Canada: Doing Business In Canada 2019 - Financing A Business Operation

Last Updated: July 3 2019
Article by Fasken Martineau

A foreign investor seeking to raise capital for Canadian business operations may choose debt financing, equity financing, or a combination of both.

Debt Financing

Canada's financial system provides a stable and effective infrastructure for financial services entities to conduct business both within the country and around the world. The Bank of Canada (an independent central bank) administers an anti-inflationary monetary policy and expedites inter-bank operations; chartered banks and trust companies provide deposit, credit, and payment services; and insurance companies offer protection against a wide range of risks.


Canada's banking system has a long history of stability. The World Economic Forum continually ranks Canadian banks among the most stable in the world. During the 2008 global financial crisis, Canada's banking system demonstrated its strength due to prudent management, sound regulation, and high capitalization.

Domestic and foreign banks operating in Canada are governed by the federal Bank Act. Chartered domestic banks provide deposit facilities, money transfer services, credit, and a variety of investment services. Canadian banks have a highly developed network of branches within the country and are also very active in foreign markets.

Foreign banks are also present in Canadian financial markets. Through Canadian subsidiaries or bank branches, foreign banks in Canada generally provide wholesale banking services and business lending rather than retail services.


Although they are less active internationally than chartered banks, Canadian trust and loan companies incorporated at the federal level can also take deposits and offer loans. Many of them specialize in making loans secured by mortgages.

Life insurance companies manage segregated investment funds, including pension funds. They are not permitted to take deposits but can provide medium- to long-term financing.

Types of Loans

Lenders offer two principal types of loans to businesses: (a) operating loans, designed to assist in the coverage of current business expenses, and (b) term loans, for capital investments or acquisitions. Operating loans typically have a short to medium term and usually bear interest at a rate linked to the market. Term loans often have a medium to long term, require scheduled repayment over a defined period of time, and are repayable on the occurrence of prescribed events of default or on demand. Many financiers will require security for their loans on the assets of the borrower. All of the Canadian provinces except Québec have enacted personal property acts modelled on Article 9 of the US Uniform Commercial Code. Even though the Québec regime has different concepts and procedures, it is similar in many respects to the regulations in the other provinces. In Québec, the Civil Code governs such matters. Most provinces in Canada have also enacted securities transfer legislation, modelled on the US Uniform Securities Transfer Act, that governs the transfer of securities and other investment property. Lenders that do not have a personal interest in the corporation may require that its shareholders maintain a certain level of equity investment. In addition, lenders may also require personal guarantees from the shareholders of private corporations.

Government Assistance Programs

At the federal level, the Business Development Bank of Canada assists small and medium- sized businesses by providing financing, consulting services, and securitization. The federal government offers assistance to small businesses through the Canada Small Business Financing Program (CSBFP). It is designed to assist small businesses in securing financing by providing guarantees for their loans from conventional lenders. Provincial governments may also offer assistance programs.

Equity Financing

Corporations can also be funded by way of equity financing. In order to issue equity securities, a corporation must comply with the securities regulation regimes in Canada.

Securities Legislation

Each of the 13 provinces and territories in Canada has its own securities regulator.

Although there is no federal securities regulator, such as the US Securities and Exchange Commission (SEC) or the UK listing authority, the provinces make efforts to coordinate and harmonize regulations. Through the passport system, which is based on mutual recognition of regulatory systems and delegation of powers, and the Canadian Securities Administrators, an umbrella organization for the provincial and territorial securities regulators, market participants can generally deal with one regulator. Therefore, the approval of one provincial or territorial securities commission allows for registration in another province or territory.

While Ontario does not participate in the passport system, it can be a principal regulator, thereby giving market participants in the province access to the capital markets in passport jurisdictions by dealing with Ontario only.

The federal government previously proposed legislation that would have established a national securities regulator; however, in December 2011, the Supreme Court of Canada ruled that the legislation violated the constitutional division of powers.

In response, the federal government, in conjunction with the governments of Ontario and British Columbia, announced the establishment of a Cooperative Capital Markets Regulatory System (CCMR) in September 2013 to harmonize the various provincial securities acts and serve as a capital markets watchdog.

Currently, the governments of British Columbia, Ontario, Saskatchewan, New Brunswick, Prince Edward Island, and Yukon and the federal government are jointly engaged in the implementation of the CCMR and have invited the governments of the other provinces and territories to join. An update on the expected timeline of implementation is expected in the first half of 2019.

