S-29.1 - Act respecting Québec business investment companies

Updated to 22 October 1999

This document has official status.

chapter S-29.1

Act respecting Québec business investment companies

DIVISION I SCOPE

1. This Act applies to every Québec business investment company which is a private legal person incorporated after 23 April 1985 under Part IA of the Companies Act (chapter C-38) and registered as such with Investissement Québec.

For the purposes of this Act, a company shall be a private legal person within the meaning of section 1 of the Taxation Act (chapter I-3). However, a company may be controlled directly or indirectly by one or more venture capital legal persons which are public legal persons within the meaning of section 1 of the Taxation Act.

1985, c. 9, s. 1; 1989, c. 72, s. 1; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

2. The articles of a company shall state that its activities consist primarily in acquiring and holding shares of the share capital of other legal persons as the actual owner thereof and that its share capital is made up of a single class of common shares with full voting rights issued in a single series.

1985, c. 9, s. 2; 1987, c. 106, s. 1; 1988, c. 80, s. 1; 1989, c. 72, s. 2; 1997, c. 14, s. 325; 1999, c. 40, s. 305.

3. Every shareholder of a company shall be

(1)  a natural person or a venture capital legal person; and

(2)  the actual owner of the shares he or it holds.

1985, c. 9, s. 3; 1988, c. 80, s. 2; 1999, c. 40, s. 305.

3.1. Notwithstanding section 3, a common share with full voting rights of the share capital of a company may be transferred to or acquired by a trustee as part of a registered retirement savings plan or a registered retirement income fund, of a type commonly called self-directed, to the extent that the trust holds the share for the benefit of an annuitant within the meaning of paragraph b of section 905.1 or paragraph d of section 961.1.5, as the case may be, of the Taxation Act (chapter I-3).

For the purposes of this Act and the regulations thereunder, the annuitant, under such a plan or fund, is also deemed to be the person holding the share as the actual owner.

1991, c. 17, s. 1.

DIVISION II REGISTRATION

4. Investissement Québec shall register a company where, in its opinion, the company fulfills the requirements prescribed by this Act and the regulations thereunder.

For that purpose, Investissement Québec may require the production of any document it considers likely to enlighten it as to the advisability of registering a company.

1985, c. 9, s. 4; 1988, c. 80, s. 3; 1989, c. 72, s. 3; 1991, c. 17, s. 2; 1998, c. 17, s. 64.

4.1. Investissement-Québec shall register a company as an employee owned company where, in addition to the requirements determined in section 4 and following the establishment of a stock ownership plan referred to in Division III.1, the company proves that each shareholder of the company is an eligible employee referred to in section 15.2 or 15.2.1.

1986, c. 113, s. 1; 1989, c. 72, s. 4; 1998, c. 17, s. 64.

4.2. (Repealed).

1988, c. 80, s. 4; 1989, c. 72, s. 5.

4.3. (Repealed).

1988, c. 80, s. 4; 1989, c. 72, s. 5.

5. For the purposes of this Act, a common share with full voting rights is a common share within the meaning of section 1 of the Taxation Act (chapter I-3) to which are attached a number of voting rights in the issuing legal person, in all circumstances and regardless of the number of shares held, which is not less than the number attached to any other share of the share capital of the legal person.

Notwithstanding the first paragraph and unless Investissement Québec decides otherwise, where shares of a particular class or of a particular series of a particular class of the share capital of a company are, on 30 April 1987 or at the time of registration in the case of a company registered after that date, the only common shares with full voting rights of the share capital of the company and where, by reason of a change in the share capital of the company,

(1)  a new series of the particular class is created or a new class is created and the shares of that series or of that class would be, but for this paragraph, common shares with full voting rights, or

(2)  any share of the particular class or of the particular series would no longer be, but for this paragraph, a common share with full voting rights,

the following rules apply:

(1)  any share of the particular class or of the particular series is deemed to be a common share with full voting rights;

(2)  every other share of the share capital of the company is deemed not to be a common share with full voting rights.

Notwithstanding the first paragraph, Investissement Québec may determine the class or series of shares of the share capital of a company whose shares are common shares with full voting rights where, on 30 April 1987 or at the time of registration in the case of a company registered after that date, the shares of several classes or of several series of a class of the share capital of the company would be, but for this paragraph, common shares with full voting rights.

1985, c. 9, s. 5; 1986, c. 15, s. 227; 1986, c. 113, s. 2; 1987, c. 106, s. 2; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

6. Investissement Québec may prescribe the form and content of

(1)  an application for the registration of a company;

(2)  an application for the validation of an investment in a qualified legal person.

