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.
After finding that the general partner of the Limited Partnership had de jure control of the Corporation, the Directorate went on to find that 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. Notwithstanding Silicon Graphics, the concept of de facto control was not to be restricted to where there is a clear right and ability to effect a significant change in the board of directors, or to influence in a very direct way the shareholders who would otherwise have the ability to select the board of directors.