in complying with the Corporations Tax Act (Ontario), or failing to comply with the financial disclosure requirements of the Securities Act, has been increased from two to five years.
(u) There is provision for representative actions on behalf of the corporation and further provision setting out in some detail the type of court order that may be made pursuant to the Ontario Act.
(v) An oppression remedy has been provided for minority shareholders, creditors and others on application to the court by a complainant, the Director, and, in the case of an offering corporation, the Ontario Securities Commission.
(w) Provision has been made to allow a person to apply to the court for injunctive relief ex parte as the rules of the court provide. An appeal lies to the Divisional Court from any order made by the court under the Ontario Act.

2. Rights of Dissent and Appraisal
The rights of minority shareholders may be of particular interest to the foreign
businessperson who intends to establish his or her Canadian operation with the assistance of other investors who will become shareholders. Under the provisions of section 185 of the Ontario Act, dissent and appraisal rights are available, both with regard to offering and non-offering corporations, in a similar manner to those rights provided in the CBCA. Section 185(1) of the Ontario Act provides a right of dissent for any holder of shares of any class or series entitled to vote on a resolution to:
(a) amend the articles to add, remove or change restrictions on the issue, transfer or ownership of shares of a class or series of the shares of the corporation;
(b) amend the articles to add, remove or change any restriction upon the business or businesses that the corporation may carry on or upon the powers that corporation may exercise;
(c) amalgamate with another corporation under sections 175 and 176 of the Ontario Act;
(d) be continued under the laws of another jurisdiction under section 181 of the Ontario Act; or
(e) sell, lease or exchange all or substantially all of the property of the corporation under section 184(3) of the Ontario Act.

If a shareholder dissents and follows the procedure set forth in the Ontario Act, the shareholder will be entitled to be paid the "fair value" for the shares held by such shareholder in respect of which he dissents.

3. Compulsory Acquisition - Going Private
Part XV of the Ontario Act applies to an offering corporation only. The Ontario Act provides for a compulsory acquisition where a corporation proposes to carry out a "going-private" transition. Pursuant to section 188(1) of the Ontario Act, if within 120 days after the date of a take-over bid or issuer bid, the bid is accepted by the holders of not less than 90% of the securities of any class of securities to which the bid relates, other than securities held at the date of the bid by or on behalf of the offeror, or an affiliate or associate of the offeror, the offeror is entitled, upon complying with this section, to acquire the securities held by the dissenting offerees.

A dissenting offeree in a "going-private" transaction may, at his/her option, be paid the "fair value" of his/her securities under section 188 of the Ontario Act.

4. Directors
The criteria contained in the old Act to qualify as a director of an Ontario Corporation had been continued under the Ontario Act with one exception, the expanded definition of "resident Canadian". However, in 1996 the Ontario Act, unlike the CBCA, adopted the expanded definition as well.

A "resident Canadian" is in the Ontario Act now again defined as an individual who is:
(i) a Canadian citizen ordinarily resident in Canada;
(ii) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons; or
(iii) a permanent resident within the meaning of the Immigration Act, R.S.C., 1985, c.12., (Canada) and ordinarily resident in Canada.

Under the CBCA a permanent resident who has been ordinarily resident in Canada for more than one year after the time at which he first became eligible to apply for Canadian citizenship cannot qualify as a director.

The definition of "resident Canadian" is of particular significance when the foreign businessperson considers the composition of the board of directors of the Canadian corporation. The Ontario Act requires that a majority of the board of directors be resident Canadian. Although there is no limit on the maximum number of directors, the Ontario Act provides for a minimum of one director in the case of a non-offering corporation and three directors in the case of an offering corporation. However, notwithstanding the majority residency rule, the Ontario Act will permit a two member board of directors composed of one resident Canadian director and one non-resident Canadian.

A quorum is required to properly transact the business of the board of directors. The Ontario Act provides that a quorum shall not be less than two-fifths of the number of directors or minimum number of directors permitted by the articles or by-laws of the corporation, of which a majority of directors present must be resident Canadians, in order to properly transact business at a meeting of directors. Since it may be difficult to comply with this requirement at all times, the Ontario Act permits directors to transact business at a meeting of directors notwithstanding that a majority of resident Canadian directors is not present, provided that one or more of the resident Canadian directors who are unable to be present approves the business transacted at the meeting and a majority of resident Canadian directors would have been present had the absent resident Canadian director(s) been present at the meeting. Furthermore, the Ontario Act provides that where a corporation has fewer than three directors, all directors must be present at any meeting of directors to constitute a quorum.

