Category: Corporate

Corporate / M&A / Tax

Reminder of Required IRS Cost Basis Reporting for Canadian Companies

Canadian companies should be aware that if they engage in certain “organizational actions” that affect the tax basis of shares held by U.S. persons (including many types of acquisitions and business combinations where shares are issued to U.S. persons), they are required by the U.S. tax laws to evaluate the effect of the action on the U.S. holder’s tax basis and disclose this information in a completed Form 8937 promptly following the action. Internal Revenue Code Section 6045B and IRS From 8937 require corporations to report an “organizational action” that affects the tax basis of its shares held by U.S. individuals and certain other tax entities. Canadian residents who are U.S. citizens or...

Corporate / Securities

SEC Provides Clarification of Foreign Private Issuer Calculation

For Canadian issuers and their advisers, compliance with U.S. securities laws generally begins with the question: Is the issuer a “foreign private issuer”? The FPI definition, which is set out in Rule 405 under the Securities Act and 3b-4(c) of the Exchange Act, involves the following four inquiries: Are more than 50% of the issuer’s outstanding voting securities held of record, directly or indirectly, by residents of the United States? Are a majority of the issuer’s executive officers and directors citizens or residents of the United States? Are a majority of the issuer’s assets in the United States? Is the issuer’s business principally administered from within the United States? While the FPI test...

Corporate / Securities

Staying Onside the Regulation D Bad Boy Disqualifications

Most non-underwritten private placements of securities by Canadian companies to U.S. investors are made in reliance upon Rule 506 of Regulation D. Since September 2013, this exemption has been subject to “bad boy disqualifications.” Generally speaking, a company is prohibited from relying on Rule 506 if the company, any of its predecessors, any of its affiliated issuers, or any of its directors, officers, general partners, managing members or promoters has been subject to certain convictions, orders, judgments, decrees in the United States or suspension or expulsion of membership from certain organizations in the United States. In addition, if any person has been or will be paid (directly or indirectly) remuneration for solicitation of...

Corporate / M&A / Securities / Tax

Canadian Plan of Arrangement – Do I Need U.S. Counsel?

You’re a Canadian public company with no U.S. operations.  You don’t file reports with the SEC.  You plan to merge with another Canadian public company in a share-for-share exchange, structured as a Canadian plan of arrangement.  Do you need to hire U.S. counsel to assist on this Canadian deal? Yes. Canadian public companies invariably have shareholders resident in the United States.  If the acquirer will issue shares to the target shareholders, or if there will be an amalgamation in which shareholders of both companies receive shares of amalco, the transaction will be deemed to involve the offer and sale of securities to the U.S. shareholders.  This requires either registration with the SEC and...