Franchisor and Manager each hold 50% of the shares (being common shares) of Franchisee. The shareholders’ agreement for Franchisee (a) provides, in the event the Manager wishes to depart, a mandate to Franchisor to identify an independent acquiror of the shares of Manager, or (b) provides that the corporation will automatically redeem the Manager’s shares. Would either right come within s. 256(1.4) or would the retraction right come within s. 251(5)(b)? After indicating, that it would be reasonable to consider that (a) did not entail a right of the franchisor to or to acquire the manager’s shares, CRA then indicated respecting the second question that further information and analysis was required, and stated:
[T]he wording of paragraph 256(1.4)(b) and subparagraph 251(5)(b)(ii) are broad enough to apply to a situation in which a given person would control the triggering of an event that would require a corporation to redeem, acquire or cancel any shares of its capital stock held by other shareholders. In this regard, the CRA has ruled that a person does not generally control the triggering of an event where a corporation is obliged to redeem or purchase shares of its capital stock held by a shareholder convicted of defrauding the corporation.
The wording of paragraph 256(1.4)(b) and subparagraph 251(5)(b)(ii) also applies to a situation where a particular person would have the right to cause a corporation to redeem, acquire or cancel any shares of its capital stock owned by another shareholder even if the person has no control over the triggering of an event requiring the company to make the purchase.