5. Unanimous Shareholder Agreement
The concept under the CBCA of a unanimous shareholder agreement has been introduced under the Ontario Act. A unanimous shareholder agreement may be entered into among all the shareholders of a corporation, or among all the shareholders and one or more persons who are not shareholders, restricting in whole or in part the powers of the directors to manage or supervise the management of the business and affairs of the corporation. The statutory legitimization of the shareholders' right, by unanimous shareholder agreement, to assume or restrict the responsibilities of directors is a material departure from the common law in this area. Subsection 5 of section 108 of the Ontario Act provides that:
"A shareholder who is a party to a unanimous shareholder agreement has all the
rights, powers, duties and liabilities of a director of the corporation, whether
arising under this Act or otherwise, to which the agreement relates to the extent
that the agreement restricts the discretion or powers of the directors to manage
or supervise the management of the business and affairs of the corporation and
the directors are thereby relieved of their duties and liabilities, including any
liabilities under section 131, to the same extent". [Section 131 pertains to
Directors' liability to employees for wages]

G. THE CANADA BUSINESS CORPORATIONS ACT (CBCA)

In our previous discussion of the Ontario Act, we noted that the Ontario Act was designed to effect a measure of uniformity between Ontario's companies legislation and the companies legislation of the federal and the other provincial governments. We have already observed that the Ontario Act is in many respects similar to the CBCA, and accordingly we will confine our analysis to a review of how the CBCA may be more beneficial than the Ontario Act to a foreign businessperson considering doing business in Canada, rather than a review of the numerous similarities between the two statutes.

1. Comparison of the CBCA and the Ontario Act
There are very few significant differences between the provisions of the CBCA and those of the Ontario Act. However, of particular interest to the foreign businessperson are the financial disclosure requirements under the CBCA and the different treatment under the two corporate statutes accorded to a minority shareholder of a public company which has undertaken a going-private transaction.

The CBCA, unlike the Ontario Act, requires the public filing of financial statements for certain corporations. Section 160 of the CBCA provides that a corporation which at any time made a distribution of its securities to the public shall file a copy of its financial statements at the public office of the Director of the Corporations Branch, Consumer and Corporate Affairs. A corporation that fails to comply with these financial statement filing requirements is guilty of and offence and liable on summary conviction to a fine not exceeding $5,000.

The CBCA contains provisions similar to those of the Ontario Act respecting a compulsory acquisition where a corporation proposes to execute a going-private transaction. Unlike the CBCA, the Ontario Act also contains a provision for a compulsory acquisition at the option of the holder of shares of a class where 90% or more of such shares of a public corporation have been acquired by or on behalf of a person or any of his affiliates or associates. Under these circumstances, a holder of any of the remaining shares of that class may require the corporation to purchase his shares at their "fair value".

2. Jurisdiction of Incorporation
The foreign businessperson, after having considered the similarities and differences between the Ontario Act and the CBCA, must decide upon the jurisdiction of incorporation. It will be assumed for the purpose of this discussion that the choice of incorporation jurisdiction is between a federal corporation and an Ontario corporation. However, incorporation in another Canadian jurisdiction may be suitable or desirable in a wide variety of circumstances.

The foreign businessperson must consider several factors in determining where to incorporate. Such factors include the nature of business to be conducted, the capacity to carry on business in different jurisdictions and the status or prestige of having a federal company.

The nature of the business often will dictate the jurisdiction of incorporation. The nature of the business may be such that it is entirely within the legislative competence of either the provincial or federal government, e.g. the incorporation of a bank must take place pursuant to the federal Bank Act; and trust company operations are within the legislative competence of both the federal and Ontario governments and therefore the incorporation of a trust company can take place either under Canada's Trust Companies Act or under Ontario's Loan and Trust Corporations Act. The incorporation of a federal corporation would obviously take place pursuant to the CBCA; that of an Ontario corporation would occur under the Ontario Act.

Both CBCA and Ontario corporations have the capacities, powers, rights and privileges of a natural person. However, a CBCA corporation is entitled to carry on business in Ontario without an extra-provincial licence. A federal corporation can also hold an interest in land located in any of Canada's provinces and territories.

The foreign businessperson may prefer to incorporate under the CBCA because he or she may feel that when dealing with non-Canadians a federal corporation has greater prestige and status and is better known than a provincial corporation.

