Control person (securities law)

An owner who keeps a large block of shares after selling, or who receives a large block as payment, can be a control person. That status changes how the shares can be resold. It is a legal test about control, not a job title, so it can catch a holder who is neither a director nor an officer.

What the Act says

Section 1(1) of Ontario’s Securities Act has two limbs. Limb (a) covers a person or company holding a sufficient number of the voting rights to affect materially the control of the issuer, and the Act sets a deemed-holding rule above a stated percentage, absent evidence to the contrary. Limb (b) covers each person or company in a combination acting in concert under an agreement, arrangement, commitment or understanding that together holds enough voting rights to affect materially the control of the issuer, with the same deemed-holding rule. The definition of “distribution” includes a trade of previously issued securities from a control person’s holdings.

Resale conditions

National Instrument 45-102, section 2.8, exempts a control distribution from the prospectus requirement if conditions are met. They include that the issuer has been a reporting issuer for the period the section names, a minimum holding period and no unusual effort to prepare the market, and the seller must file a notice on Form 45-102F1 before the first trade. Which provisions count as control distributions is listed by province in its appendix.

This entry covers Ontario’s definition only; check the rules where you are. Related: what rollover equity terms a vendor should negotiate and the hold period.