The Public Corporation and Securities Law

• Author: J. Anthony VanDuzer
• Profession: Faculty of Law University of Ottawa
• Pages: 464-518

464

CHA PTER 11

THE PUBLIC

CORPOR ATION AND

SECURITIES LAW

A. INTRODUCTION

Often in this book, we have referred to the special rules that apply only

to corporations that have sold their shares to t he public. We have also

discussed the differing ways in which corporate law rules, which apply

to all corporations, operate when applied to such corporations, as com-

pared to smaller, closely held corporations. We will take up this discus-

sion again in Chapters 12 and 13. In this chapter, we examine one area

of particular relevance when one is deal ing with a public corporat ion:

provincial secur ities laws.

Securities laws are complex and a thorough discussion of secur-

ities law is far beyond the scope of th is book.1 We will look brief‌ly at

the basic scheme of securities regulation base d on the Ontario legisla-

tion, though the basic approach to securities regulation is t he same in

all provinces.2 Securities legislation in each province regulates both

the issuance of securities by busine sses, and the m arketplace in which

1 For a more comprehensive di scussion, see M. Condon, A. Anan d, & J. Sarra, Se-

curities Law in Ca nada (Toronto: Emond Montgomery, 2005) [Condon, Anand,

& Sarra]; M.R. Gillen, Secur ities Regulation in Canad a, 3d ed. (Toronto: Thom-

son Carswell , 2007) [Gillen]; J.G. MacIntosh & C.C. Nicholls, Secur ities Law

(Toronto: Irwin Law, 2002) [MacIntosh & Nicholls]; and D. Johnston & K.D.

Rockwell, Can adian Securities Regulat ion, 3d ed. (Toronto: Butterworths, 2002).

2 The Ontario mode l is followed in Alberta, Sa skatchewan, Newfoundland &

Labrador, and New Brun swick (Condon, Anand, & Sarra, ib id.).

The Public Corporat ion and Securities Law 465

securities are traded once they are issued. The main goal of securities

regulation is to promote t he fair and eff‌icient operation of securities

markets with a view to encouraging investors to make their money

available to busines ses by buying their securities.3 The CBCA cont ains

a few prov isions t hat parallel some of the provisions of provinci al se-

curities laws. These provisions are enacted under the federal govern-

ment’s jurisdiction over corp orate law and apply only to corporations

governed under the CBCA.4 If a CBCA-incorporated corporation offers

its shares for sale in a province, both the CBCA and the provincial se-

curities laws will apply. One of the f‌irst issues we wi ll address is t he

difference in the scope of application of corporate and secur ities laws.

Our discussion of securities regulation focuses on its f‌ive main

aspects. First, we will d iscuss the way that professional participants

in the securities markets, such as investment advisers and securities

dealers, are regulated to ensure that they meet st andards for integrity,

competence, and f‌inancial solvency. Second, we will look at the manner

in which securities legi slation seek s to protect investors by requiring

public disclosure regarding the busines s of issuers of securities and

the securities they are offering. Third, we will look at the rules gov-

erning securities tradi ng by directors, off‌icers, signif‌icant shareholders,

and other insiders of corporations. Due to the special knowledge such

people have about the corporations they are associated w ith, insider

trading of securities is closely regulated under provincial securities

laws to ensure that these individuals do not take advantage of informa-

tion that has not been publicly disclosed. Fourth, we will consider the

regulation of bids to takeover control of a public corporation by buying

its shares. In closely held corporations, a sale of shares is negotiated

between the buyer and the seller or sellers. Because of the large number

of shareholders in a widely held public corporation, such a 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 en sure that shareholders

have a meaningful opportunity to participate in any bid that is m ade

and that they are fairly treated.5 Finally, we will d iscuss the relat ively

recent evolution of securities law stand ards for corporate governance.

Following developments in the US, in the la st f‌ive year s, Canadian

jurisdictions have adopted some mandatory requirements rel ating to

3 Kerr v. Danier Leathe r Inc., [2007] 3 S.C.R. 331 [Danier Leather].

4 See Chapter 3 for a di scussion of federal juris diction in this regard.

5 Some other aspec ts of takeover bids are dis cussed in Chapters 12 (effect of

market for corporate cont rol) and 9 (requirements of f‌iduciar y duty of directors

of target corporat ions).

THE LAW OF PARTNERSHIPS AND COR PORATIONS466

corporate governance as well as some voluntary be st practices. Public

corporations must describe their compliance wit h such best pract ices

in their public disclosure to investors.

B. SECURITIES R EGULATION

1) Introduction

Securities6 are issued by business organizations to investors in order to

raise the money they need to carry on their busines ses. The funds con-

tributed by i nvestors in exchange for securities constitute the capital

of a business and may be used to buy production equipment, inven-

tory, and other assets needed to start a new business or to e xpand an

existing busi ness.

Each province has a law concerned with regulating the marketplace

for the trading of securities7 with a view to protecting investors from

unfair, improper, and fraudulent practices and ensuring t hat securities

markets funct ion fairly and eff‌iciently so that investors will have con-

f‌idence in their operation and b e encouraged to invest (Ontario Secur-

ities Act (OSA), s. 1.1). The main approach to achieving this objective

is to require disclosure by businesses that issue their securities so that

buyers and sel lers in the market make their decisions on an informed

basis. Since disclosure imposes a cost on business and d isclosure re-

quirements th at are too onerous will i mpair the eff‌iciency with which

securities m arkets operate, secur ities laws must t ry to str ike a delicate

balance, requiring disclosure that is suff‌icient for people to m ake in-

formed decisions but not excessively burdensome.

There are f‌ive main a reas of securities regulation. The f‌irst is the

regulation of securitie s market participant s. Securities dealers, such as

BMO Nesbitt Burns, ScotiaMcLeod, and others who make a business of

being involved in or advising regarding securities tran sactions are sub-

ject to regist ration requirements and are reg ulated to en sure that they

meet high standards of competence and responsibility. Provincial regu-

lators also overs ee the activ ities of certain so- called self-regulating or-

6 Securities are shares or debt obligations, like bonds, or other claims on a corpora-

tion or other busine ss organization. See t he def‌inition in s. 1(1) of the Ontario

Securities Act, R .S.O. 1990, c. S.5 [OSA], discussed be low in section B(3) (“What is

a Security?”).

7 Markets in whic h securities are tra ded are often referred to as “capita l markets”

because sel ling securities i s one of the ways in which busines ses raise capital

for use in their act ivities.