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Canadian M&A Law

Sunday, June 25, 2017 | Ideas and resources on the law of mergers & acquisitions

Chapter six

Cross-Border Acquisition Structures

Cross-border acquisitions invariably involve some form of acquisition financing, whether debt or equity. Lenders and investors often ask Stikeman Elliott to identify the structuring and financing issues that are characteristic of such transactions. This chapter highlights major structuring and tax issues, together with a range of other significant legal considerations in the context of U.S.-Canadian cross-border transactions. Note however that many of the concepts discussed are also relevant to non-U.S. acquirors.


Finding the right structure depends on correctly assessing the situation and objectives of the U.S. lender/investor. Canadian counsel will typically ask questions such as:

  • Have you carried out a Canadian acquisition before?
  • Is the acquisition to be structured as a share purchase or an asset purchase?
  • Is it critical to structure the purchase arrangement and/or ongoing investment as a tax flow-through structure, to the extent possible, for U.S. tax purposes?
  • What are the domestic entity classification and characteristics of the U.S. lender/investor?
  • Do you have a presence in any jurisdictions other than Canada and the U.S.?
  • What are your commercial objectives with the assets to be acquired in both the short and long terms?
  • Would you be averse to completing the acquisition through a direct or indirect wholly-owned Canadian subsidiary?
  • Is the financing, if any, to consist in whole or in part of interest-bearing debt to an entity related to the acquisition company?

For the purposes of this discussion, we will assume that the U.S. lender/investor wishes to proceed by way of a share acquisition.

Structuring Issues

Typical structure

Choice of vehicle

The typical structure involves the use of a direct or indirect wholly-owned subsidiary corporation incorporated in a Canadian jurisdiction to act as the acquisition vehicle. The use of a Canadian acquisition vehicle will generally ensure that the direct foreign parent company will have maximum cross-border capital in the acquisition vehicle, which may generally be returned to the direct foreign parent company on a tax-free basis for Canadian income tax purposes. In Canada, business corporations statutes exist at both the federal level (the Canada Business Corporations Act, or CBCA) and in each province and territory. A company can be incorporated in any of these jurisdictions under any of these statutes, no matter where it is located. While many of the statutes are similar to one another, there are differences between them that can be significant, depending on the circumstances.