Registration and Disclosure Requirements

To protect investors and market integrity, some obligations are imposed upon corporations and other entities that issue securities. Issuers and sellers must comply with registration and disclosure requirements.

No person or company is permitted to trade in a security, act as an underwriter, or engage in the business of advising others to buy or sell securities without being registered unless a statutory exemption is available or a discretionary exemption order obtained.

In Canada, distributions of securities create disclosure obligations. A distribution of securities includes the issuance of securities by an issuer, the trading of securities by control block shareholders, and the resale of securities initially issued in exempt transactions. Unless a prospectus exemption is available, a distribution must generally be made by way of a prospectus containing full, true, and plain disclosure of all the material facts relating to the securities being issued. Where a prospectus contains a misrepresentation (an untrue statement of a material fact or an omission), purchasers who acquired securities during the distribution period have certain statutory remedies: a right of rescission or, alternatively, a right of action for damages against the issuer and its directors, each underwriter who signed the prospectus, and all the experts who filed consents under the prospectus.

There are several exemptions from the registration and prospectus requirements. The prospectus exemptions are largely harmonized across Canada. Some of them were introduced because certain purchasers are sophisticated and do not require prospectus- level disclosure. Examples include the "accredited investor exemption," which applies to individuals who pass either a net asset or net income test and to various corporate entities, and the "minimum amount investment exemption," which applies to corporate entities that purchase securities for an aggregate cost of at least $150,000. Some other exemptions reflect that the purchaser might already be familiar with the issuer and/or its securities. An example of this is the "private issuer exemption," which allows private issuers to sell securities to certain categories of purchasers (such as directors, officers, and employees) without filing a prospectus.

Companies that take advantage of the prospectus exemptions often provide voluntary disclosure documents such as an offering memorandum. As with a prospectus, a person who purchases securities under an offering memorandum that contains a misrepresentation has a statutory right of action or, alternatively, a right of rescission. Securities issued in reliance upon a prospectus exemption may be subject to resale restrictions (and are thus sometimes priced at a discount due to their illiquidity), whereas securities distributed by way of a prospectus are generally freely tradable.

A distribution of securities made by way of a prospectus triggers additional disclosure obligations. Public companies (which are called "reporting issuers") are required to make disclosure immediately of any "material change" in the affairs of the reporting issuer that would reasonably be expected to have a significant effect on the market price or the value of its securities. Among other things, this includes disclosure regarding actual or proposed changes in the control of the reporting issuer, the acquisition or disposition of material assets, a significant increase or decrease in near-term earnings prospects, and changes in dividends.

Stock Exchanges

Canadian equity markets were significantly consolidated in 2008 when the Toronto Stock Exchange (TSX) merged with the Montréal Exchange. The TSX is now the only Canadian exchange for senior issuers. The TSX Venture Exchange focuses on small capital companies, and the Canadian Securities Exchange focuses on micro capital and emerging companies.

The Montréal Exchange trades derivatives. It has also created the Montréal Climate Exchange, a Canadian environmental products market, in co-operation with the Chicago Climate Exchange.

Foreign Issuers' Access to Canadian Financial Markets

The multijurisdictional disclosure system (MJDS) adopted by the SEC and Canadian securities regulatory authorities eliminates many of the major obstacles for US issuers offering securities in Canada. It facilitates cross-border securities offerings, issuer bids, takeover bids, business combinations, and continuous disclosure filings.

The MJDS permits eligible Canadian and US issuers to satisfy certain offering and reporting requirements by submitting disclosure documents that comply with the requirements of the home country of the issuer supplemented with certain additional disclosure requirements. Under the MJDS, a US issuer can extend the distribution of securities to Canada without having to produce an entirely new prospectus conforming to the requirements and obligations of Canadian securities law.

Private Equity and Venture Capitalists

Corporations can also secure financing through private equity funds. These provide financing for various stages of growth, including start-up capital, financing for development, and the funding of mergers or acquisitions. Venture capitalists invest in start-ups and small businesses that they believe have long- term growth potential. Venture capitalists typically take a minority equity position in the corporation in exchange for having a say in the decisions of the corporation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Aird & Berlis LLP
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Aird & Berlis LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions