# Doing Business in Canada Your lawyer. Your law firm. Your business advisor. Doing Business in Canada Doing Business in Canada Contents Forms of Business Organization in Canada 1 Financing a Foreign Business Operating in Canada 4 Aboriginal Law 7 Business Immigration 10 Canada’s Anti-Spam Law 12 Climate Change 14 Construction Law 17 Corporate Governance 20 Dispute Resolution 23 eCommerce Law 25 Employment & Labour 27 Energy: Oil & Gas 30 Environmental Law 33 Foreign Investment 36 Franchaise Law 39 Fraud Law 41 Government and Legal System 44 Infrastructure Opportunities In Canada 46 Intellectual Property Law 48 International Trade 51 Mergers & Acquisitions 54 Offences Under the Competition Act 56 Outsourcing 59 Pensions and Benefits 62 Privacy 65 Private Equity 68 Procurement Law 71 Renewable Energy 73 Restructuring & Insolvency 76 Tax 78 Technology 81 Transfer Pricing 83 Doing Business in Canada # Plug into a law firm that is plugged into your world, your business, and your deals. Plug into Canada Plug into Bennett Jones 1 Doing Business in Canada Forms of Business Organization in Canada Canadian business laws are well developed. Several different types of business structures are available in Canada. Each features unique advantages and disadvantages. Business Corporations The corporation is the most common business organization in Canada. As a separate legal entity, the assets and liabilities of a corporation belong to the corporation, not to its shareholders. Shareholders may receive dividends from the corporation and are entitled to receive the assets of the corporation upon liquidation once the corporation’s debts and other obligations have been discharged. Corporations in Canada can be incorporated federally under the Canada Business Corporations Act (CBCA) or provincially under comparable legislation with slight variations. A provincially incorporated corporation must first register or obtain an extra- provincial license to conduct business in another province. A corporation is created upon filing articles of incorporation that outline the rights, restrictions, privileges and conditions attached to each class of shares offered by the corporation. A corporation may issue as many shares and classes of shares as it likes, but one class must always offer full voting rights to the shareholders. A corporation also typically adopts by-laws governing various administrative matters. A corporation is a legal entity with the rights, powers and privileges given to it by its articles and by-laws and governing statute. Corporations created under the CBCA (or corresponding provincial statutes) have the powers of a natural person, with some exceptions. Consequently, a corporation may hold property, enter into contracts and sue and be sued in its own name. A corporation is managed by its directors. The CBCA requires that at least 25 percent of the directors of a corporation incorporated under the CBCA be Canadian residents. Boards with fewer than four directors must have at least one resident director. Most provincial business corporations legislation contains a similar requirement. The directors may appoint officers (who are not subject to residency requirements) to manage the daily affairs of the corporation. Both directors and officers can incur personal liability if they cause the corporation to act in breach of applicable laws and in some other circumstances. Branches of Foreign Corporations A branch operation of a foreign parent company must be either licensed or registered in each province where it intends to operate. The tax consequences of setting up a branch office vary considerably between the provinces as does the liability faced by the parent company for the operations and conduct of the branch. Unlimited Liability Subsidiary Companies The provinces of Alberta, British Columbia and Nova Scotia allow the Canadian subsidiary of a foreign-owned corporation to incorporate as an unlimited liability company (ULC). A ULC operates much like a partnership in that the shareholders of the ULC have unlimited liability. As an alternative to a branch office, a ULC may permit any losses of the Canadian corporation to be deducted by the foreign corporation. Partnerships A partnership is the legal relationship between individuals carrying on business in common with a view to profit. A partnership can be composed of individuals or two or more entities, including corporations or other partnerships. A partnership is not a separate legal entity. Generally speaking, partners are jointly and severally liable for any losses caused to non-partners, although this liability can be limited in some types of partnerships. Additionally, the income and losses of a partnership are considered to flow through directly to the partners for tax purposes. Partnerships are governed by provincial law. Some provinces require that partnerships be registered. There are three types of partnerships in Canada: general, limited and limited liability partnerships. Doing Business in Canada 2 General Partnerships A general partnership features unlimited personal liability of each partner for the liabilities of the partnership, and the exposure of each partner’s personal assets in the event the partnership’s assets are insufficient to cover its obligations. Each partner may enter into partnership obligations that effectively bind the other partners. Limited Partnerships Limited partnerships feature both limited and general partners. The liability of a limited partner is limited to its investment in the partnership so long as it remains uninvolved in the management of the partnership. General partners are responsible for the management of the business and face unlimited personal liability just as they would in a general partnership. This arrangement is beneficial for passive investors looking to receive returns proportional to their initial investment. Limited Liability Partnerships Most provinces permit limited liability partnerships for eligible professions. This arrangement limits exposure by shielding partners from liabilities arising from the acts of another partner not directly under their care or direct supervision. Joint Ventures Two or more parties may form a joint venture for the purpose of carrying out a specific undertaking. In Canada, a joint venture may be conducted by separate corporations, general or limited partnerships, or simply by parties engaging in the joint ownership of assets. The parties pool capital and skill, but essentially establish a contractual relationship governing the business and providing for the distribution of profits. As a joint venture is not a legally recognized entity for tax purposes, its income and losses are taxed in the hands of each party to the joint venture. Parties intending to create a joint venture are advised to draft a joint venture agreement which expressly states that no partnership is being established and which explicitly sets out the parties’ respective rights and obligations. Should the law decide that a partnership exists in substance, the parties’ joint venture agreement will be of no legal effect. Sole Proprietorships In a sole proprietorship, business is conducted by an individual without incorporation. Sole proprietorships are generally simple and subject to minimal regulation. For example, registration may be required if a business operates under a name other than that of the proprietor and some categories of business require special licenses to operate. Profits earned by a sole proprietorship, as well as liability for any debts or other liabilities, are allocated to the sole proprietor. At law, no distinction is drawn between the proprietorship and the individual conducting it. The proprietor’s personal assets are at risk should the business become unable to meet its obligations. The sole proprietor is also liable for any tortious or illegal activities of the business although, to some extent, liability insurance can help reduce this exposure. The sole proprietorship model is well suited to many small enterprises as it avoids many of the expenses associated with incorporation. A sole proprietorship can be easily wound up at the end of its life or sold at the option of the owner. For tax purposes, a sole proprietorship provides some advantages. The owner can generally deduct business losses against the owner’s other types of income and avoid experiencing double taxation in the hands of both the business entity and the owner. Trusts While trust structures are used to conduct business in Canada, recent legislative changes have reduced some of the tax advantages that once made them popular among foreign investors. Under Canadian law, a trust is not a separate legal entity. Trust assets are held by the trustee who is then liable for all obligations arising out of the trust’s operations. While trusts are generally structured in a manner intended to minimize investor liability, investors may be exposed to personal liability arising from the operation of the trust in certain circumstances. 