IV. NORTH AMERICAN TRADE AGREEMENT

North American Free Trade Agreement - Introduction

The 1980s and 1990s have been a period of dynamic change for Canada. The last two decades have seen the establishment of a positive climate for foreign investment, growth in the manufacturing sector (aided by the Goods and Services Tax introduced on January 1, 1991, which replaced an outmoded manufacturers' sales tax that hit exports and was harmful to the economy), the expansion and internationalization of the financial services sector and an increase in exports of both goods and services. By 1999 the share of Canada's Gross Domestic Product (GDP) attributable to exports had risen to almost 40%.

A striking achievement in creating the environment for these developments was the negotiation of the Canada/United States Free Trade Agreement (FTA), which became effective on January 1, 1989 and provided significant new opportunities for businesspeople to operate in the U.S. market by locating in Canada. The FTA has also offered new incentives for United States investors to establish new business in Canada. These opportunities were enhanced by the North American Free Trade Agreement (NAFTA) which, by adding Mexico, permits businesses operating in Canada to gain access to the entire North American market. NAFTA came into force on January 1, 1994.

The provisions of NAFTA regarding investment are closely modeled on the counterpart provisions of the FTA. The principal effect of NAFTA was to extend the FTA benefits to Mexico as well. There are, however, certain additional provisions which are included in NAFTA but which were not contained in the FTA. These include the principle of "most-favoured-nation treatment" obligating each NAFTA country to accord investors of each other NAFTA country treatment no less favourable than it accords in like circumstances to investors of another NAFTA country or of a non-NAFTA country. In addition, each NAFTA country is to accord investments of investors of each other NAFTA country treatment in accordance with international law, including fair and equitable treatment and full protection and security.

Performance Requirements

NAFTA contains additional provisions with respect to performance requirements. Requirements which tie the volume or value of imports into, or sales within, a territory either to the volume or value of exports from the host country, or to its foreign exchange earnings, are prohibited. As well, provisions were added relating to technology transfers and product mandating. NAFTA not only prohibits the imposition of such performance requirements in undertakings or commitments given by other NAFTA country investors, but also proscribes the enforcement of performance requirements. Accordingly, Industry Canada is unable to enforce, as against any NAFTA country investor, any undertaking constituting or containing a performance requirement, irrespective of when such undertakings were given. There is an exception, however, for any undertaking enforced in connection with a review under the Investment Canada Act (ICA), whereby an investor is to locate production, carry out research and development, train employees, or construct or expand particular facilities in Canada.

Similarly, NAFTA prohibits the imposition of performance requirements such as preferential domestic sourcing, export minimums or minimum domestic content on NAFTA investors as a condition of receiving or continuing to receive any advantage from the host NAFTA country.

NAFTA prohibits a host NAFTA country from requiring that an entity of another NAFTA country appoint to senior management positions individuals of any particular nationality. However, a NAFTA country may require that a majority of the board of directors, or of any committee of the board of such an entity, be of a particular nationality or resident in the territory of the host NAFTA country, so long as that requirement does not materially impair the ability of the investor to exercise control over its investment.

Exceptions

NAFTA's principles respecting national treatment, most-favoured-nation treatment, performance requirements and nationality of senior management and boards of directors do not apply to any existing non-conforming measure (such as the ICA) that is maintained by the federal government and described in a NAFTA annex. They similarly do not apply to inconsistent measures of states and provinces that were in effect as of April 1996, thereby protecting such measures from challenge under NAFTA's dispute settlement provisions. Measures instituted after April 1996 that establish new or increased discrimination against investors from other NAFTA countries, however, may be submitted to dispute settlement.

NAFTA contains an explicit acknowledgment that when selling or disposing of its equity interests in, or the assets of, an existing state enterprise or an existing governmental entity, Canada and each province has the right to prohibit or impose limitations on the ownership of such interests or assets by investors of another NAFTA country or non-NAFTA country or their investments, and on the ability of owners of such interests or assets to control any resulting enterprise.

The national treatment, most-favoured-nation treatment and senior management principles are expressly stated not to be applicable to government procurement of goods or services or to subsidies and grants provided by a NAFTA country, including government-supported loans, guarantees and insurance. This means that NAFTA countries may discriminate against the investors of other NAFTA and non-NAFTA countries in regard to government procurement of goods and services or to the granting of subsidies or other assistance (except as otherwise prohibited; for example, in NAFTA's rules on government procurement).

