The Public Corporation
| Author | J. Anthony Vanduzer |
| Pages | 395-438 |
CHAPTER
11
THE
PUBLIC
CORPORATION
A.
INTRODUCTION
Often
in
this
book,
we
have referred
to the
special rules that apply only
to
corporations which
offer
their shares
to the
public.
We
have also dis-
cussed
the
differing
ways
in
which corporate
law
rules that apply
to
such corporations operate
as
compared
to
smaller, closely held corpo-
rations.
In
this chapter,
we
expand
on
some areas
of
particular rele-
vance
when
one is
dealing with
a
public corporation, focusing
on
provincial securities laws.
Securities
law is
complex
and a
thorough discussion
of
securities
law
is far
beyond
the
scope
of
this
book.1
Securities legislation
in
each
province seeks
to
regulate both
the
issuance
of
securities
by
business-
es
and the
marketplace
in
which securities
are
traded once securities
are
issued.
We
will look
briefly
at the
basic scheme
of
securities regu-
lation,
based
on the
Ontario legislation.
The
CBCA
contains
a few
pro-
visions that parallel some
of the
provisions
of
provincial securities
laws. These provisions
are
enacted under
the
federal
government's
jurisdiction over corporate
law and
apply only
to
corporations gov-
1 For a
more comprehensive discussion,
see
M.R. Gillen, Securities Regulation
in
Canada,
2d ed.
(Toronto:
Carswell,
1998)
[Gillen];
J.G.
Macintosh
and
C.C.
Nicholls, Securities Law, (Toronto:
Irwin
Law, 2002) [Macintosh
&
Nicholls];
and
D.Johnston
&
K.D. Rockwell, Canadian Securities Regulation,
3d ed.
(Toronto:
Butterworths,
2002).
395
396 THE LAW OF
PARTNERSHIPS
AND
CORPORATIONS
erned under
the
CBCA.2
If a
CBCA-incorporated
corporation
offers
its
shares
for
sale
in a
province, both
the
CBCA
and the
provincial securi-
ties laws will
apply.
Our
discussion
focuses
on
four
aspects
of
securities regulation.
First,
we
will discuss
the way
that professional participants
in the
secu-
rities markets, such
as
investment advisers
and
securities dealers,
are
regulated. Next
we
will look
at the
manner
in
which securities legisla-
tion
seeks
to
protect
investors
by
requiring
public
disclosure
regarding
the
business
of
issuers
of
securities
and the
securities they
are
offering.
We
will look also
at
securities trading
by
directors,
officers,
significant
shareholders,
and
other insiders
of
corporations.
Because
of the
special
knowledge such people have about
the
corporations they
are
associat-
ed
with, their trading
of
securities
is
closely regulated under provincial
securities laws.
Finally,
we
will consider
the
regulation
of
efforts
to
take over
a
cor-
poration
by
acquiring
its
shares.
In
closely held corporations,
the
sell-
ing of
shares
is a
negotiated transaction between
the
buyer
and the
seller
or
sellers. Because
of the
large number
of
shareholders
in a
wide-
ly
held public corporation, such negotiation
is not
possible.
A
takeover
bid may be
made through communication
of a
"take
it or
leave
it
offer"
to
shareholders. Such takeover bids
are
regulated under provincial
securities laws
to
ensure that shareholders have
a
meaningful opportu-
nity
to
participate
in any bid
that
is
made
and are
fairly
treated.3
B.
SECURITIES
REGULATION
1)
Introduction
Securities4
are
issued
by
business organizations
to
investors
in
order
to
raise
the
money they need
to
carry
on
their businesses.
The
funds
contributed
by
investors
in
exchange
for
securities constitute
the
capital
of a
business
and may be
used
to buy
production equipment, inventory,
and
other
assets needed
to
start
a new
business
or to
expand
an
existing business.
2
See
Chapter
3 for a
discussion
of
federal
jurisdiction
in
this regard.
3
Some
of the
corporate
law
aspects
are
discussed
in
Chapters
7
(effect
of
market
for
corporate control)
and 8
(requirements
of
fiduciary
duty
of
directors
of
tar-
get
corporations).
4
Securities
are
shares
or
debt obligations, like bonds,
or
other claims
on a
corpo-
ration
or
other business organization.
See the
definition
in
section 1(1)
of the
Ontario
Act,
R.S.O.
1990,
c.
S.5
[OSA],
discussed below
in the
section
"What
is a
Security?"
The
Public Corporation
397
Each
province
has a law
concerned with regulating
the
market-
place
for the
trading
of
securities, with
a
view
to
protecting investors
from
unfair,
improper,
and
fraudulent practices,
ensuring
that
securi-
ties markets
function
fairly
and
efficiently
so
that investors will have
confidence
in
their operation (OSA,
s.
1.1).
The
basic
approach taken
in
securities
laws
to
accomplish
these
objectives
has
four
main aspects.
The
first
is the
regulation
of
securities
market participants. Securities dealers, such
as BMO
Nesbitt Burns, Sco-
tiaMcleod,
and
others
who
make
a
business
of
being
involved
in or
advising regarding securities transactions,
are
subject
to
registration
requirements
and are
regulated
to
ensure that they meet high standards
of
competence
and
responsibility. Provincial regulators also oversee
the
activities
of
certain so-called self-regulating organizations (SROs) that
regulate
the
operations
and
practice standards
of
their members, and,
in
doing
so,
play
an
important
role
in
securities
regulation (OSA, Part
VIII).
SROs
in
Ontario include
the
Investment Dealers Association
(IDA),
the
Mutual
Fund Dealers Association
(MFDA),
and The
Toronto Stock
Exchange (OSA,
ss. 1.1
(definition
of
SRO)
&
21.7).
Securities
dealers
and
brokers must
be
members
of the IDA
(OSC
Rule
31-507
SRO
Mem-
bership
—
Securities Dealers
and
Brokers),
and
mutual
fund
dealers
must
be
members
of the
MFDA
(OSC Rule
31-506
SRO
Membership
—
Mutual
Fund Dealers). Securities regulators have
the
authority
to
review
directions, decisions, orders,
and
rulings
of
SROs.
The
second aspect
of
securities
regulation
is to
require
businesses
offering
securities
to the
public
to
disclose timely
and
accurate information about
the
securities
and
their business when
the
securities
are
first
offered
for
sale,
and
thereafter
on a
regular basis,
as
well
as
whenever something happens
that
is
likely
to
affect
the
value
of the
securities.
The
third
and
fourth
aspects
are the
regulation
of
insider trading
and of
takeover
bids.
The
administration
and
enforcement
of the
securities laws
of
each
province
is the
responsibility
of
some specialized agency
of the
govern-
ment
of
that province.
In
Ontario,
it is the
Ontario Securities Commis-
sion (the
OSC).
The OSC
uses
a
range
of
enforcement powers
to
achieve
the
objectives
of
securities regulation
referred
to
above.
The OSC
pros-
ecutes
offences
under
the
OSA,
may
make court applications
for a
dec-
laration
that there
has
been non-compliance with
the Act or
other
orders and, most
significantly,
has a
very wide discretion
to
make orders
itself
relating
to
market place activities where
it
determines that some
action
is in the
public interest (OSA,
ss.
122,
127
&
128).
Under
its
pub-
lic
interest jurisdiction
the OSC may
order that
• a
person's registration
as a
securities market participant
be
terminated;
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