Canada is home to a strong and rapidly growing startup scene with notable hot spots in Vancouver, Toronto, Kitchener-Waterloo and Ottawa. In recent years, Canada has cultivated a thriving start-up culture with incubators, tax incentives and special visas. It is a major competitor for tech talent globally. While there are some differences, there is a great similarity between investing in US and Canadian businesses. This article provides a brief overview for U.S. investors considering an investment in a Canadian business.

The transaction

As in the United States, a transaction would typically start with a terms sheet and then move on to the other main documents which include: amended articles (in the United States, the charter), the subscription agreement or the purchase agreement of shares and shareholder agreements, either the Canadian one-style agreement or the three American-style agreements.


The Canadian Venture Capital Association has model documents such as the share purchase agreement, articles, terms and shareholder agreements, which are based on the documents of the National Venture Capital Association (“NVCA” ), modified as necessary to comply with Canadian law.

These documents capture all applicable protections, including rights of first refusal, travel rights, voting rights and information rights. Despite these similarities, the documents are still subject to the Canadian legislative landscape and jurisprudence, which would impact any interpretation of trade agreements.


Similar diligence is carried out in Canada as in the United States. The lawyer typically performs a minute book review, performs a standard series of searches (including liens and intellectual property), and reviews all material contracts.


Different terminology is used in Canada compared to the United States. For example, share and shareholder, as used in the United States, would be respectively share and shareholder in Canada. Other key differences are shown in the conversion table below:

Merger Merger
Share capital Share capital or shares, as the case may be
Common / preferred shares Common / preferred shares
Certificate of incorporation Articles of incorporation
Series To classify

Corporate law

The corporate law regime with respect to principles such as fiduciary duties is similar to what is in place in the United States and more specifically in Delaware. However, there are differences and Canadian legal advisers should be consulted at the appropriate time.

Structure the investment vehicle

Generally, investors in the United States do not need or want to set up a separate investment vehicle for investing in Canadian companies. However, if the US investor is an LLC, they might consider setting up a US holding company to reduce withholding tax on dividends. Tax considerations are an important part of the analysis, and a tax advisor should be consulted at the appropriate time.

Residence requirements for directors

There are additional considerations if a board seat is secure as part of the investment. In some Canadian jurisdictions, a certain number of “resident” Canadian directors are required. For federally incorporated corporations and corporations incorporated in Saskatchewan, Manitoba and Newfoundland and Labrador, at least 25% of the directors must be Canadian residents (or 1 director, if the board has fewer than four members) . Some provinces do not have requirements for Canadian residents, such as British Columbia, Nova Scotia, Prince Edward Island, New Brunswick, Quebec, Alberta and, more recently , Ontario.

Regulatory implications and government approvals

Investments made by non-Canadians to establish a new Canadian business or acquire control of an existing Canadian business are either reportable or subject to review under the Investment Canada Act (“ICA”), which is Canada’s foreign investment regime. Apart from the national security regime, the ICA only applies if the investment involves an “acquisition of control” of a Canadian business by a non-Canadian. It is essential that the threshold for constituting a “takeover” is high and will not be reached in most investment cases. However, the question of whether an investment is subject to review depends on many factors and the company’s legal advisers should be consulted at the appropriate time.

Government assistance programs *

The Canadian federal government offers tax incentives such as the Scientific Research and Experimental Development Tax Incentive Program (“SRED”) which provide support in the form of tax credits and / or refunds to corporations, partnerships or individuals who conduct scientific research or experimental development in Canada. . The company must be a Canadian-controlled private corporation, otherwise it will lose access to all applicable SRED credits.

Reorganizations before closing

It is possible (even common) for a company to undergo a “reorganization” prior to a major investment in order to take advantage of certain other tax planning opportunities available in Canada to founders and owners of private businesses.

Canada has made significant strides in establishing itself as a major player in the tech and startup landscape and is home to a thriving startup culture. US investors considering an investment in a Canadian company should be reassured that the two markets, when it comes to investments, are relatively similar and easy to navigate with the help of Canadian legal advisers.



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