3 Doing Business in Canada Conclusion Canadian law provides considerable flexibility to foreign businesses seeking to establish a presence in Canada. The choice of an appropriate business structure in these circumstances requires careful planning and sound advice. Tax and liability considerations are usually key factors in this decision. Bennett Jones’ Corporate Commercial Group The Bennett Jones Corporate Commercial Group advises a broad range of clients from start-ups to large TSX public companies, both domestic and foreign. Our expertise spans mergers and acquisitions, financings, governance, shareholder and partnership arrangements, executive/employee compensation arrangements, director protection (including indemnities and D&O insurance), commercial contracts of all kinds, international corporate structurings, enterprise formation and reorganization, and private equity/venture capital fund formation. bennettjones.com/Corporate_Commercial_Law Doing Business in Canada 4 Financing a Foreign Business Operating in Canada There is a wide range of financing options available in Canada for new or developing businesses. These options can be categorized as debt or equity financing, or a combination of both. A third option – government assistance programs – exists to provide start-up capital and loans for financing business operations. External Debt Financing Debt financing provides businesses with a loan of money that must be repaid to the lender over time, typically with interest. Loans are most often provided by banks or financial institutions who generally offer financing in the form of an operating or term loan (or a combination thereof ). To a lesser extent, debt financing might be sourced from parent companies, shareholders or related persons, or by offering debt securities to the public. Operating Loans Operating loans provide revolving financing to cover day-to-day operational expenses, such as working capital requirements. This type of loan is generally provided on a short- to medium-term basis. The amount of capital available to the borrower is typically based on the value of the businesses’ assets. Operating loans generally provide access to a larger sum of financing than might be available from competing loan products where available credit is based on cash flows or leverage. Term Loans Term loans are typically medium- to long-term loans made to a business for a specific purpose, such as to fund capital projects or to finance the acquisition of an asset. They are generally repayable over a fixed period of time on a mutually agreed schedule. Often, the loan will be demanded in full or accelerated by the lender should a default or other specified event occur. Term loans are amortized over the life of the loan with interest payable on the principal. Security The lender may choose to provide a loan on either a secured or unsecured basis. With a secured loan, the lender takes an interest in some or all of the assets of the borrower to secure the obligation. Security can be taken over real property or personal property. Security over real property is typically taken through a mortgage or charge. The common law provinces have all enacted personal property security legislation dealing with the registration and enforcement of security interests taken in personal property. In addition, the federal Bank Act permits banks to take security interests in raw materials, work in progress, finished inventory and some assets and equipment through an alternative registry system. In addition to security, the lender may also require guarantees to support the loan. Most debt financing is provided to businesses directly from banks. Canada’s banking system is highly respected for its history of stable performance and efficient practices. In Canada, chartered domestic banks, along with foreign banks and non-chartered domestic banks, are closely regulated by the federal government. Canadian banks are also well capitalized. These features have aided their performance during the recent global financial crisis. Foreign banks operating in Canada mainly provide commercial banking services, as opposed to retail banking services. In addition to the banking system, Canada has a wide range of sophisticated financial institutions, such as life insurance companies, credit unions, and trust and loan companies who also offer financial assistance. Life insurance companies cannot take deposits, but can provide medium- to long-term financing. Credit unions also provide financing. Trust and loan companies are able to take deposits as well as provide loans. Capital assets might also be acquired by a business on a conditional sales basis or through a lease. Under either a true lease or financing lease, a business is able to pay for assets over their useful life from its cash flows, eliminating the need for significant capital at the point of purchase. In other situations, a factoring company may be used to improve cash flow. Factoring companies purchase the accounts receivable of the business at a discounted rate and then attempt to collect the receivables. 5 Doing Business in Canada In a securitization, certain assets of a company are pooled and transferred into a separate legal entity which finances the purchase of this portfolio by issuing debt or debt-like instruments into the capital markets, secured by the portfolio assets. Equity Financing In addition to debt, a corporation can seek equity financing to fund its operations. Equity financiers receive a share in the ownership of the business in return for their contribution. Unlike debt financing, equity financing is typically done on an unsecured basis, but requires compliance with securities legislation. Private Placements and Public Offerings Public offerings are a means of raising capital, although the viability of this option depends on the conditions of the market and the amount and terms of financing sought to be raised. The process is typically achieved through the distribution of a prospectus describing the issuer and its securities by a registered investment dealer to the public. This process is both time and capital intensive, restricting its viability to situations where large sums of money are to be raised. The expense of going public continues after the initial offering, as significant continuous disclosure requirements are imposed on public companies. There are three main stock exchanges in Canada: the Toronto Stock Exchange, TSX Venture Exchange (a junior exchange) and Montreal Exchange, which trades exclusively in derivatives. Each exchange has requirements that must be met prior to receiving listing approval. The Canadian securities market is regulated provincially, rather than federally. The legislation is broadly comparable to securities legislation in the United States and is designed to protect investors and maintain the integrity of our capital markets. Although regulations vary from province to province, the system aims to present a cohesive set of rules for participation in the