Transfers:

NAFTA obligates each NAFTA country to permit transfers and international payments relating to an investment of an investor of another NAFTA country in the territory of the first mentioned NAFTA country to be made freely and without delay. Such transfers include:

(a) profits, dividends, interest, capital gains, royalty payments, management fees, technical assistance and other fees, returns in kind and other amounts derived from the investment;
(b) proceeds from the sale of all or any part of the investment or from the partial or complete liquidation of the investment;
(c) payments made under a contract entered into by the investor, or its investment, including payments made pursuant to a loan agreement;
(d) expropriation payments and awards made pursuant to the dispute resolution provisions of Chapter 11 ("Investment").

These provisions effectively prevent a party from taking steps to block the transfer of funds out of the country. In addition, NAFTA investors will be able to convert local currency into foreign currency at the prevailing rate of exchange for any such transfers. Each NAFTA country is responsible for ensuring that such foreign currency may be freely transferred. This is intended to enhance the security of investments by other NAFTA country investors in NAFTA countries in the event that their investment is expropriated, by requiring that the compensation to be paid will be realizable and will not be tied up in a blocked currency. NAFTA countries are also prohibited from requiring their investors to transfer, or from penalizing its investors who fail to transfer, the income, earnings, profits or other amounts derived from or attributable to an investment in the territory of another NAFTA country.

Special Formalities and Information Requirements:

A further exception to the national treatment principle permits a NAFTA host country to impose a requirement on investors of another NAFTA country that they must be residents of the host country and that investments made by such investors must be legally constituted under the laws of the host country (eg., be held in a locally-incorporated corporation) "provided that such formalities do not impair the substance of the benefits of any of the provisions" of Chapter 11. In addition, each NAFTA country is expressly permitted to require, from an investor of another NAFTA country or its investment, routine business information to be used solely for informational or statistical purposes concerning that investment.

Environmental Measures:

As a general exception, NAFTA provides that nothing in Chapter 11 is to be construed as preventing a NAFTA country from adopting, maintaining or enforcing any measure that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns. In addition, it is expressly recognized that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. In this connection, the NAFTA countries have agreed to consult with one another if one of them considers that another may have offered such encouragement.

Other Exempted Matters:

Cultural Industries - Under NAFTA, Canada preserves the exemption for "cultural industries" that is provided under the FTA. However, each NAFTA country reserves the right to take measures of equivalent commercial effect in response to any action regarding cultural industries which would have been a violation of NAFTA but for the cultural industries exemption. These compensatory measures are not limited by obligations imposed by NAFTA.

National Security - NAFTA does not limit a party's ability to take actions which it considers necessary for the protection of its essential security interests:

a) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purposes of supplying a military or other security establishment;

b) taken in time of war or other emergency in international relations; or

c) relating to the implementation of nuclear weapons or other nuclear explosive devices.

Investor Dispute Resolution:

Subchapter B of Chapter 11 of NAFTA sets out a comprehensive code for the resolution of investment disputes involving a breach or an alleged breach of NAFTA investment rules by a NAFTA country. A NAFTA investor may either seek monetary damages through binding investor-state arbitration or remedies that are available in the domestic courts of the host country. In contrast, the FTA contains no provisions specifically enabling investors to require the resolution of investment disputes directly with a host country.

Subchapter B establishes a mechanism to settle investment disputes that assures due process before an impartial tribunal. An investor of a Party has an option either to resolve a claim against a party for breach of any of the provisions of Subchapter A before the tribunals of the party where the investment was made, or to submit the claim to arbitration. Three arbitration options are provided: International Centre for Settlement of Investment Disputes Convention (ICSID) arbitration (if the two countries involved are parties to the ICSID); the Additional Facility Rules of ICSID (if only one country is a party to the ICSID) or arbitration under the rules of the United Nations Commission on International Trade Law ("UNCITRAL Arbitration Rules").

Accordingly, the NAFTA investor dispute resolution mechanism does not involve the establishment of a new arbitral process but instead confirms investors' rights to seek arbitration for violations of NAFTA investment rules under three existing international arbitration procedures.

Currently only the United States is a signatory to the ICSID convention. Consequently, the option of arbitration pursuant to that convention will only become available if, as and when another NAFTA party signs on to it. However, the Additional Facility Rules of ICSID are intended for the purpose, among others, of specifically dealing with investment disputes between signatory and non-signatory countries. The UNCITRAL Arbitration Rules are rules which international parties frequently choose to govern disputes arising out of international contracts.

