[Last updated: 1 January 2025, unless otherwise noted]
3.1 Shareholding rights and powers
The table below provides an overview of the different rights, powers and obligations that are attached to different levels of holdings of voting shares within a corporation subject to the Canada Business Corporations Act and applicable securities laws. Canadian corporations may be incorporated under this federal statute or under the corporate statute of a province or territory of Canada, which may provide for slightly different shareholder rights:
| Shareholding | Rights |
|
One share |
The right to attend and vote at annual shareholders' meetings. The right to access certain corporate records and obtain annual financial statements. The right to apply to a court for an oppression remedy where the actions of the company, management or directors are oppressive or unfairly prejudicial to, or unfairly disregard, the interests of the shareholder. The right to fair value for shares where the shareholder dissents from approving certain fundamental corporate changes. |
|
1% or shares representing C$2,000 fair market value, held for at least six months |
The right to submit a proposal to the company to be discussed and voted on at the next annual meeting. |
|
5% |
The right to requisition a meeting. |
| 10% (on a partially diluted basis) |
The obligation to prepare an early warning report. |
| 20% (on a partially diluted basis) |
The obligation to make a formal takeover bid (or otherwise rely on an exemption) if acquiring more shares. |
|
More than 33 1/3% (at a special shareholders' meeting) |
The ability at an annual shareholders’ meeting to block the matters set out for shareholdings of 66 2/3%, below |
|
More than 50% (at annual shareholders’ meeting) |
The ability at a annual shareholders’ meeting:
|
|
66 2/3% |
The right to effect fundamental changes to the company by special resolution, such as:
|
|
90% |
The right to exercise the "compulsory acquisition" of shares following a successful takeover bid, i.e., if, within 120 days after the date of the bid, the bid is accepted by holders of not less than 90% of the shares other than shares held by the bidder or its affiliates or associates. |
3.2 Restrictions and careful planning
Canadian law contains a number of rules that apply before a public takeover bid is announced. The main restrictions and hurdles have been summarized below. Some careful planning is therefore necessary if a potential bidder or target company intends to start up a process that is to lead towards a public takeover bid.
3.3 Disclosure of shareholdings
The rules regarding the disclosure of shareholdings and transparency apply before, during and after a public takeover bid.
Pursuant to the EWR regime, if a potential bidder starts building up a stake in the target company, it will be obliged to announce its stake and file an early warning report if its holdings of voting or equity securities have passed applicable disclosure thresholds. The relevant disclosure (early warning) thresholds in Canada are 10% and, thereafter, every increase or decrease of 2% or more or decreases below 10% of the outstanding class of voting or equity securities that was the subject of the most recent disclosure. Similar disclosure must be made if there is a change in any material fact in the required disclosure. The potential bidder must disclose the purpose of the acquisition(s) and any plans or future intentions. If it intends to launch a takeover bid, this must be disclosed.
When determining whether a threshold has been passed, a potential bidder must include securities underlying derivative securities convertible within 60 days, whether or not on conditions. The bidder must also consider the voting securities held by the parties with whom it acts jointly or in concert or may be deemed or presumed to act jointly or in concert (see 3.7 below). These include affiliates and associates. The parties may also have to include existing shareholders of the target company with whom the potential bidder has entered into specific arrangements (such as call option agreements).
The potential bidder (or any person acting jointly or in concert with such) must not acquire or offer to acquire beneficial ownership, control or direction over shares in respect of which the above disclosure was required to be filed until the expiry of the first business day following the date that the disclosure is filed. This does not apply with respect to holdings of securities that constitute 20% or more of the class (for which the potential bidder must comply with the formal takeover bid rules or rely on an exemption therefrom).
The above 10% disclosure threshold drops to 5% if a takeover bid has been made.
3.4 Disclosures by the target company
The target company must continue to comply with the general rules regarding disclosure and transparency. These rules include that a company must immediately announce all material changes. The facts surrounding the preparation of a public takeover bid or arrangement may constitute a material change. If so, the target company must announce this. However, the board of the target company can delay the announcement in certain circumstances. For instance, this could occur if the transaction has not been agreed to fully and the target's board believes that an early disclosure would prejudice the negotiations regarding a bid.
3.5 Early disclosures
Canadian regulatory authorities do not have a right to request a person that could be involved in a possible public takeover bid to make an announcement without delay. However, if the bidder acquires shares past the applicable thresholds set out in 3.3, it is required to disclose the purpose of such transaction, in addition to its holdings. If there is an intention to launch a takeover bid, this intention must be disclosed. If the bidder has previously filed an early warning report, it must update the early warning report to disclose this new intention.
3.6 Due diligence
The Canadian public takeover bid rules do not contain specific rules regarding whether or how prior due diligence can or should be organized. However, the concept of a prior due diligence or pre-acquisition review by a bidder is universally accepted in Canada for friendly bids, and appropriate mechanisms have been developed in practice to organize a due diligence or pre-acquisition review and to cope with potential market abuse, early disclosure and potential competition concerns. These include the use of strict confidentiality procedures, non-disclosure agreements and data rooms.
3.7 Joint actors
The issue of whether or not persons are "joint actors" is one of fact. For the purposes of the Canadian takeover bid rules, a person is deemed or presumed to be "acting jointly or in concert" with an offeror if it is:
- (deemed) a person that, as a result of any agreement, commitment or understanding with the offeror or with any other person or company acting jointly or in concert with the offeror, acquires or offers to acquire securities of the same class as those subject to the offer to acquire;
- (presumed) a person that, as a result of any agreement, commitment or understanding with the offeror or with any other person or company acting jointly or in concert with the offeror, intends to exercise jointly or in concert with the offeror or with any person or company acting jointly or in concert with the offeror any voting rights attaching to any securities of the target; or
- an affiliate (deemed) or associate (presumed) of the offeror.
This is especially relevant in relation to the potential obligation to make a formal takeover bid. If one or more persons in a group of persons acting in concert acquire voting securities as a result of which the group in the aggregate would pass the 20% threshold, the members of the group will have a joint obligation to carry out a formal takeover bid, even though the individual group members do not pass the 20% threshold.