Doing Business in Canada Practical Considerations for Investors MONTRÉAL• OTTAWA • TORONTO • EDMONTON • CALGARY • VANCOUVER • NEW YORK DOING BUSINESS IN CANADA PRACTICAL CONSIDERATIONS FOR INVESTORS . © Fraser Milner Casgrain LLP, 2004 All Rights Reserved DOING BUSINESS IN CANADA TABLE OF CONTENTS INTRODUCTION.......................................................................................................................................1 THE CANADIAN CONSTITUTIONAL SYSTEM.................................................................................2 Distribution of Legislative Powers................................................................................................................2 The Charter of Rights and Freedoms.............................................................................................................3 Human Rights Legislation.............................................................................................................................3 Electoral Process ...........................................................................................................................................3 Federal and Provincial Electoral Processes......................................................................................3 Municipal Electoral Process.............................................................................................................4 Lobbying ..........................................................................................................................................4 REGULATION OF FOREIGN INVESTMENT......................................................................................5 The Investment Canada Act ..........................................................................................................................5 General .............................................................................................................................................5 Establishment of New Business .......................................................................................................5 Direct Acquisition of Established Business .....................................................................................6 Indirect Acquisition of Established Business ...................................................................................6 Notification and Review Procedures................................................................................................7 Time Limits for Review ...................................................................................................................8 Restrictive Federal Policies and Statutes for Special Business Sectors ........................................................8 Provincial Legislation....................................................................................................................................9 Exchange Controls ........................................................................................................................................9 FORMS OF BUSINESS ORGANIZATION...........................................................................................10 Introduction .................................................................................................................................................10 Corporations ................................................................................................................................................10 General ...........................................................................................................................................10 Canadian Subsidiary Corporation...................................................................................................10 Foreign Corporation - Branch Operation .......................................................................................11 Incorporation and Organization of Corporations ...........................................................................12 Nova Scotia Unlimited Liability Companies .................................................................................15 Other Types of Business Organizations ......................................................................................................15 Sole Proprietorships .......................................................................................................................16 Partnerships ....................................................................................................................................16 Joint Ventures.................................................................................................................................18 Canadian Distributors and Selling Agents .....................................................................................18 Franchising .....................................................................................................................................18 DIRECTOR AND OFFICER LIABILITY IN CANADA .....................................................................20 Introduction .................................................................................................................................................20 Director Liability.........................................................................................................................................20 Fraser Milner Casgrain LLP Doing Business in Canada Table of Contents - Page i General Duties Under Common Law and Corporations Statutes.................................................. 20 Specific Statutory Duties............................................................................................................... 21 Duties Specific to Public Corporations ......................................................................................... 22 Officer Liability.......................................................................................................................................... 23 Shareholder, Stakeholder and Regulatory Remedies .................................................................... 23 Risk Management: Protection from Liability............................................................................................. 24 Defences ..................................................................................................................................................... 24 INCOME TAX CONSIDERATIONS .................................................................................................... 26 Introduction ................................................................................................................................................ 26 Canadian Subsidiary Corporation............................................................................................................... 27 Canadian Branch Operation ....................................................................................................................... 28 Choosing Between Subsidiary and Branch Operation ............................................................................... 29 Joint Ventures and Partnerships ................................................................................................................. 29 Canadian Distributors and Selling Agents.................................................................................................. 30 Non-Resident Trusts................................................................................................................................... 30 Withholding Taxes ..................................................................................................................................... 31 Personal Income Tax Considerations ......................................................................................................... 31 COMMODITY TAX CONSIDERATIONS........................................................................................... 33 Introduction ................................................................................................................................................ 33 Customs Duties........................................................................................................................................... 33 Classification................................................................................................................................. 33 Origin - The Applicable Rate of Duty........................................................................................... 33 Valuation ....................................................................................................................................... 33 Customs Duty Relief ..................................................................................................................... 34 Excise Duties.............................................................................................................................................. 34 Goods and Services Tax ............................................................................................................................. 34 Harmonized Sales Tax................................................................................................................................ 35 Provincial Sales Tax..................................................................................................................................