How does a share purchase agreement work when buying a business in Quebec?

In a share purchase, the buyer acquires shares of a company rather than its assets. This page covers Quebec only, and a company governed by Quebec’s Loi sur les sociétés par actions. For the general explanation of how a share purchase agreement works, see what a share purchase agreement is. This page looks at the Quebec provisions that sit behind it. Under article 1385 of the Civil Code of Québec, a contract is formed by the sole exchange of consents between persons having capacity to contract, unless the law requires a particular form as a condition of its formation or the parties subject its formation to a solemn form.

Which Act governs the transfer

Section 81 of the Loi sur les sociétés par actions says that, subject to that Act, the transfer of the company’s shares is governed by the Loi sur le transfert de valeurs mobilières et l’obtention de titres intermédiés. Section 2 of the transfer Act says its provisions on the rights and obligations attached to a transfer are supplementary rules. Under section 58, unless otherwise agreed, a buyer may ask the transferor for proof that it holds the rights or has power to transfer, and for any other document needed to register the transfer. The agreement is where to address that.

Restrictions on transfer

The company’s articles of incorporation contain any restrictions imposed on the transfer of its shares (section 5). Under section 37 of the transfer Act, an issuer’s restriction on transfer, even if otherwise lawful, cannot be set up against a person who does not know of it, unless the shares are certificated and the restriction is noted conspicuously on the certificate, or they are uncertificated and the registered holder received notice of it. Under section 66 of the corporate Act, a restriction the company imposes on the transfer of an uncertificated share can be set up against any transferee as soon as the company notifies them that it opposes it. Ask for the articles and any certificates before signing.

The register and registering the transfer

The company keeps a securities register recording the names and addresses of holders, the number of shares held, and the date and details of each issue and transfer (section 33). It also keeps its articles, by-laws and any unanimous shareholder agreement (section 31). Under section 85 of the transfer Act, the issuer registers a transfer on presentation of the endorsed certificate with a request, or on receiving instructions, once the listed conditions are met, including that the transfer contravenes no restriction that can be set up against the buyer or that the law imposes.