Canadian capital market. As an alternative to a public offering, funds can also be raised by way of a private placement. Given the expense of a public offering, this option presents an attractive alternative depending on the capital requirements of the business. Private placements can be conducted more expeditiously and at a lower cost than a public offering as the issuer does not need to prepare a prospectus. The placement is typically made by an investment banker who acts as agent for the issuer, although private placements can be completed directly by the issuer. Venture Capital Venture capital firms make an equity investment in businesses with high growth potential from a pool of private or publicly sponsored capital. Typically, businesses which attract venture capital investment are in the early stages of development and might not be established enough for a public offering or have enough cash flow history to attract debt financing. A venture capitalist (VC) makes a capital investment in exchange for a minority equity position. Because of the risks associated in investing in less mature businesses, VCs will often request a significant level of control over management and business decisions of the company. Merchant Banks Merchant banks typically provide financing in exchange for an equity interest in the business or provide subordinated debt or mezzanine financing, ranking behind senior debt but ahead of equity holders. Merchant banks are often involved in M&As, buyouts, recapitalizations, and reorganizations. Government Assistance Programs Government financing exists at the federal and provincial levels to support the development of small- to medium-sized businesses in various industries. Funds are available, depending on the size and location of the business, mainly in the form of repayable loans. Doing Business in Canada 6 Conclusion A broad range of financing options exists in Canada to finance a foreign business. Each alternative has unique legal and commercial considerations that should be carefully addressed by the foreign business in consultation with its Canadian legal advisors. Bennett Jones’ Financial Services & Capital Markets Groups The Bennett Jones Financial Services Group routinely advises on the structuring and documentation of domestic and cross- border loan facilities. Our broad experience and expertise ranges from large, syndicated, multi-jurisdictional senior secured debt financings arranged by both domestic and foreign corporate banks to mid-market asset-based and mezzanine loan transactions. Our Capital Markets Group advises on a broad range of corporate finance transactions and on securities law matters generally, including acting on public offerings and private placements; advising on continuous disclosure requirements and applications for exemptive relief from securities regulators; and dealing with stock exchanges and clearing systems. bennettjones.com/finance 7 Doing Business in Canada Aboriginal Law Aboriginal peoples continue to shape the investment climate of Canada. Where investments involve the development of resources, land or infrastructure, Aboriginal peoples are not only potential rights holders but also future employees for industry, a voting base for Canadian politics, and often in need of public services such as education and health. An understanding of Aboriginal peoples’ rights and interests will assist a corporation’s successful investment in Canada. Companies that invest in Canada need to consider applicable Aboriginal law; relevant industry practices; community and government expectations; and the political, administrative and traditional structures of each neighbouring Aboriginal community. Aboriginal Rights Aboriginal rights relate to the customs, practices and traditions that are integral to an Aboriginal group. Some rights may relate to an Aboriginal cultural practice that is not connected to land; other rights are connected to land, such as the right to hunt, fish and trap or practice other customs and traditions upon certain tracts of lands. Aboriginal groups may also have Aboriginal title to the land itself. Canada’s Aboriginal Peoples The term “Aboriginal peoples†refers to three distinct cultural groups: Indians, Métis and Inuit, each with their own distinct culture, heritage, language, customs, practices and beliefs. The term “First Nation†is often used instead of “Indian†to avoid historical issues associated with the term “Indian.†The Métis are mixed blood descendants of both First Nations and early Europeans, and are distinct from both First Nations and Inuit. The Inuit people predominately reside in the Northern regions of Nunavut, Northwest Territories, Northern Quebec, and Northern Labrador. The Indian Act The Constitution Act, 1867 gave the federal government jurisdiction to make laws in relation to “Indians, and Lands reserved for the Indians.†One such law, the Indian Act, originally organized Indians into groups or “bands†which were allocated the then newly created reservations for their community’s use and benefit. Today, individuals entitled to be registered under the Indian Act are classified as “status Indians.†Therefore, persons identifying themselves as Indian can be a status Indian or a non-status Indian. Status Indians have access to a wide range of programs and services offered by federal agencies and provincial governments. A Growing Base in Canada Over 1.4 million people (4.3 per cent of the population) in Canada identify themselves as Aboriginal. Half of them are registered Indians under the Indian Act; 15 per cent are non-status Indians; 30 per cent are Métis; and 4 per cent are Inuit. Over half of Aboriginal people live in urban centres, predominantly in Ontario and the western provinces. The Aboriginal population has been growing faster than the general population of Canada, with almost half of all Aboriginal people aged 24 years or younger. Relative to non-Aboriginal people, a larger proportion of Aboriginal people suffer socio- economic disadvantages, including higher rates of poverty, unemployment, inadequate living conditions and domestic violence. These social realities are relevant to both governments and businesses that operate near Aboriginal communities. Constitutional Framework The Constitution Act, 1982 recognizes and affirms the Aboriginal and treaty rights of Aboriginal peoples in Canada. This affirmation shifted the Canadian business landscape. Attention has turned towards understanding and reconciling Aboriginal rights and interests. A growing body of case law has created new norms for industry’s approach to Aboriginal and community relations that continue to evolve with each new court decision. Aboriginal Treaties Many First Nations negotiated treaties with the Crown whereby interests in their traditional lands were ceded in return for the protection of specific rights (to hunt, trap, and fish on particular tracts of land) and other benefits. Most treaties were made in the late 19th and early 20th century. Modern treaties continue to be negotiated. The terms of each treaty vary according to the circumstances of the preceding negotiations. Most of Canada is covered by treaty, although a significant portion, including most of British Columbia, is not. Aboriginal rights in those areas are asserted, but largely undefined. In Atlantic Canada, there are peace treaties which are distinguished from numbered treaties whereby First Nations’ interests in their traditional lands were ceded. Aboriginal title in Atlantic Canada is not settled. Doing Business in Canada 8 Aboriginal Title Aboriginal title is sui generis (unique) because it arises from Aboriginal occupation of the land before the assertion of British sovereignty. To establish a claim for Aboriginal title, the Aboriginal group asserting title must show that: 1. the land was occupied prior to British sovereignty in 1846; 2. if present occupation is relied on as proof of pre-sovereignty occupation, there is continuity between present and pre- sovereignty occupation; and 3. at sovereignty, the occupation was exclusive. Aboriginal title entitles the group the exclusive right to use, control and benefit from the land, including their resources. Aboriginal title is collective and cannot be encumbered in ways that would prevent future generations of the group from using it. It also cannot be conveyed to any party other than the Crown. If land is subject to Aboriginal title, then the Crown must seek consent from the Aboriginal title holders before allowing the use of the land. If the consent cannot be obtained, then the Crown must justify any infringement to the Aboriginal title. In 2014, the Supreme Court of Canada recognised the first claim to Aboriginal title in Canada and clarified how the Crown and Aboriginal interest may be reconciled. To justify an infringement of Aboriginal title, the Court held that the government must show that: (1) it discharged its procedural duty to consult and accommodate (see the duty to consult section below); (2) its actions were backed by a compelling and substantial objective; and (3) the governmental action is consistent with the Crown’s fiduciary obligation to the group. Compelling and substantial public purposes may include the development of agriculture, forestry, mining and hydroelectric power. Governments may also need to reassess conduct undertaken prior to Aboriginal title being established if, going forward, the prior Crown conduct does not reconcile with the Crown’s duty to uphold the honour of the Crown (see “duty to consult†below) in its dealings with Aboriginal title holders. Proving Aboriginal rights through the courts (or reaching modern treaties) could require many years of effort. Assessing the strength of Aboriginal rights claims is essential before investing in the land and resource base. Agreements with affected Aboriginal groups can help manage investment risk. Crown’s Duty to Consult and Accommodate The Crown must act honourably in all of its dealings with Aboriginal peoples to reconcile its interests with the pre-existing Aboriginal rights. The duty to consult with Aboriginal peoples arises based on the principle of upholding the honour of the Crown. The duty to consult is triggered when the Crown has knowledge of asserted or actual Aboriginal rights and is contemplating conduct that might adversely affect the asserted Aboriginal right. The duty to consult calls for meaningful engagement with the Aboriginal group on the proposed conduct. Consultation seeks to identify potential adverse impacts on asserted or established Aboriginal or Treaty rights, and then to avoid or minimize the adverse impacts or provide for other accommodation. The duty to consult will be proportionate to the strength of the claim and the potential for harm. The duty to accommodate only arises where the consultation reveals a potential impact on the claimed right. In the case of proven Aboriginal title, consent may be required. In all cases, the Aboriginal group does not have an absolute veto over the Crown’s ultimate decision. The Crown may justify an infringement in pursuit of a valid and compelling public interest. 9 Doing Business in Canada Role of Project Proponents Although the duty to consult is imposed on the Crown, project proponents, who have a vested interest in the outcome, will be delegated certain procedural duties by the government (such as providing certain project information to Aboriginal communities). Each government may have guidelines and procedures to assist the parties in meeting the Crown’s consultation obligations. Project proponents may also consult bilaterally with the neighbouring Aboriginal groups to garner community support. A failure to consult properly may delay project approvals and increase the risk of litigation. Private Mutual Benefit Agreements In Canada, investment success relies on the effective management of community and Aboriginal relationships. A corporate social responsibility strategy that includes benefit sharing agreements with Aboriginal communities may help avoid potential conflicts and build support for a project. The potential application of other legislation to benefit sharing agreements or other similar agreements should be considered on a case by case basis, including anti-bribery and anti-corruption laws prohibiting certain payments to public officials (which have been broadly defined to include Aboriginal band officials). Under the Extractive Sector Transparency Measures Act, 2014, certain companies must disclose payments made to foreign and domestic governments if the total of the payments is over $100,000. This requirement includes monetary or in-kind payments made by industry to Aboriginal or indigenous governments. However, such payments will be exempt through to May 31, 2017. Businesses must create the internal systems to consider the other legal implications of agreements with Aboriginal groups and comply with such legal requirements. Bennett Jones Aboriginal Law Group Our Aboriginal Law Group helps project proponents develop major energy projects, including securing approvals, consulting with Aboriginal communities, and entering into commercial arrangements with Aboriginal businesses and organizations. We draw on our top-tier, cross-departmental expertise in the energy, environmental, corporate commercial, regulatory, litigation and tax arenas to shepherd significant projects and other ventures through to fruition. bennettjones.com/AboriginalLaw/ Doing Business in Canada 10 Business Immigration The Canadian immigration process has become increasingly complex and can be very time-consuming. As such, it is prudent for an employer to start the process early to ensure that a worker is able to be in Canada in the time frame required. To receive the appropriate permit to work in Canada, a U.S. citizen or permanent resident must normally follow a two-step process, as outlined below. Non-U.S. citizens must also undergo a Consular application. Labour Market Opinion Should no exemptions apply, the first step in the process is to apply for a Labour Market Opinion (LMO) through the Service Canada office of the Canadian government. To qualify for an LMO, the employer must demonstrate that there are no qualified workers in Canada able to perform the services required. Normally this requires the employer to advertise in Canada for qualified individuals. When it can be demonstrated that no such Canadian individuals are able or willing to accept the job, the position will be opened for acceptance by a foreign worker. In some cases where the employee is currently employed by an affiliated company and possesses proprietary or specialized knowledge, the advertising requirement may be bypassed and the time necessary to process the confirmation shortened. Regardless, the standard processing time for such an application is approximately eight weeks. In urgent, exceptional circumstances, the office will occasionally expedite the application process. The following information is required to apply for an LMO: (a) Foreign worker’s name, sex, residential address, date and place of birth. (b) Name of the employer, including address, Revenue Canada taxation number, number of employees, date the corporation was organized, contact person and fax number. (c) A detailed position description, including the education and experience requirements for the position. (d) Recruitment efforts undertaken (such as advertising, industry contacts and letters of support from Union representatives). Work Permit Once the LMO has been issued, the individual is entitled to apply at Immigration Canada for a Work Permit when the foreign worker arrives at the Port of Entry seeking to enter Canada. He or she must demonstrate that he or she: meets the requirements for the job position that were previously described to Service Canada; is otherwise admissible to enter Canada; and has no criminal convictions that would bar his or her entrance into Canada. An Immigration processing fee of $150.00 must also be paid. Exceptions A number of