The investment dispute resolution process provided for by Subchapter B overcomes problems which have been encountered in connection with the more traditional approach to the resolution of foreign investment disputes in an international context. Generally speaking, international rights are recognized as between states and, where international law is violated with reference to an individual investor from a state, it is the state and not the individual investor that has the right to assert a claim in regard to the injury sustained. Heretofore, individual investors, in dealing with a foreign state, have been constrained in their ability to petition directly for relief from a treaty breach by a host country. Instead, such investors were required to enlist the assistance of their own government to present their claims against the foreign state. Moreover, a further obstacle to the resolution of these kinds of disputes arose from the requirement that a private party must first have exhausted the remedies available to it under the domestic laws of the host state before presenting its claim through the diplomatic channels of its own state.

The NAFTA investor dispute provisions represent a significant reform in this area in that an investor aggrieved by measures of a host government has standing to initiate dispute settlement directly against the host government without the involvement of its own government, using existing legal procedures for the resolution of international commercial disputes. If a breach of NAFTA investment rules and consequential injury to the investor can be made out, relief by way of damages and reversal of the offending measure may be available.

Exception for Disapproved Acquisitions - NAFTA specifically exempts from the application of these investor dispute resolution rules any decision by a NAFTA country to prohibit or restrict the acquisition of an investment in its territory by an investor of another NAFTA country for national security reasons or under a foreign investment screening process.

Accordingly, decisions regarding the approval or non-approval of investments under the ICA are not subject to NAFTA dispute settlement.

Country of Origin

In general terms the country of origin of a good is that place where the good is grown, extracted, produced or manufactured. Where various steps in the processing or manufacturing of a particular good occur in different countries, rules of origin usually provide that the place where a threshold amount or more of costs of production were incurred, or where a prescribed classification change occurs, will be deemed to be the country of origin of the article upon its importation into Canada. Once country of origin is established, the tariff (the schedule of duty rates) accorded to that country is applied.

Where goods meet the rules of origin prescribed in the North American Free Trade Agreement (NAFTA) and can be so certified, they are entitled to enter Canada at the preferential duty rate accorded to U.S. and Mexican origin goods under the NAFTA. Commencing in January 1998, all goods originating in the U.S. under the NAFTA rules of origin were entitled to duty free entry. For Mexico, and some U.S. Mexico original goods, all duties are to be eliminated by January 1, 2008. Under the tariff rate reduction scheduling prescribed in the NAFTA, the majority of commercial goods of certified U.S. origin are already duty free.

Where goods do not meet the NAFTA rule of origin requirements, although they have undergone processing in and were exported from the U.S. or Mexico, the (usually higher) "Most Favoured Nation" (MFN) duty rates apply. The final tariff reductions of MFN duty rates negotiated in the Uruguay Round were implemented on January 1, 1999.

Note that apart from NAFTA, Canada has also established preferential duty rates for goods of Chile and Israel pursuant to free trade agreements concluded with those countries.

North American Free Trade Agreement - Planning Issues

As a result of NAFTA, perhaps the least costly and administratively burdensome method of obtaining advantageous tariff treatment involves planning ones sourcing and production activity in light of tariff rules of origin. Development of sourcing arrangements, or modifications of existing arrangements, should be considered to ensure that one has access to the duty reduced or duty free treatment accorded to U.S. exports to Canada by NAFTA. For example, if an input component of a finished product is deemed to meet the rules of origin based on the Canadian, U.S. or Mexican origin of a preponderance of the component's content, the entire cost of such a component may be included in the calculation of the total Canada-U.S. value content of the finished product. Since the entitlement of most processed goods to NAFTA-based duty reduced treatment depends on reaching a deemed 50% North American value added threshold, the declining or free NAFTA duty rates (in cases where products are not already duty free into Canada) increases such goods' margin of preference.

Unlike the former situation under the FTA, and unlike the U.S. and Mexico, Canada established two new tariff levels upon implementation of the NAFTA - a Mexico tariff for goods processed there, and a Mexico-U.S. tariff (MUST) for products which undergo processing in both the U.S. and Mexico. The MUST tariff was implemented primarily to distinguish maquiladora goods (goods produced in specified duty-free zones in Mexico) from those of wholly U.S. geographic origin, and is generally equal to or higher than the Mexico tariff, which is in turn higher than the U.S. tariff, the latter a result of reductions under the older FTA.

