The Public Corporation and Securities Law

AuthorJ. Anthony VanDuzer
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”)).
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.
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.

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