exceptions may apply which will greatly shorten the application process. The North American Free Trade Agreement (NAFTA) provides a number of categories that allow U.S. citizens to work in Canada without having to undergo the confirmation process; however, these workers are still generally required to pay the $150 fee and obtain a work permit. The most commonly used categories of exemption are as follows: Professional Category NAFTA allows people with designated educational degrees (i.e., engineers, geologists, scientific technicians, economists and accountants) to enter Canada to provide employment services in their field of expertise. They must present a corporate letter of support together with their degrees or certificates. This provision is frequently used and will likely be of considerable benefit. Normally, this category requires the foreign worker to possess a university degree. However, the scientific technician category allows entry to individuals who have a two-year scientific diploma or can otherwise indicate considerable expertise as a scientific technician. Intra-company Transferees Executives, senior managers and employees with specialized knowledge may be transferred to Canada. An executive or manager must exercise significant managerial authority and responsibility. Individuals will generally not qualify if they only manage front- line workers. An employee who has expertise that is not available elsewhere (generally propriety or internal corporate information) may apply as a specialized knowledge worker and avoid the confirmation process. Note, however, that many immigration officers refuse to apply this provision. Instead, they require the company to undergo the LMO process. Also, to qualify, the worker must have worked abroad for an affiliated company for at least one year in the past three years. 11 Doing Business in Canada After-Sales Services/Installation Workers who are coming to Canada to provide after-sales service or installation work on goods manufactured outside of Canada, but sold to a Canadian company, are entitled to provide these services in Canada. As long as the individual provides extensive supporting documentation, he or she is entitled to enter Canada without having to obtain a work permit or otherwise deal with lengthy immigration application processes. The most critical, mandatory piece of information required is a copy of the original sales invoice or contract that specifically states that after-sales services, installation or training services are included. Business Visitor The business visitor category permits an individual to enter Canada without formal immigration documentation where that person’s admission does not directly impact the Canadian labour market. The person must be receiving no pay or remuneration from a Canadian source. This means that the business visitor cannot be paid directly by a Canadian client; but, in some limited cases, the Canadian client may pay the U.S. corporation which, in turn, pays a salary to the employee. The employee may not do hands-on or productive work for a Canadian company. Accordingly, general sales calls, pre-sale customer visits or marketing visits to clients in Canada as well as product training and paid customer training are permitted, provided the original sales agreement includes the necessary provision(s) as outlined above. Attendance at conferences sponsored by others is also permissible under the general business visitor category and no work permit is required. Actually producing goods or services for the client is not permissible. Conclusion This is a very brief summary of the business immigration process in Canada. There are numerous additional categories and exceptions that may apply. Individuals who do not qualify for any of the above provisions may qualify under a less frequently used provision. Immigration applications vary extensively depending on the particular qualifications of the individual seeking to come to Canada. A slight change in an individual’s qualifications may make a significant difference in whether the employee qualifies to enter Canada. Bennett Jones LLP’s Business Immigration Group Bennett Jones’ Business Immigration Group is highly experienced in all facets of immigration law and, in particular, business immigration. Led by Kevin Zemp, a former immigration officer, our Group provides extensive advice and expertise on the movement of company personnel and priority workers. We are also licensed to provide U.S. immigration services and offer a wide range of U.S. work permit and residency assistance. With the ongoing integration of the North American economy, our clients rely on our ability to provide high-level advice on both sides of the border in efficiently transferring their personnel and retaining high-priority workers. bennettjones.com/immigration/ Doing Business in Canada 12 Canada’s Anti-Spam Law Many Canadian and international organizations with a Canadian presence utilize electronic communications in the course of business. Organizations that do so should be mindful of Canada’s Anti-Spam Law (CASL), which came into force in July, 2014. CASL regulates the transmission of electronic messages for commercial purposes. Businesses in the software industry should also pay attention to the application of CASL, as it regulates the installation of software on computer systems located in Canada. CASL creates a number of legal issues for organizations doing business in Canada. Scope CASL applies to “commercial electronic messages†(CEMs). The Federal Government has broadly defined the scope of a CEM to include any message sent to an electronic account that encourages participation in a commercial activity, whether or not such message is sent with an expectation of profit. Generally speaking, a CEM will fall within the scope of CASL where it is received in Canada, regardless of where it is sent. The CRTC, which is responsible for enforcing CASL, has entered into reciprocal enforcement agreements with its counterparts abroad. Jurisdiction The Federal Government asserts jurisdiction over the regulation of commercial electronic messages. This jurisdiction is not absolute, particularly in fields of exclusive provincial legislative jurisdiction such as, for example, health care or education. Consent under CASL CASL prohibits the sending of CEMs unless the sender has the consent of the recipient. Consent can either be express or implied. Express consent is consent obtained from a person by way of a positive action, whether in writing or orally. The person obtaining consent must meet various formalities at the time consent is obtained for the consent to be valid. On the other hand, implied consent arises based on factual situations and does not require any positive action on the part of the person giving consent. An example of implied consent arises where a customer purchases a product or service from a business. U.S. businesses should note that the express consent requirement under CASL is not consistent with the approach under the US CAN-SPAM Act of 2003 (legislation that set standards for sending commercial emails); particular attention to detail will be required to try and maximize compliance under both regimes. A prospective sender must address the requirement of consent under CASL and ensure that it has sufficient consent to the collection and use of applicable personal information under applicable privacy law. (See the Privacy chapter for more details.) CASL also creates various important exceptions to consent, which may arise depending on the nature of the CEM or the situation in which it is sent. An example of an exception is the so-called “B2B exception†which permits personnel of an organization to send CEMs to personnel of another organization so long as both organizations have an existing relationship and the communication concerns the recipient’s activities. Compliance with Formalities CASL provides that any non-exempt CEM must contain certain specific, prescribed information and a prominently displayed unsubscribe mechanism to be compliant. The sender must disclose its identity, or the identity of the person on whose behalf the CEM is sent, along with other specific, prescribed contact information. Finally, the unsubscribe mechanism must be able to be “readily performed,†and must take effect in no more than ten business days. U.S.