1985, c. 9, s. 6; 1987, c. 106, s. 3; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

7. Investissement Québec may revoke the registration of a company if it is proved that the company

(1)  has furnished false information or documents;

(2)  is failing or neglecting to fulfill its obligations under this Act and the regulations thereunder;

(3)  has filed an application for that purpose.

The notice of revocation of the registration of a company shall indicate the date of the revocation and shall be sent to the head office of the company by registered or certified mail.

1985, c. 9, s. 7; 1988, c. 80, s. 5; 1998, c. 17, s. 64.

8. Registration of a company is revoked of right upon the occurrence of any of the following events:

(1)  upon the company’s dissolution;

(2)  upon adoption or approval, by the shareholders of the company, of a resolution to wind it up;

(3)  upon the company’s being placed under a winding-up order for a reason other than bankruptcy or insolvency;

(4)  upon the company’s being placed under a receiving order pursuant to the Bankruptcy and Insolvency Act (Revised Statutes of Canada, 1985, chapter B-3) or having made an assignment of its property within the meaning of the said Act;

(5)  upon reduction to less than $50 000 of the paid-up capital of the common shares with full voting rights of a company having made and holding a qualified investment;

(6)  upon the adoption or approval by the company’s shareholders of a resolution ordering the amalgamation of the company.

1985, c. 9, s. 8; 1986, c. 113, s. 3; 1988, c. 80, s. 6; 1989, c. 72, s. 6; 1991, c. 17, s. 3; 1992, c. 45, s. 1.

9. Investissement Québec shall send to the Minister of Revenue the information he deems necessary where it registers a company or a registration is revoked.

1985, c. 9, s. 9; 1986, c. 113, s. 4; 1998, c. 17, s. 64.

10. Investissement Québec shall keep a register containing the following information:

(1)  the names of the companies;

(2)  their dates of constitution;

(3)  their dates of registration;

(4)  the addresses of their head offices.

1985, c. 9, s. 10; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

10.1. A company and a qualified legal person shall, upon the written request of Investissement Québec and within the time fixed therein, furnish to Investissement Québec any document and any information the latter may require for the carrying out of this Act and the regulations.

1988, c. 80, s. 7; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

DIVISION III QUALIFIED INVESTMENT

11. A company shall make a qualified investment contemplated in section 12.2 or 12.3 to enable its shareholders to avail themselves of the tax benefits provided in the Taxation Act (chapter I-3) in respect of a company.

The amount of a qualified investment shall be established by regulation of the Government.

1985, c. 9, s. 11; 1989, c. 72, s. 7.

12. An investment validated by Investissement-Québec which is,

(1)  in the case of a company referred to in section 4, a common share with full voting rights of the share capital of a qualified legal person that is acquired by a company as first purchaser,

(2)  in the case of a company referred to in section 4.1, a common share with full voting rights of the share capital of a qualified legal person that is acquired by a company as first purchaser provided each shareholder of the company holds, directly, indirectly or with related persons who are not in the employ of the qualified legal person or of a subsidiary referred to in section 15.2 or 15.2.1, less than 5 % of the voting shares of the share capital of the qualified legal person,

(3)  (subparagraph repealed);

(4)  (subparagraph repealed);

is a qualified investment.

Notwithstanding the first paragraph, an investment in a qualified legal person is not a qualified investment if the shareholder directly or indirectly controlling the qualified legal person that, but for this paragraph, would benefit by a qualified investment or a person with whom the shareholder is not dealing at arm’s length, is the shareholder of a company that, within the two years preceding the investment, made a qualified investment in a qualified legal person any of whose shareholders directly or indirectly controlling it or any person with whom the shareholder is not dealing at arm’s length is also a shareholder of the company that, but for this paragraph, would have made a qualified investment.

To be qualified, the legal person shall, at the time of acquisition, meet the following conditions:

(1)  be a Canadian-controlled private corporation within the meaning of section 1 of the Taxation Act (chapter I-3);

(2)  have assets of less than $25 000 000 or a net shareholders’ equity not in excess of $10 000 000;

(3)  have its head office in Québec;

(4)  have paid, in the last 12 months preceding the date of acquisition, or in the months preceding that date in the case of a legal person that has been in operation for less than 12 months, more than 75 % of the salaries paid to its employees within the meaning of section 771 of the Taxation Act and, as the case may be, to employees of legal persons with which it is associated, to employees of an establishment situated in Québec;

(5)  operate mainly in one of the sectors of activity determined by regulation of the Government;

(6)  deal at arm’s length with the company, within the meaning of the regulations, on that date and in the following 24 months, except with the prior authorization of Investissement-Québec where it is not dealing at arm’s length with the company following a transaction that is subsequent to the date on which a qualified investment is made and that may prevent the bankruptcy of the legal person.

