Four unrelated individuals (A, B, C and D) each hold 25% of the shares (being common shares) of Opco through their respective wholly-owned holding companies (Aco, Bco, Cco and Dco). The terms of a unanimous shareholders’ agreement provide that in the event that one of them, otherwise than on death or compulsory retirement, wishes to depart, that shareholder may request the others to purchase that shareholder's shares for a price stipulated in the Annex to the USA, but if the other shareholders do not comply, they are bound to seek to procure a third-party buyer for all of Opco's shares at an agreed price or, if that is unsuccessful, Opco shall be wound-up. After referencing IT-64R4, para. 37, CRA stated:
[A]lthough the wording in subsection 256(1.4) may be broad enough to include almost any buy-sell agreement, this subsection will not normally be applied solely because of:
- a “right of first refusal”; or
- a “shotgun arrangement” (i.e., an arrangement under which a shareholder offers to purchase the shares of another shareholder and the other shareholder must either accept the offer or purchase the shares owned by the offering party)
contained in a shareholder agreement.
It appears to us that subsection 256(1.4) would technically apply in the situation described in your letter because of the existence of the unanimous shareholder agreement clause described in paragraph 7 above. Mr. A, Mr. B, Mr. C and Mr. D would each be deemed to control Opco because of the application of paragraph 256(1.4)(a). Consequently, each of Aco, Bco, Cco and Dco would be technically associated with Opco by virtue of paragraph 256(1)(b).