-based organizations may find that the information required under CASL can be readily integrated with a CAN-SPAM compliance program. However addressing the Canadian consent regime is more complex. Exemptions CASL exempts a number of types of CEMs from compliance with the legislation, including certain CEMs sent within an organization or between organizations that have a relationship, as well as more specific exemptions for some CEMs sent by registered charities and political parties. However, the exemptions under CASL have not yet been tested in court and, as such, there is still a degree of uncertainty with respect to their application. 13 Doing Business in Canada CASL and the Software Industry In addition to regulating the transmission of CEMs, CASL also regulates the installation of software. Generally speaking, CASL provides that an organization that installs software on a computer system controlled by another person must seek the consent of that person before doing so. Consent is also required in the context of certain updates or patch installations. As with the communication provisions of CASL, the consent requirements add specific, prescribed requirements such that a “normal†consent may not be sufficient. The software provisions under CASL are of wide application and particular importance to software distributors which have Bring Your Own Device (BYOD) policies and IT help desk functions. Such organizations may need to comply with enhanced consent and notification requirements in some cases. While some “self-installations†are exempt from CASL, the question turns on whether a computer program is capable of performing various specific, prescribed, generally more invasive functions. Where software is capable of performing such functions (for example, sending GPS data to the software developer or a third party), the person providing the software must actively disclose the existence of these functions and seek a separate consent in respect of each function from the user. Consent cannot be bundled into the end-user license agreement that governs use of the software generally. Penalties for Non-Compliance CASL provides for stiff penalties in the event of non-compliance: individuals may be fined up to $1M per violation and organizations may be fined up to $10M per violation. Enforcement actions taken to date have resulted in penalties ranging from the low five figures to several million dollars. However, most legitimate businesses should take comfort in knowing that due diligence forms a defence to CASL liability. As CASL requires an alleged violator to prove that he or she has complied with the law, businesses should seek to develop policies and procedures in respect of CASL compliance before sending CEMs or providing software to Canadians. Conclusion There are many legal issues for businesses to bear in mind when communicating with, or providing software to, Canadians. A well-considered plan that addresses the key legal and business factors applicable to such practices are elements of a successful strategy. Bennett Jones Anti-Spam Group Bennett Jones has more highly ranked technology lawyers than any tier 1 law firm in Canada. Coupled with the firm’s national depth and breadth of operations, the Bennett Jones Anti-Spam Group has the experience and expertise to assist foreign businesses in navigating the complex requirements involved in compliance with Canada’s anti-spam law. bennettjones.com/CASL or bennettjones.com/anti-spam/ Doing Business in Canada 14 Climate Change The evolving patchwork of Canadian federal and provincial climate laws and programs has created material risks and opportunities for businesses operating in Canada. Understanding climate change policy and legislation is necessary for those considering carrying on business in Canada. Canada’s greenhouse gas (ghg) emissions per capita are high relative to most European countries, Japan and most developing countries. However, Canada’s ghg emissions per capita are similar to those of the United States and Australia. Canada’s total reported ghg emissions were 589 megatonnes (measured in carbon dioxide equivalents or CO2e) for 1990, 740 megatonnes CO2e for 2005 and 692 megatonnes CO2e for 2010. In December 2011, Canada gave notice of its intention to leave the Kyoto Protocol effective December 2012. However, Canada remains a party to the United Nations Framework Convention on Climate Change and has made a commitment under the 2010 Cancun Agreements to reduce its ghg emissions by 2020 to 17 percent below 2005 levels in alignment with the United States. Domestic GHG Emissions Reporting The federal government and Alberta require facilities emitting over 50,000 tonnes/yr of ghgs to report their emissions annually. Some provinces (e.g., British Columbia, Ontario and Québec) have lower facility reporting thresholds. Federal Approach The current federal government takes a sector-by-sector approach, aligned with the United States where appropriate. This has resulted in a performance standard in the transportation sector for light duty vehicle emissions, which is closely aligned with the U.S. standard, and a proposed emissions standard, again U.S.-aligned, for heavy-duty vehicles. As well, a proposed standard for coal-fired electricity generators has been published although U.S. alignment is uncertain. Upstream oil and gas, oil sands upgraders and refineries appear likely to be the next regulated Canadian sectors. A voluntary plan with a fuel efficiency target for Canada’s aviation sector is now in place. The federal government has also made significant grants available for carbon capture and storage and clean energy projects. Provincial Initiatives Alberta In 2003, Alberta enacted the Climate Change and Emissions Management Act (CCEMA) targeting a 50-percent reduction in ghg emissions intensity (emissions per dollar of gross provincial product) from 2000 by 2050. In 2007, the Specified Gas Emitters Regulation (SGER) was implemented under the CCEMA. SGER requires facilities which emitted greater than 100,000 tonnes CO2e/ yr in 2000 to reduce their ghg emissions intensity by 12 percent from their 2003 to 2005 baseline. Facilities which were started up after 2000 have their obligation phased-in at two percent per annum after the first three years of operations until the 12-percent intensity reduction target is reached. SGER uses a market mechanism approach, authorizing emissions trading in both environmental performance credits (generated when a regulated facility reduces beyond its SGER target) and offset credits (reductions produced in accordance with government-approved protocols outside of regulated facilities). As well, the SGER authorizes the use of fund credits obtained by paying $15/tonne to a government fund which is invested to produce ghg emissions reductions. Alberta has also made up to $2 billion available to support carbon capture and storage projects. Western Climate Initiative California led a group of seven U.S. western states in forming the Western Climate Initiative (WCI) – a regional initiative to reduce ghg emissions in those states by 15 percent below 2005 levels by 2020. The provinces of British Columbia, Manitoba, Ontario and Québec all joined the WCI. When six U.S. states left the WCI in 2011, the WCI effectively became a California/Canadian provinces organization. The WCI includes the use of market mechanisms like emissions trading as well as a low carbon fuel standard. 