The conditions referred to in subparagraph 4 of the third paragraph and in paragraph 2 of section 12.3 must be met by a legal person during the 24 months following the acquisition of a qualified investment.

1985, c. 9, s. 12; 1986, c. 15, s. 228; 1986, c. 113, s. 5; 1988, c. 80, s. 8; 1989, c. 72, s. 8; 1991, c. 17, s. 4; 1997, c. 14, s. 326; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

12.1. For the purposes of section 12, where, in the opinion of Investissement-Québec, the investment is made in a fledgling legal person, the condition provided

(1)  in subparagraph 4 of the third paragraph of the said section and the condition provided in paragraph 2 of section 12.3 must be met by the legal person only during the 24 months following the acquisition of a qualified investment;

(2)  in subparagraph 5 of the third paragraph of the said section must be met within four months after the date of acquisition of the qualified investment.

1987, c. 106, s. 4; 1988, c. 80, s. 9; 1989, c. 72, s. 9; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

12.2. A qualified investment outside a designated region is an investment which, at the time of acquisition,

(1)  is a qualified investment under section 12;

(2)  is made by a company whose paid-up capital in respect of its issued and outstanding common shares with full voting rights is not less than $50 000.

1989, c. 72, s. 10; 1992, c. 45, s. 2.

12.3. A qualified investment in a designated region is an investment which, at the time of acquisition,

(1)  is a qualified investment under section 12;

(2)  is made in a qualified legal person which, during the 12 months preceding the date of the investment, or during the months preceding that date in the case of a legal person which has been operating for less than 12 months, has paid more than 75 % of the wages paid to its employees, within the meaning of section 771 of the Taxation Act (chapter I-3), to employees of an establishment located in a designated region;

(3)  is made by a company whose paid-up capital in respect of its issued and outstanding common shares with full voting rights is not less than $50 000.

1989, c. 72, s. 10; 1999, c. 40, s. 305.

13. No qualified legal person may be the beneficiary of an aggregate of qualified investments in excess of $5 000 000 for the total qualified investments made in the qualified legal person and in all the legal persons with which it is associated. However, for the purpose of computing that amount, any excess amount is deemed not to be a qualified investment and qualified investments held for at least 24 months in the qualified legal person and in the legal persons with which it is associated shall not be taken into account.

1985, c. 9, s. 13; 1989, c. 72, s. 11; 1995, c. 63, s. 296; 1999, c. 40, s. 305.

13.1. Investissement Québec may refuse to validate any investment which, though consistent with the literal meaning of this Act and the regulations, does not, in the opinion of Investissement Québec, meet the objectives pursued by this Act and the regulations.

Investissement Québec may, in particular, refuse to validate an investment if, in the opinion of Investissement Québec, the price paid by a company for the shares of the capital of a qualified legal person is considerably higher than the value of a common share issued before or after the investment by the qualified legal person, taking into account for this purpose the net assets of the shareholders of the qualified legal person.

Investissement Québec may, in particular, refuse to validate an investment made by a company where an option to sell or any other form of guarantee of return is granted by anyone, on the date of the investment, to a shareholder of the company.

1988, c. 80, s. 10; 1989, c. 72, s. 12; 1997, c. 85, s. 417; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

13.2. If it is of the opinion that an investment meets the objectives pursued by this Act, Investissement-Québec may

(1)  validate it as a qualified investment even if it was made before the registration of the company if, considering the circumstances, the time within which the company was subsequently registered appears to be reasonable;

(2)  extend, in the case of a fledgling legal person, for the period it considers necessary according to the circumstances, the time limit fixed in paragraph 2 of section 12.1 to meet the requirement set out in subparagraph 5 of the third paragraph of section 12;

(3)  if an application therefor is filed with it before the date of the investment, admit a percentage lower than the percentage fixed in subparagraph 4 of the third paragraph or in paragraph 2 of section 12.3, for the last 12 months preceding the date the investment is made or for any period prior to such date in the case of a legal person which has been in operation for less than 12 months.

1988, c. 80, s. 10; 1989, c. 72, s. 13; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

13.3. In all cases where its prior authorization is required for a transaction, operation or event, Investissement Québec may authorize such a transaction, operation or event if it is proved that, notwithstanding the absence of its prior authorization, the fact of authorizing the transaction, operation or event does not contravene the objectives pursued by this Act and the regulations.

1989, c. 72, s. 14; 1998, c. 17, s. 64.

14. A company shall, within 30 days of any change, send in writing, to Investissement Québec, the information relating to its shareholders, its share capital and its qualified investments.