Marking and Labelling of Imported Goods

The Marking of Imported Goods Regulations provide that prescribed goods must be indelibly marked with their country of origin. Where non-NAFTA finished goods are made from components whose countries of origin differ, Canada Customs deems the finished article's origin to be the country where it essentially took the form in which it is imported into Canada. Since this rule of origin for marking purposes is different from other rules of origin which determine eligibility for tariff preferences, an imported article may, for example, need to be marked as originating in one country, but may not be eligible for that country's preferential duty treatment.

Under NAFTA, Canada, the U.S. and Mexico have established marking rules to identify the origin of goods in continental trade, which are similar to but not the same as the rules of origin which determine eligibility for lower NAFTA duties. This is particularly true in the textile and apparel sectors, so that inconsistencies of the sort noted above may continue to arise on NAFTA goods.

Canada Customs may review marking determinations for up to four years after accounting, where the Minister considers it advisable.

V. INVESTMENT CANADA ACT

A. INTRODUCTION

Canada is a resource rich nation and, accordingly, requires massive amounts of capital to develop its economic potential. Foreign investors have always played a significant role in providing this necessary capital and today do so to an even greater extent. Non-Canadian investors in Canada are largely subject to the same rules which govern Canadian corporations. Canada has not had exchange control laws for over forty years and, accordingly, foreign investors find it relatively easy to repatriate the profits from their investments in Canada.

By the standards of most developed industrial nations, Canada has relatively limited government regulation of foreign investment. Traditionally, such regulation has taken the form of:
1. withholding taxes due on dividends, interest or royalties leaving Canada;
2. special incentives under Canadian income tax legislation and other legislative programmes which are made available only to Canadian controlled companies; and
3. limitations of the degree of foreign ownership and control allowed in particularly sensitive areas of Canada's economy.

With the coming to power of the Progressive Conservative Party in September of 1984, a change in policy direction in respect of foreign investment in Canada became evident. Where the previous government had occupied itself with hindering foreign investment, the new government summed up its outlook in a speech given by Prime Minister Brian Mulroney at the Economic Club dinner in New York City on December 10, 1984, when he stated: "our message is clear: Canada is open for business again."

The Investment Canada Act (the "ICA"), which came into force on June 30, 1985, gives effect to this new policy direction. The ICA repeals the previous Liberal Government's much criticized Foreign Investment Review Act ("FIRA"), which had regulated foreign investment in Canada much more stringently and was a source of annoyance to non-Canadians seeking to invest in Canada. By its terms, the ICA acknowledges that increased capital and technology would benefit Canada. Its operates from the stated premise that its purpose is to encourage investments by both Canadians and non-Canadians that contribute to economic growth and employment opportunities in Canada, and to provide for a review of significant investments in Canada by non-Canadians in order to ensure such benefit to Canada.

B. TRANSACTIONS SUBJECT TO REVIEW UNDER THE ICA

1. Establishment of New Businesses
The ICA provides for a two-tiered system of regulation of foreign investments comprised of (l) notification and (2) review. Whereas under FIRA all new businesses established in Canada by foreigners were subject to review, under ICA the only newly established businesses which are reviewable are those related to Canada's cultural heritage or national identity. Thus, under the ICA almost all investments which involve the establishment of a new business are exempt from review, and need only notify the federal government. In such circumstances, a non-Canadian investor must simply notify the Director of Investments (the "Director") of the investment under Part III of the ICA. Where an investment is related to Canada's cultural heritage or national identity, the Director must decide within 21 days of receiving notice from the potential investor whether or not it wishes to review the investment.

Regulations published under the ICA attempt to define the types of business activities considered to be related to Canada's cultural heritage or national identity. Examples of such investments include the publication, distribution and sale of written material, films, video products, audio-video music recordings and sheet music. Notably, the business activities prescribed by the regulations as reviewable do not extend to the energy and high technology industries, considered so sensitive by the previous Government. It is expected that the discretion exercised by the Director in reviewing investments relating to Canada's cultural heritage or national identity will be exercised with caution, consistent with the spirit and intent of the ICA.

2. Acquisitions of Control
Where foreign investment involves the acquisition of control of an existing Canadian business, as opposed to the establishment of a new business, different considerations apply. However, a significant number of acquisitions which were formerly reviewable under FIRA are now exempt from review under the ICA.