15 Doing Business in Canada Québec While not a western province, Québec is a member of the WCI and has continued to pursue the WCI program. The province is putting in place the regulation needed to create (as of January 1, 2013) a cap-and-trade system capable of independent operation and/or of linking with California. The regulation will require industrial facilities with ghg emissions exceeding 25,000 tonnes CO2e per year to acquire and tender to the government ghg allowances and/or offsets equal to its ghg emissions. Allowances will be auctioned (perhaps in tandem with California) although many will be issued gratis to certain industries. The aggregate allowances will be capped to produce an overall provincial emissions reduction. Up to eight percent of a facility’s emissions can be covered by offsets. In 2015, the obligations to tender allowances and offsets will extend to fossil fuel distributors for the CO2 emissions from combustion of the distributed fuel. Québec also has a modest carbon tax on gasoline, diesel and natural gas. British Columbia Prior to joining the WCI, British Columbia set an ambitious target of reducing ghg emissions by 33 percent below 2007 levels by 2020. To accomplish this target, the province introduced: z a revenue-neutral carbon tax on combustion of fossil fuels; z a low carbon fuel standard regulation; z a requirement for the broad government sector to be carbon neutral commencing in 2011; and z the potential for a cap-and-trade system. British Columbia’s carbon tax is $30/tonne from and after July 1, 2012. The “carbon neutral government†requirement resulted in the creation of the Pacific Carbon Trust, a government-owned entity that acquires approved offsets in British Columbia and sells them at $25/tonne to regulated government departments and entities. There are no current plans to implement a cap-and-trade system, with reliance placed on the other measures. Ontario and Manitoba Ontario has cap-and-trade authorizing legislation but has not moved to implement such an emissions reductions scheme. Instead, the province is relying on prohibition of the use of coal in the generation of electricity after 2014 and the development of renewable energy under the Green Energy Act feed-in-tariff program. Manitoba has moved very slowly on the WCI agenda. Saskatchewan Saskatchewan passed the Management and Reduction of Greenhouse Gases Act (MRGGA) in 2010 but the legislation is not yet in force. The MRGGA establishes the authority and framework for provincial emissions reduction goals and investments in low- carbon technologies. The provincial target is to reduce emissions by 20 percent from 2006 levels by 2020. Maritime Provinces Nova Scotia has a climate change action plan and a provincial target to reduce GHG emissions by 10 percent below 1990 levels by 2020. It has also introduced a renewable electricity plan which mandates that 25 percent of electricity come from renewable sources by 2015. Given this plan, the federal government has agreed that its coal-fired electricity regulation may not need to be in force in Nova Scotia. The other Maritime provinces - New Brunswick, Prince Edward Island, Newfoundland & Labrador - have emissions reduction plans but little relevant legislation. Doing Business in Canada 16 Conclusion The Canadian federal government’s sector-by-sector approach to achieving ghg emissions reductions, with its limited application to date, has resulted in provincial initiatives to fill the vacuum. While many of the provincial actions incorporate market mechanism approaches, not all do and those that do, employ a wide variety of structures. This creates a significant challenge for business and the need to keep well informed about developments at all levels. Bennett Jones Climate Change Group The Bennett Jones Climate Change Group has international experience in climate change transactions that is unparalleled in North America, and a detailed knowledge of Canadian climate change issues and policies. Consequently, our climate change lawyers are positioned at the forefront of Canadian climate change developments. We regularly advise our clients on the appropriate policies and activities to deal with the Canadian patchwork of existing and planned regulation as well as on facilitating the financing, contractual structures and projects that enable them to reduce risks from climate change regulation and take advantage of the opportunities such regulation creates. bennettjones.com/climatechange 17 Doing Business in Canada Construction Law Canada’s expansive natural resource sector and dynamic infrastructure sector (including a robust P3 market) have made it a jurisdiction ripe with construction-related opportunities from coast to coast to coast. For that reason, Canada has become a target destination for international owners, builders, designers, engineers, suppliers and lenders alike. However, construction in Canada does bear its share of unique risks and challenges, including (among other things) the remoteness of many major projects; labour availability and cost; currency risk; market access for resources; and severe winter climatic conditions. Construction projects in Canada are also subject to a wide range of legislation, regulation, and common law rights and obligations that are (in several respects) unique to Canada and vary from province to province. Proper First Nation and community engagement continues to be a prerequisite to the commencement of successful Canadian construction projects. Construction Contracting Strategy The contract structuring of major project construction in Canada is similar in form and substance to structures used elsewhere internationally. For the sake of price certainty and risk aversion, owners often prefer undertaking a project with a single engineering, procurement and construction contractor on a turn-key, lump-sum, fixed-price basis. However, owners often undertake projects by sourcing any combination of engineering, design, procurement, supply and construction/construction management from multiple parties. Where engineering, procurement and construction are undertaken by one contractor, such obligations may also be split into separate contracts governing offshore and onshore work respectively, so as to avoid local taxation and reduce project capital costs. The ideal contracting structure and compensation regime (e.g., fixed price, unit rate or reimbursable, target price, etc. (or any combination thereof )) for any particular project will depend on an owner’s internal resources to manage the project, the clarity of scope prior to project initiation, ability to finance the project, and the owner’s appetite for internalizing risk. Bidding and Tendering Canadian courts look to the intent of the party issuing the tender to determine the extent of binding obligations created by the tender. In a typical tender or bidding process, a contract (Contract “Aâ€) is deemed to be formed between the issuer and all compliant bidders upon submission of bids. The issuer is only permitted to accept bids which are substantially compliant with the terms of the tender. This Contract A governs the rights and obligations of the issuer and each bidder until the contract for the work or scope of supply is entered into by the issuer and the successful bidder (Contract “Bâ€). The common law also imposes obligations of good faith and a duty of fairness on the issuer to evaluate bids fairly and in accordance with the terms of the tender, and to treat bidders equally. An issuer’s failure to comply with the terms of its tender, or any breach by it of its duty of fairness (e.g., awarding the bid to a non-compliant bidder), may give rise to liability to an unselected compliant bidder for damages on the basis of loss of anticipated profit. The Competition Act (Canada), which governs the conduct of business in Canada, contains both criminal and civil provisions designed to maintain and encourage competition. Criminal provisions in the Act include prohibitions against “conspiracy,†including where a party agrees with a competitor to fix prices, allocate customers or geographic markets, or restrict output or supply. The Act also prohibits “bid rigging,†where one or more bidders agree to not submit or to withdraw