1985, c. 9, s. 14; 1998, c. 17, s. 64.

15. Investissement Québec shall issue a statement to each shareholder of a company, attesting to the amount of his adjusted interest in a qualified investment or to the qualified portion of his adjusted interest in a qualified investment in a legal person operating in a business in the scientific research and experimental development sector, as determined by regulation.

For the purposes of this Act, an adjusted interest in a qualified investment is the adjusted interest in a qualified investment as determined under section 965.31.1 of the Taxation Act (chapter I-3), and the qualified portion of the adjusted interest in a qualified investment is determined under section 965.33.1 of the Taxation Act.

1985, c. 9, s. 15; 1986, c. 113, s. 6; 1991, c. 17, s. 5; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

15.0.1. Where new common shares with full voting rights of a company are subscribed and paid and the company uses its funds to make a qualified investment, the company may allocate to the shareholders of its choice an amount as participation in a qualified investment not exceeding the amount of such investment, and also an amount as additional participation in a qualified investment, without, however, exceeding the financial commitment of each shareholder within the meaning of paragraph b.1 of section 965.29 of the Taxation Act (chapter I-3).

To be valid, the allocation must be approved by Investissement Québec.

1987, c. 106, s. 5; 1988, c. 80, s. 11; 1992, c. 45, s. 3; 1998, c. 17, s. 64.

15.0.2. For the purposes of this Act, a participation in a qualified investment has the meaning assigned by paragraph c of section 965.29 of the Taxation Act (chapter I-3) and additional participation in a qualified investment has the meaning assigned by regulation.

1987, c. 106, s. 5; 1992, c. 45, s. 4.

15.0.3. For the purposes of this Act, a person is deemed to hold a share with full voting rights of the share capital of a qualified legal person where the share is held by a legal person that the person controls alone or with persons related to him or by a subsidiary of such a legal person or a subsidiary of such a subsidiary.

1987, c. 106, s. 5; 1999, c. 40, s. 305.

DIVISION III.1 STOCK OWNERSHIP PLAN

1986, c. 113, s. 7.

15.1. A stock ownership plan is a plan instituted by a qualified legal person to enable all its eligible employees to acquire common shares with full voting rights from a company referred to in section 4.1.

1986, c. 113, s. 7; 1988, c. 80, s. 12; 1989, c. 72, s. 15; 1999, c. 40, s. 305.

15.2. The expression “eligible employee of a qualified legal person” means any individual residing in Québec who is in the employ of the qualified legal person or of a subsidiary not less than 90% of the shares of the issued capital stock of which having full voting rights under all circumstances are owned directly or indirectly by the qualified legal person and who, immediately before the acquisition of the shares, from the company, and immediately before its registration, holds directly, indirectly or with related persons who are not in the employ of the eligible legal person or of such a subsidiary, less than 5% of the shares of the issued capital stock of the qualified legal person.

1986, c. 113, s. 7; 1999, c. 40, s. 305.

15.2.1. A stock ownership plan may provide that the expression “eligible employee of a qualified legal person” also means any individual residing in Québec who is in the employ of a subsidiary not less than 50 % of the shares of the issued capital stock of which, with full voting rights under all circumstances, are owned directly or indirectly by the qualified legal person and who, immediately before the acquisition of the shares from the company, and immediately before its registration, holds directly, indirectly or with related persons who are not employed by the qualified legal person or by such a subsidiary, less than 5 % of the shares of the capital stock of the qualified legal person.

1989, c. 72, s. 16; 1999, c. 40, s. 305.

15.3. A stock ownership plan may provide that an individual is not an eligible employee of a legal person if, at the time of acquisition of the shares of the company, he cannot prove three consecutive months of service with the qualified legal person or a subsidiary mentioned in section 15.2 or 15.2.1.

1986, c. 113, s. 7; 1989, c. 72, s. 17; 1999, c. 40, s. 305.

15.4. A stock ownership plan may set a maximum limit to the number of common shares with full voting rights of the capital stock of the company that may be acquired thereunder, provided the number is determined by means of the same formula for all eligible employees.

1986, c. 113, s. 7.

15.5. In no case may a stock ownership plan require each eligible employee to acquire a minimum number of common shares with full voting rights of the capital stock of the company under the plan.

1986, c. 113, s. 7.

15.6. Every stock ownership plan shall provide the identical formula for all eligible employees for the determination of the purchase price of each common share with full voting rights of the capital stock of the company that may be acquired under the plan.

1986, c. 113, s. 7.

