A Quebec corporation (the “Corporation”) whose only outstanding shares were common shares, agreed in the Contract with a non-resident partnership (the "Limited Partnership") to issue Class A voting preferred shares to the Limited Partnership in tranches as R&D work was performed and met milestones. Such shares, when issued, would give the Limited Partnership a majority of the voting rights. The shareholders of the Corporation, the Limited Partnership and the Corporation entered into the Agreement providing that important decisions must include the approval of the director representing the Limited Partnership.
The Directorate found that, by virtue of s. 251(5)(b), the general partner of the Limited Partnership should be considered as exercising control over more than 50% of the voting rights. Respecting a submission that this voting power was restricted by the Agreement, the Directorate stated that the Agreement was not a unanimous shareholder agreement (USA), so that such restrictions were not to be taken into account in determining de jure control. In this regard it stated:
[T]he shareholders of a corporation governed by Part IA of the QCA can only restrict the powers of the directors by means of an USA by transferring the powers of the directors to the shareholders outright, so that the shareholders can exercise them themselves….
Consequently, there is no provision in provincial legislation affecting Part IA corporations … for the power of the majority shareholder to control the election of the board of directors to be limited or altered by means of a USA.
Furthermore, even if the Agreement were a USA, only the clauses in the Agreement “that restricted the powers of the directors to manage the business and affairs of the corporation” could be considered. Accordingly, the general partner had de jure control.
The Limited Partnership also had de facto control given that its capital invested was the only source (other than grants and tax credits) of funding for the research work, the retractable nature of its Class A shares, its influence over strategic decisions and its veto rights over major decisions.
Accordingly, the Corporation was not a CCPC.