a bid, or where submitted bids were arrived at by agreement or arrangement between two or more bidders. Construction Liens Each province has its own legislation governing rights of contractors, subcontractors and suppliers to liens on projects improved by goods or services provided, to secure the right to payment for such goods or services. Such liens operate as a charge against the owner’s right to the land on which the project is constructed. Contracting parties cannot contract out of such lien rights; however, certain lands, including public highways, irrigation districts, railroads, and federal and provincial Crown lands, are not lienable. Lien legislation requires an owner to withhold a certain percentage of amounts payable to its contractors and suppliers for the satisfaction of any liens arising in respect of the goods or services provided. Such amount is required to be withheld until expiry of a period after substantial completion or completion of the applicable contract. Certain provinces likewise require contractors Doing Business in Canada 18 to withhold from amounts payable to subcontractors until substantial completion or completion of the applicable subcontract. Often, owners and contractors will put in place security (e.g., a letter of credit) in lieu of withholding to satisfy obligations under the applicable lien legislation. The lien legislation in each province sets out deadlines to preserve the registration of a claim for lien and to perfect a claim for lien by starting a law suit. Strict compliance with lien legislation timelines is a must. Occupational Health and Safety Each province in Canada has legislated certain requirements regarding occupational health and safety on a construction site. In several provinces, such legislation requires identification of a “prime contractor†who is responsible for ensuring compliance with such legislation by all persons on site. Taxation Considerations Some tax issues to consider in the construction context are: whether a foreign contractor should open a branch or a subsidiary (there are transfer pricing issues related to subsidiaries in general as well as particular forms of subsidiaries (e.g., corporation/ ULC/other)); applicable GST, HST and duties; implications of applicable international trade agreements on the import of goods and services; employee and other source deductions; and a possible 15-percent withholding tax (depending on the corporate structure in place). Temporary Foreign Workers Considering the demands currently placed on the Canadian construction labour market, a contractor doing business in Canada should be familiar with the requirements and process to retain and process foreign workers to perform work on Canadian projects. Other Considerations z Each province administers a workers’ compensation program which requires registration and maintenance of a workers’ compensation account for its employees working in such province; z Each province has legislation in place that governs limitations periods and stipulates the time period to commence actions in such province. This legislation also pertains to the time period owners can bring an action for latent defects in construction work; z Each province legislates requirements for certain trades people to have specific credentials prior to performing particular work; z Professionals engaged in a Canadian construction project, including engineers, need to be licensed to practice in Canada and are typically subject to the oversight of their respective provincial, professional self-regulatory association (such as the Association of Professional Engineers and Geoscientists of Alberta). Engineering work product also is generally subject to local engineering review and approval. z While not a legislative requirement, many owners require contractors to obtain a “certificate of recognition†as a condition to being selected to perform work. Such a certificate is issued by the province and certifies that the contractor has a health and safety program meeting a particular standard; z Contractors should also be aware of the various labour laws and labour affiliations (Non-Union/Building Trades/CLAC) that may impact various projects or the labour supply of trades performing work on a project; z Extra-Provincial Registrations – businesses not formed in a Canadian province – may need to be extra-provincially incorporated in the province where work is to be undertaken prior to conducting business; z Foreign contractors typically required to place insurance and/or bonds by an insurer or surety registered to provide insurance or bonds in Canada or the province of the project. 19 Doing Business in Canada Bennett Jones Construction Law Group Our strong construction contracts team, combined with our litigation and corporate commercial practices and state-of-the- art technical and document management systems, provide full legal support to the construction industry in this increasingly complex, hybrid area of commercial law and litigation. Our services fall into the five major categories of: venture structuring, contract negotiation, financial risk management, construction challenges and construction claims. Our clients include owners, designers, contractors and lenders in the construction business, government and private sector, as well as the businesses that finance and underwrite construction projects of all kinds. bennettjones.com/Industries/Construction Conclusion The Canadian construction industry is a robust, resource-driven market. Although it varies from province to province, Canadian construction law ensures accountability between contracting parties. It also encourages and enforces safe and effective construction practices in the face of risks and challenges that are both common to construction projects around the globe and unique to Canada. Doing Business in Canada 20 Corporate Governance As in other parts of the world, corporate governance in Canada has received greater scrutiny and been the subject of many developments in the past 15 years. It has evolved through a broad public dialog precipitated by studies prepared on behalf of the Canadian Securities Regulators, the Toronto Stock Exchange and other interested groups. Corporate directors and officers in Canada are subject to general fiduciary duties established by corporate law. The growth of the modern corporation has necessitated the delegation of many director responsibilities to professional managers. While corporate law fiduciary duty obligations permit delegation of certain matters, they do not prescribe or focus on the process for proper supervision where substantial delegation occurs. Modern corporate governance has centered on the development of structures, processes and controls to enhance the operation of a board that supervises professional management of a complex organization. Governance Landscape The governance landscape in Canada comprises minimum legal requirements contained in securities legislation in addition to underlying corporate law fiduciary duties. Securities regulators have also adopted policies that identify and require discussion of governance in areas where best practices are emerging and changing. Institutional shareholders have funded professional commentators that seek to advance best practices for professional directors and improve the transparency of the functioning of the board and the management of the corporation. Their involvement facilitates shareholder evaluation of a board and its management and enhances accountability and shareholder democracy. Serving as a director now requires orientation, education and ongoing learning. Fiduciary Duties Under Corporate Law Under Canadian corporate law, directors and officers are required to act honestly and in good faith with a view to the best interests of the corporation. Directors must act prudently, on a reasonably informed basis, and be free from conflict in discharging their duties. Canadian courts recognize that they are ill-suited to second guessing the appl