An acquisition of control can be accomplished either directly or indirectly. A direct acquisition occurs when the non-Canadian acquires a majority of the voting shares of a corporation (or voting interests of a non-corporate entity), or acquires all or substantially all of the assets used in carrying on of the business of a corporation. Under the ICA, such direct acquisitions are reviewable only where the value of the assets of the Canadian business acquired is $5,000,000 or more. Acquisitions by non-Canadians of Canadian real estate businesses with gross assets of $5,000,000 or more that derive their revenue from rental properties are also reviewable under the Act.

An indirect acquisition occurs when the non-Canadian acquires control of a foreign corporation or entity, which in turn controls a Canadian business. An indirect acquisition is reviewable under the following circumstances:
1. Where the value of the assets of the Canadian subsidiary is $5,000,000 or more which represents more than one-half of the value of the assets acquired in the over-all transaction.
5. Where the value of the assets of the Canadian subsidiary is $50,000,000 or more but represents less than one-half of the value of the assets acquired in the over-all transaction.

Similar rules apply in the case of acquisitions of foreign entities other than corporations having Canadian subsidiaries or businesses. The acquisition of the shares of a corporation, to which are attached one-third or more of the voting rights of that corporation, is deemed to constitute the acquisition of control of any business carried on by the corporation, unless it can be established that the acquiror does not in fact controlled the corporation through the ownership of the said voting shares. In this respect, the ICA is more lenient to the non-Canadian investor than was formerly the case under FIRA. Under FIRA, the acquisition of 5% or more of the voting shares of a public corporation, or 20% or more of the voting shares of a private corporation, was deemed to always constitute an acquisition of control. Under the ICA, no distinction exists between the acquisition of shares of a public corporation and those of a private corporation.

C. NET BENEFIT TO CANADA

Assuming that a particular investment is reviewable under the ICA, the test for determining whether or not the Director will grant approval for the investment is whether that investment is or is not likely to be of "net benefit" to Canada. This represents a change from FIRA, under which the test for approval was whether or not the investment was likely to be of "significant benefit" to Canada. Moreover, under the ICA there are specified criteria to guide the Minister in the exercise of his discretion as to whether or not a particular investment meets the test for approval. Under FIRA, no such statutory criteria were specified. By enumerating the factors to be taken into consideration by the Director, the ICA makes the review process less arbitrary and discretionary. The ICA provides that, in determining whether the test for approval is met in the circumstances, the Minister is required to take into account the following factors:

(a) the effect of the investment on the level and nature of economic activity in Canada including, without limiting the generality of the foregoing, the effect on employment, on resource processing, on the utilization or parts, components and services produced in Canada and on exports from Canada;
(b) the degree and significance of participation by Canadians in the Canadian business or new Canadian business and in any industry or industries in Canada of which the Canadian business or new Canadian business forms or would form a part;
(c) the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
(d) the effect of the investment on competition within any industry or industries in Canada;
(e) the compatibility of the investment with national industrial, economic and cultural policies, taking into consideration industrial, economic and cultural policy objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment; and
(f) the contribution of the investment to Canada's ability to compete in world markets.

In most cases, a potential investor will have very little difficulty satisfying this "net benefit" test. By its very terms, the ICA assumes that increased capital and technology is of benefit to Canada, and thereby creates a presumption in favor of the non-Canadian investor and, conversely, an onus on the Director to rebut this presumption.

D. WHO IS SUBJECT TO THE ICA?

The range of persons subject to the ICA is also narrower than under previous legislation. The notification and review process set out in the ICA applies to investments made by "non-Canadians", that is to say, by persons who are not Canadians. An individual is a "Canadian" within the meaning of the ICA if (s)he is a Canadian citizen or if (s)he is a permanent resident (within the meaning of the Immigration Act, R.S.C. l985, c-I-2) who has been ordinarily resident in Canada for not more than one year after first becoming eligible to apply for Canadian citizenship.

