Private equity investors (PEIs) are often a
good source of capital for companies looking to start, maintain, or
grow their operations and can also provide significant operational
and transactional expertise. Like other investors, PEIs operate
with a primary goal in mind; that is, to receive a favourable
return on their investment. However, PEIs generally seek to have a
greater level of involvement in an investee company than other
investors. Accordingly, PEIs commonly negotiate for certain
governance rights in the company via a unanimous shareholder or
limited partnership agreement in order to maintain a certain level
of oversight over the investee company and protect their
Although governance rights can take various forms, they commonly
include: representation rights on the board of directors of the
company (Board); the right to veto certain company
decisions; and access to certain company information. Notably,
these rights are not specific to any type of business organization
(e.g., corporations, partnerships).
The optimal degree of control is largely dependent on the
PEIs' concerns and expertise relating to the investee company,
the PEIs' stake in the company (i.e., majority or
minority), the strength of such company's management and that
company's willingness to relinquish any such control.
Board representation rights
PEIs usually negotiate for the right to have at least one
representative on the Board. Ancillary to this right, they also
negotiate for the right to replace their representative or fill its
vacancy should the initial representative cease to be a director.
However, PEIs may also seek further rights such as:
the quorum for Board meetings require their
representative's presence; and
their representative serve on certain Board committees
(g., audit committee, compensation committee, or reserves
These rights help ensure that the PEIs have an effective voice
in the direction and operation of the company and, therefore, their
Special approval of certain company decisions
In addition to Board representation, PEIs may also negotiate
veto rights by requiring that certain company decisions require the
approval of the PEIs (e.g., decisions regarding the
approval/implementation of the company's budget for expenses
and expenditures, the compensation and benefits of management or
employees, and the termination or employment of management). These
rights may appear in various forms, such as requiring the approval
of (i) the shareholders; (ii) a super majority of the Board; or
(iii) the PEIs' representative.
Access to information
Perhaps the least invasive right that PEIs commonly seek is the
right to access information that is within the company's
control but would otherwise not be provided to its shareholders or
limited partners. Independently, this right may not provide PEIs
with much control over the company and, therefore, their
investment; however, in conjunction with other governance rights,
such information can be extremely useful. Such information
typically includes an operations and/or capital monthly statement,
rights to visit the company, as well as any other information that
PEIs may reasonably request.
The author would like to thank Nader Hasan, articling
student, for his assistance in preparing this legal
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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