In stream 3 Business takeover, buying the shares that carry legal control of the operating company is the structure that matches the regulation. It is the one we recommend. That choice also determines what happens to the contracts, the permits, the employees and your tax position.
What the regulation requires in stream 3
The Business acquisition profile is governed by section 56 of the Quebec Immigration Regulation. You must intend to acquire control of a business that has been operating for at least 5 years. That control may be acquired alone or with the spouse included in your application.
No transferor may have been selected under the Entrepreneur Program in the 5 years preceding your application. The same rule applies to a group whose controlling holder was selected in that way. Your business partners may not apply as entrepreneurs and may not hold control.
Section 57.1 adds that, for this stream, control means direct or indirect legal control only. De facto control, such as day-to-day management or economic influence, is therefore not enough. That wording is what makes the form of the transaction decisive.
You must also plan for $300,000 in acquisition spending in the Montreal metropolitan community, or $150,000 elsewhere. Those minimum amounts first appear in the succession plan. Supporting documents are required after the acquisition offer. The program’s other conditions are set out in our piece on stream 3 Business takeover.
Why a share purchase matches the wording
By buying the shares, you take control of the legal person that already operates the business. The 5-year operating history stays attached to the same company and the same Quebec enterprise number (NEQ). Proof of control rests on the securities register, the share certificates and the articles.
In corporate law, legal control is generally assessed by holding enough votes to elect a majority of the directors. A 50 % interest, non-voting shares or a restrictive shareholders’ agreement therefore deserve analysis before signature.
Control may also be indirect. You can acquire the shares through a holding company that you control. The chain of control must then be documented without ambiguity.
What an asset purchase does not transfer
In an asset purchase, your new company acquires the equipment, the client base, the goodwill and sometimes the inventory. The seller’s company remains the seller’s property. You therefore obtain no legal control over the company that operated the business for 5 years.
That is why, in stream 3, we structure the takeover as a share purchase. The general comparison between the two structures, outside the immigration context, is covered in our piece on share purchase or asset purchase.
Comparison table: shares or assets
| Criterion | Share purchase | Asset purchase |
|---|---|---|
| Fit with stream 3 | Acquisition of legal control of the operating company | No legal control of the operating company |
| The 5-year history | Attached to the same company and the same NEQ | A new company with no history of its own |
| Liabilities | You inherit the company’s past, known or not | Liabilities excluded in principle, subject to legal rules such as employment law |
| Contracts | Stay in place; change of control clauses must be checked | Assignment to be negotiated, often with the other party’s consent |
| Permits | Holder unchanged; some regimes require notice or approval | New application, or a transfer to be approved |
| Employees | Employer unchanged | Employment contracts continue with the buyer |
| Buyer’s tax position | The company’s tax history is taken over | Tax cost of the property based on the price paid |
| Seller’s tax position | Capital gain; exemption possible on conditions | Recapture of depreciation possible within the company |
| Sales and transfer taxes | In principle, no sales tax on shares | GST and QST possible; transfer duties where real estate is sold |
Contracts, permits and employees
In a share purchase, the contracts remain with the same company. Change of control clauses must nonetheless be identified, as they are common in commercial leases, franchise agreements and credit facilities. In an asset purchase, each contract must be assigned, which often requires the other party’s consent.
Contracts
Share purchase: the commitments stay in the company’s name, but change of control clauses must be identified before closing.
Asset purchase: each contract is assigned, often with the other party’s consent.
Permits
Share purchase: the holder does not change, but some regimes require notice on a change of shareholders or officers.
Asset purchase: several permits are personal to the holder and must be obtained again.
Employees
Alienation of the enterprise does not terminate the contract of employment (art. 2097 C.C.Q.).
The Act respecting labour standards also ensures continuity in the application of the standards (s. 97).
A clause in the purchase agreement that excludes certain employees therefore does not release you from your obligations. The target company’s contracts, permits and personnel belong in the due diligence review.
The notice under the Investment Canada Act
If you are neither a Canadian citizen nor a permanent resident, you are a non-Canadian under the Investment Canada Act. Acquiring control of a Canadian business then requires a notice, filed before the investment or within the following 30 days (s. 12).
Tax: two opposing interests
Buyers often prefer assets. The tax cost of the property then matches the price paid, which allows depreciation to be deducted. In a share purchase, you inherit the company’s tax history instead.
Sellers often prefer shares. The seller realizes a capital gain and may, on conditions, claim the lifetime capital gains exemption. A sale of assets can trigger recapture of depreciation, sales taxes and transfer duties.
These interests are negotiated through the price. Our caution is simple: a tax advantage must never compromise your eligibility. The structure is validated with a tax specialist before the letter of intent, not after.
How MEKA AVOCAT works on this
We come in early, before a letter of intent locks the structure in. If the proposed arrangement does not give you the legal control required, we say so before signature rather than after the refusal. Our role covers in particular:
- The acquisition structure: a direct share purchase or one through a holding company, depending on the legal control required.
- Legal due diligence on the target company, its contracts and its permits.
- Transaction documents: the acquisition offer, the purchase agreement and the closing documents.
- Tax coordination with our accounting and tax partners on the price and the structure.
- Working alongside the business succession organization and the broker, where applicable.
- Review of the franchise agreement where the target is a franchise, including the franchisor’s consent.
Texts and sources
This article draws on the Quebec Immigration Regulation, the Civil Code of Québec, the Act respecting labour standards, the Investment Canada Act and the stream 3 Business takeover conditions page of the Entrepreneur Program published by Quebec’s immigration ministry.
Frequently asked questions
Can I buy 51 % of the shares and let the seller keep the rest?
Yes, if those shares give you legal control. Check the actual voting rights and any clause that would limit your power to elect the board.
Can I buy the shares through my holding company?
The regulation covers direct or indirect legal control. It is therefore possible, provided you control the holding company yourself.
Can an asset purchase work for stream 3?
You would obtain no legal control over the company that has operated the business for 5 years. That is why we structure the takeover as a share purchase.
Does an asset purchase let me choose which employees I take on?
No. Alienation of the enterprise does not terminate the contract of employment (art. 2097 C.C.Q.), and the Act respecting labour standards ensures continuity in the application of the standards (s. 97).
Preparing a business takeover under stream 3?
The structure is decided before the letter of intent, not after. A meeting lets us confirm the legal control you need, the state of the contracts and permits, and the coordination with your tax specialist.
Next: stream 3 Business takeover, due diligence before a takeover, and our work on buying a business.
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Lawyer, member of the Barreau du Québec since 2014, founder of MEKA AVOCAT. This text sets out general legal information: it describes rules that apply broadly, not the answer to a particular case, and does not replace advice on your own situation.