The ICA sets out rules for determining whether a corporation or other entity is Canadian controlled, in which case it will not be subject to the ICA. If it is not Canadian controlled, it will be subject to the notification and review provisions of ICA. These rules may be summarized as follows:
(a) if one Canadian or two or more Canadian members of a voting group own a majority of the voting interests of an entity, it is Canadian controlled;
(b) if one non-Canadian or two or more non-Canadian members of a voting group own a majority of the voting interests of an entity, it is not Canadian controlled;
(c) if Canadians own a majority of the voting interests of an entity it is a Canadian controlled entity, if it can be established that the entity is not in fact controlled through the ownership of voting interests by a non-Canadian or by a voting group where non-Canadians own one-half or more of the group's voting interests;
(d) if less than a majority of the voting interests of an entity are owned by Canadians, it is presumed not to be a Canadian controlled entity, unless it can be established that:
1. the entity is controlled through the ownership of voting interests by one Canadian or by a voting group in which Canadians own a majority of those voting interests of the entity owned by the voting group, or
2. in the case of an entity that is a corporation or limited partnership, the entity is not controlled in fact through the ownership of its voting interests and that Canadians compromise two-thirds of:
(i) the board of directors, in the case of a corporation,
(ii) the general partners, in the case of a limited partnership,
(iii) the trustees, in the case of a trust;
(e) if two persons, one of whom is a non-Canadian, own equally all of the voting shares of a corporation, the corporation is not Canadian controlled;
(f) if, in the case of a corporation incorporated in Canada whose voting shares are publicly traded in the open market, the Minister is satisfied that the following conditions have existed for at least one year immediately preceding the submission of the following information and evidence:
(i) the majority of its voting shares are owned by Canadians
(ii) four-fifths of the members of its board of directors are Canadian citizens ordinarily resident in Canada,
(iii) its chief executive officer and three of its four most highly paid officers are Canadian citizens ordinarily resident in Canada,
(iv) its principal place of business is located in Canada; and
(v) its board of directors supervises the management of its business and affairs on an autonomous basis without direction from any shareholder other than through the normal exercise of voting rights at meetings of the shareholders,
the corporation is deemed to be Canadian controlled for up to two years, irrespective of the de facto control, for the purpose of all reviewable acquisitions except those in culturally related activities.

E. REVIEW PROCESS

Where an investment is reviewable under the ICA, the non-Canadian making the investment must file an application with the Director. Where the application contains all of the required information, the Minister must, within 45 days after the date upon which it acknowledges receipt of the application, send notice to the applicant indicating whether the Minister is satisfied that the investment is likely to be of net benefit to Canada. Where the Minister fails to send such notice within that 45 day period, he is deemed to be satisfied that the investment is likely to be of net benefit to Canada, unless within the said 45 day period he sends a further notice that extends the initial 45 day period for a further 30 days. These time provisions are shorter than those in place under FIRA, wherein the Minister had 60 days to review the application and could extend the initial time period indefinitely.

F. RECENT AMENDMENTS TO THE ICA
As a result of the North American Free Trade Agreement between Canada, Mexico and the United States (NAFTA), special rules govern investment in Canada by American or Mexican investors, raising the review threshold far beyond the $5,000,000 level mentioned above. The current investment threshold for review for Americans is approximately $150,000,000.00 (Cdn.) in assets, provided the business involved is not related to Canada's cultural heritage or national identity. Included in these rules were provisions revising the thresholds for review which also applied to a non-Canadian investor other than an American or Mexican who acquired control of a Canadian business controlled by an American or Mexican.

Since 1994, the ICA was amended again by the World Trade Organization ("WTO") Agreement between the former parties of the General Agreement on Trade and Tariffs ("GATT"). The WTO Agreement replaced the GATT effective January 1, 1995.

Therefore, the rules of the ICA governing investments in Canada by American or Mexican investors have been replaced by rules applicable to investments by a "WTO Investor". A WTO Investor is an individual, other than a Canadian, who is a national of a WTO Member, or who has the right of permanent residence in relation to that WTO Member.

The review thresholds for direct and indirect acquisitions by WTO Investors under the current ICA are determined each year by the Minister responsible for Investment Canada, using a formula based on the Nominal Gross Domestic Products at market prices.

G. CONCLUSION

When acquiring small businesses (i.e. acquisitions of Canadian business having less than $5,000,000 in assets) or establishing new businesses (except those in the cultural areas), non-Canadian investors need only notify the Director of their investment and no review is required.

Where a review is required, the approval process is fast and relatively simple, because of the relatively limited range of reviewable transactions and because the Director must meet certain specified deadlines.

Further, experience with the ICA confirms the tendency of the Government to approve the overwhelming majority of reviewable foreign investments.

Thus, any non-Canadian investor looking at Canada now will surely feel more welcome than at any time under FIRA, and will have an excellent chance of carrying out his proposed