The Public Corporation and Securities Law

• Author: J. Anthony VanDuzer
• Pages: 512-574

512

CH AP TER 11

THE PUBLIC

COR POR ATION

ANDSECURITIES LAW

A. INTRODUC TION

Often in this book, we have referred to the special rules t hat apply

only to corporations that have sold their shares to the public. We have

also discu ssed how corporate law rules th at apply to all corporations

operate differently when applied to such corporations, as compared

to smaller, closely held corporations. We will take up th is discussion

again in Chapters 12 and 13. In this ch apter, we examine one area

of particular relevance when one is dealing with a public corporation:

provincia l securitie s laws.

Securities law s are complex and a thorough discus sion of securitie s

law is far beyond the scope of thi s book.1 We will look brief‌ly at the

scheme of securities regulation based on the Ontario legi slation, though

the basic approach to securitie s regulation is the same in all provinces.2

1 For a comprehensive dis cussion, see M Condon et al, Securitie s Law in Canada,

3d ed (Toronto: Emond, 2017) [Condon et al]; R Yalden et al, Business Orga niza-

tions: Practice, Theor y and Emerging Challenges, 2d ed (Toronto: Emond, 2017)

[Yalden et al]; MR Gillen, Securities Regul ation in Canada, 3d ed (Toronto:

Thomson Carswel l, 2007) [Gillen]; and JG MacIntosh & CC Nicholl s, Securities

Law (Toronto: Irwin Law, 2002) [MacIntosh & Nicholls].

2 Ontario Securities Ac t, RSO 1990, c S.5 [OSA]. The Ontario mode l is followed in

Alberta, S askatchewan, Newfoundla nd & Labrador, and New Brunswic k (Con-

don et al, above note 1). Yukon, the Northwest Territorie s, and Nunavut also

have securit ies laws and regulators. A s discussed below (sect ion B(2) “Efforts

The Public Corporat ion and Securities Law 513

Securities legi slation regulates both the issuance of securities by busi-

nesses, and the marketplace in which securities are t raded once they

are issued. The main goal of securities regulation is to promote the fair

and eff‌icient operation of securities m arkets with a view to encour-

aging investors to make thei r money available to businesses by buy-

ing their securities.3 The CBCA contains a few provisions t hat parallel

some of the provisions of provincial sec urities laws. These provisions

are enacted under the federal government’s jurisdiction over corpor-

ate 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 provi ncial secur ities laws will apply. One of the

f‌irst issues we wi ll address is the difference in the scope of application

of corporate and securities l aws.

Our discussion of securities regulation focuses on its f‌ive main

aspects. First, we will discuss the way t hat professional participants

in the securitie s markets, such as investment advisers and securities

dealers, are regulated to en sure that they meet standard s for integrity,

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

ner in which securities leg islation protects investors by requiring pub-

lic disclosure regardi ng the business of issuers of securities and the

securities they a re offering. Third, we will look at the rules governing

securities tr ading by directors, off‌icers, signif‌icant shareholders, and

other insiders of corporations. Due to the special knowledge such

people have about the corporations they are associated with, insider

trading of secur ities is closely regulated under provinci al securities

laws to ensure th at these indiv iduals do not take advantage of informa-

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

regulation of bids to take control over 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 num-

ber of shareholders in a widely held public corporation, such a negotia-

tion is not possible. A takeover bid is often made through a “take it or

leave it offer” to shareholders. Such takeover bids are regulated under

provincial secur ities laws to ensure that sha reholders have a meaning-

ful opportunity to par ticipate in any bid that is made and th at they

to establish n ational securitie s regulation”), following a f ailed attempt to put in

place a federal sec urities law, a number of provinces , with the federal govern-

ment, are seeki ng to establish a cooperati ve securities regime.

3 Kerr v Danier Lea ther Inc, [2007] 3 SCR 331 [Danier Leather].

4 See Chapter 3 for a dis cussion of federal juris diction in this regard (section C(2)

(“Jurisdiction t o Incorporate”)).

THE LAW OF PARTNERSHIPS AND COR PORATIONS514

are fairly treated.5 Finally, we will di scuss the relatively recent evolu-

tion of securities law st andards for corporate governance. Following

developments in the US, Canadian jur isdictions have adopted some

mandatory requirement s relating to corporate governance as well as

some voluntary best practices. P ublic corporations must descr ibe their

compliance with such best practice s, explaining any non-compliance,

in their public disclosure to investors.

B. SECURITIES R EGUL ATION

1) Introduction

Securities6 are issued by business organizations to investors in order

to raise money to carr y on their businesses. The fund s contributed by

investors in exchange for securitie s constitute the capital of a business

and may be used to buy production equipment, inventory, and other

assets needed to sta rt a new business or to expand an exist ing business.

Each province has a law concerned w ith regulating the marketplace

for the trading of securit ies7 with a view to protecting investors from

unfair, improper, and fraudulent practices and ensuring that securities

markets function fairly and ef f‌iciently so that investors will have conf‌i-

dence in their operation and be encouraged to invest (Ontario Securities

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

require disclosure by businesses that is sue their securities so that buy-

ers and sellers in the market can make their decisions on an in formed

basis. Since disclosure imposes a cost on business and di sclosure re-

quirements that are too onerous will impair the eff‌iciency wit h which

securities ma rkets operate, securities laws must try to strike a delicate

balance, requiri ng disclosure that is suff‌icient for people to make in-

formed decisions but not excessively burdensome for issuers.

There are f‌ive main areas of secur ities regulation. The f‌irst is the

regulation of securitie s market participants. Secur ities dealers, such as

5 Some other aspect s of takeover bids are discu ssed in Chapters 12, sect ion C

(“How Markets Affect Agenc y Costs”) (effect of market for cor porate control)

and 9 (section B(6) (“Takeover Bids”) (requirements of f‌iduciary dut y of direc-

tors of target cor porations).

6 Securities are sh ares and debt obligations, li ke bonds and other claim s on a

corporation or othe r business organizat ion. See the def‌inition in s 1(1) of the OSA,

discus sed below in section B(4) (“What is a Security?”).

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

because sel ling securities i s one of the ways in which business es raise capital

for use in their act ivities.