What should I check when buying shares in a company that owns other companies?

Buying the shares of a company that owns other companies means buying the group, not one business (compare buying through a holding company). The general checklist for buying any business still applies, but a group adds its own questions: how the companies relate, what rights reach across them, and whether the structure changes how the deal is approved or financed. Treat the holding company as a doorway to each company behind it, and ask for documents for every one.

Map the group

The CBCA treats one body corporate as affiliated with another if one is the subsidiary of the other, if both are subsidiaries of the same body corporate, or if each is controlled by the same person (s.2(2)). Ask for a chart showing every entity, its owners and its directors, then check it against the registries. For federal corporations, Corporations Canada’s online search makes some information on individuals with significant control available to the public. Provincial registries differ.

Claims that reach affiliates

An oppression application under CBCA s.241(2) can concern a corporation or any of its affiliates, and conduct that is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of any security holder, creditor, director or officer. A dispute at a subsidiary may therefore matter to the shares you are buying. Ask for any complaint, demand or application involving any group company, and for any shareholder agreement that binds one.

Transfers inside the group

Group companies move assets and services between themselves. On the trustee’s application, the Bankruptcy and Insolvency Act lets a court declare a transfer at undervalue void as against the trustee, or order payment of the difference; a transfer at undervalue is one for no consideration or for consideration conspicuously less than fair market value (s.2). For a party not at arm’s length, s.96(1)(b) reaches back one year before the initial bankruptcy event with no further conditions, and up to five years where the debtor was insolvent or intended to defraud, defeat or delay a creditor; an arm’s-length transfer needs both, within one year. Ask for intercompany transfers in that period.

Approvals and lending

Competition Act s.110(3) applies to a proposed acquisition of voting shares of a corporation that carries on an operating business or controls an entity that does, so a holding company does not remove the notification question; the thresholds and exemptions still apply. On financing, the CSBF Program guidelines say the acquisition of shares is not eligible for a CSBF loan. Ask your lender how it will treat a share purchase.