The Public Corporation and Securities Law

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

512

CHAPTER 11

THE PUBLIC

CORPORATION

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 the public. We have

also discussed how corporate law rules that apply to all corporations

operate differently when applied to such corporations, as compared

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

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

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

provincial securities laws.

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

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

scheme of securities regulation based on the Ontario legislation, 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 Law513

Securities legislation regulates both the issuance of securities by busi-

nesses, and the marketplace in which securities are traded once they

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

and eff‌icient operation of securities markets with a view to encour-

aging investors to make their money available to businesses by buy-

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

some of the provisions of provincial securities 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 will address is the difference in the scope of application

of corporate and securities laws.

Our discussion of securities regulation focuses on its f‌ive main

aspects. First, we will discuss the way that professional participants

in the securities markets, such as investment advisers and securities

dealers, are regulated to ensure that they meet standards for integrity,

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

ner in which securities legislation protects investors by requiring pub-

lic disclosure regarding the business of issuers of securities and the

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

securities trading 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 securities is closely regulated under provincial 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 securities laws to ensure that shareholders have a meaning-

ful opportunity to participate in any bid that is made and that 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 discuss the relatively recent evolu-

tion of securities law standards for corporate governance. Following

developments in the US, Canadian jurisdictions have adopted some

mandatory requirements relating to corporate governance as well as

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

compliance with such best practices, explaining any non-compliance,

in their public disclosure to investors.

B. SECURITIES REGULATION

1) Introduction

Securities6 are issued by business organizations to investors in order

to raise money 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 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 securities7 with a view to protecting investors from

unfair, improper, and fraudulent practices and ensuring that securities

markets function fairly and eff‌iciently 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 issue their securities so that buy-

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

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

quirements that are too onerous will impair the eff‌iciency with which

securities markets operate, securities laws must try to strike a delicate

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

formed decisions but not excessively burdensome for issuers.

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

regulation of securities 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.