[ESTABLISHING A BUSINESS ENTITY IN CANADA] 89
non-Canadian to establish a new business is subject to notification, either prior to implementation or within the next 30 days. The information required includes the identification of the investor, the projected number of employees at the end of the 2nd full year of operation, the projected amount to be invested in the new business over the first 2 full years of operation, and the projected level of annual sales or revenues during the 2nd full year of operation. The acquisition of control (as defined by certain statutory formulae) of a Canadian business is reviewable if the assets of the entity or entities being acquired exceed certain thresholds. For members of the World Trade Organization (WTO), and members of countries who qualify as "Trade Agreement Investors" (as that term is defined in the Investment Canada Act ), the usual thresholds of CDN $5 million for direct investments and CDN $50 million for indirect investments are replaced by an annually prescribed amount based on a comparative of the Canadian GDP (gross domestic product) in the current year to that of the previous year. Even though transactions falling under these threshold values are not automatically reviewable, notification of the transaction to the Canadian government along with the filing of forms under the Investment Canada Act is still required. Any acquisition by a WTO investor (other than a state-owned enterprise) of a Canadian business, having an enterprise value in excess of $1.287 billion, may be reviewed to determine the “net benefit to Canada.” In the case of a direct acquisition of control of a Canadian business by a WTO state-owned enterprise, the acquisition is reviewable if the target business has total assets in Canada whose book value exceeds $512 million.
Similarly, the direct acquisition of control of a Canadian business by investors controlled in certain countries having a free trade agreement with Canada ( e.g., the United States, the United Kingdom and the European Union) is reviewable where the 2023 enterprise value exceeds $1.931 billion. Certain transactions are automatically reviewable without consideration of any threshold, such as the acquisition of control by a non-Canadian of any Canadian business which is a cultural business. A “cultural business” is defined by Section 14.1 of the Investment Canada Act as the publication, distribution and sale of books, magazines, periodicals or newspapers in print or machine readable form (other than merely printing or typesetting them); the production, distribution, sale or exhibition of film or video recordings, audio or video music recordings, music in print or machine readable form or radio communication in which the transmissions are intended for the general public; and radio, television and cable television broadcasting undertakings, satellite programming and broadcast network services. Lastly , the government has the power to block transactions involving national security issues, as well as to review transactions involving state-owned entities. As of August 2022, a foreign person which is not obliged to file under the Investment Canada Act national security rules may do so voluntarily to obtain regulatory certainty that the transaction will not be subsequently challenged, which the regulator has the authority to do for a period of 5 years following the closing date.
ILN Corporate Group – Establishing a Business Entity Series
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