Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
DRAFT
Revenue Canada Round Table
1994 Canadian Petroleum Tax Society
June 2, 1994
Question #22
ACQUISITION OF CONTROL BY A GROUP
In the past, the Department has indicated that 2 unrelated persons each owning 50% of a corporation will not be considered a "group of persons" for purposes of determining an acquisition of control unless there is a common link beyond the fact that the persons are shareholders. (See, for example, 1991 Round Table, Q.12, 1991 Conference Report)
Has the Department's policy position changed? What guidelines can be provided as to whether a small number of unrelated persons (2 or 3) who collectively own 100% of a corporation constitute a "group of persons".
Department's Position
It remains the Department's view, as stated in previous round tables (most recently in Q.12 of the 1991 Conference Report) that it is a question of fact whether any particular group of persons who own the majority of voting power in a corporation has de jure control of the corporation. A group of persons who own the majority of the voting shares of a corporation will generally be considered as having collectively acquired control of the corporation where there is an agreement amongst them to vote their shares jointly, when there is evidence that they act in concert to control the corporation, or when there is evidence of their intention to act in concert to control the corporation. A group of persons could be regarded as acting in concert when the group acts with considerable interdependence in transactions involving a common purpose. A predetermined agreement which sets out how the group is to act in certain situations would normally constitute acting in concert. The reason for seeking a common link or interest between members of a group is intended to ensure that an acquisition of control is the result of a jointly decided action, rather than a mere fortuitous event.
Although the requirement to act in concert is as important in a closely-held corporation (a group of 2 or 3 persons) as it is in a widely-held corporation, it is the Department's view that certain presumptions of fact are in order in the case of closely-held corporations. For example, in a closely-held situation, the fact that shareholders jointly adopt mutually advantageous measures is an important indicator of actions in concert. Furthermore, in cases where the voting power in a corporation is equally divided between two shareholders, it is the Department's view that, in almost all such cases, the corporation will be controlled by the group consisting of the two shareholders. In order to escape this presumption of control by the group, it would be necessary to show that no one is controlling the corporation and the decision-making process in the corporation is effectively deadlocked. In our view, this would be very unusual; however, an example might be where the two shareholders cannot agree on the how to run the corporation and have consequently applied to a court for an order authorizing the dissolution of the company.
Author:Tim Bryant 957-2094
File:941085
Date:May 5, 1994