15.7. Every stock ownership plan shall provide eligible employees with means for financing the acquisition of common shares with full voting rights of the share capital of the company within the scope of the plan, as provided for in section 15.8, which shall be identical for all, up to the amount of the acquisition.

1986, c. 113, s. 7.

15.8. The means of financing provided under a stock ownership plan shall be an interest-free loan granted by the qualified legal person, a loan granted by the legal person bearing interest at a rate not exceeding the market rate at the time of the loan or a loan from another person, provided the terms and conditions are negotiated by the qualified legal person.

1986, c. 113, s. 7; 1999, c. 40, s. 305.

15.9. Every stock ownership plan shall provide the terms of repayment of a loan, which shall be reasonable and spread the payments over a reasonable period beginning with the time of the loan.

1986, c. 113, s. 7.

15.10. A stock ownership plan may provide clauses applicable in the event of an eligible employee’s failure to repay his loan, the death, retirement, illness or layoff of an eligible employee, the sale or transfer of shares acquired under the plan or any other situation that may compromise repayment of the loan contracted by an eligible employee.

A stock ownership plan may provide, notwithstanding section 3 of the said Act, that a qualified legal person may become the shareholder of an employee owned company where an eligible employee leaves his employment permanently and ceases to repay his loan. In such a case, a qualified legal person may retake possession of the shares of the share capital of the employee owned company in the proportion of the sums borrowed from it by the eligible employee or guaranteed by it with another person on behalf of that employee and remaining due by that employee at the time he leaves his employment.

The second paragraph of this section applies from 11 December 1986.

1986, c. 113, s. 7; 1999, c. 40, s. 305.

15.11. Every stock ownership plan shall be managed by a dealer, within the meaning of paragraph f of section 965.1 of the Taxation Act (chapter I-3), who has custody of the certificate attesting to the share of the company and who is required to keep, in Québec, a register, in a separate account, of all the operations made by each shareholder of the company within the scope of the stock ownership plan.

1986, c. 113, s. 7.

DIVISION IV REGULATIONS

16. The Government may make regulations to

(1)  determine the required qualifications for any company applying to be registered, the conditions it or any other legal person shall fulfil and the information they shall furnish;

(2)  determine the form of the reports that a company or any legal person shall furnish, the information required to be contained in the reports and the period at which they shall be filed;

(2.1)  determine the information that a company shall furnish with respect to any change concerning its shareholders, its share capital and its qualified investments;

(3)  determine what constitutes the assets of a legal person and the net shareholders’ equity, including those of a legal person associated with the legal person, and the mode of computing them;

(4)  determine the sectors of activity in which legal persons contemplated in section 12 are required to operate, except the activities it determines;

(5)  define the expressions “arm’s length”, “associated legal person”, “fledgling legal person”, “related person” and “venture capital legal person”;

(6)  determine the conditions of holding a qualified investment and the length of time for which it may be held, and provide penalties and modalities for receiving such an investment;

(7)  determine tariffs of duties and fees payable to Investissement-Québec for any act done by it under this Act;

(8)  determine the regions that are designated regions;

(9)  (paragraph repealed);

(10)  define the expression “amount of the qualified investment”;

(11)  determine the conditions which must be respected by a qualified legal person involved in a merger to ensure that, notwithstanding the Taxation Act (chapter I-3), a company is not deemed to have disposed of a share which formed part of a qualified investment;

(12)  define the word “employee”;

(13)  determine the information that a company shall furnish where it waives, in favour of the shareholders of a company, a deduction in respect of all or part of the expenses incurred in making a distribution of securities to the public;

(14)  define the expression “additional participation in a qualified investment”.

1985, c. 9, s. 16; 1986, c. 15, s. 229; 1987, c. 106, s. 6; 1988, c. 80, s. 13; 1989, c. 72, s. 18; 1992, c. 45, s. 5; 1997, c. 14, s. 327; 1998, c. 17, s. 64; 1999, c. 40, s. 305.

DIVISION V FINAL PROVISIONS

17. The Minister of Industry and Trade is responsible for the administration of this Act.

1985, c. 9, s. 17; 1988, c. 41, s. 89; 1994, c. 16, s. 51; 1999, c. 8, s. 20.

18. (This section ceased to have effect on 14 August 1990).

1985, c. 9, s. 18; U. K., 1982, c. 11, Sch. B, Part I, s. 33.

19. (Omitted).

1985, c. 9, s. 19.

REPEAL SCHEDULE

In accordance with section 17 of the Act respecting the consolidation of the statutes and regulations (chapter R-3), chapter 9 of the statutes of 1985, in force on 1 September 1985, is repealed, except section 19, effective from the coming into force of chapter S-29.1 of the Revised Statutes.