Pre-Merger Notification Interpretation Guideline Number 9: Shareholder Agreements

Enforcement Guidelines

June 20, 2011

This publication is not a legal document. It contains general information and is provided for convenience and guidance in applying the Competition Act.

This publication replaces the following Competition Bureau publication:

Enforcement Guidelines — Notifiable Transactions under Part IX of the Competition Act — Interpretation Guidelines, April 25, 2000

For information on the Competition Bureau's activities, please contact:

Information Centre
Competition Bureau
50 Victoria Street
Gatineau QC  K1A 0C9

Tel.: 819‑997‑4282
Toll free: 1‑800‑348‑5358
TTY (for hearing impaired): 1‑800‑642‑3844
Fax: 819‑997‑0324
Web site:

This publication can be made available in alternative formats upon request. Contact the Competition Bureau's Information Centre at the numbers listed above.

Permission to Reproduce

Except as otherwise specifically noted, the information in this publication may be reproduced, in part or in whole and by any means, without charge or further permission from the Competition Bureau provided due diligence is exercised in ensuring the accuracy of the information reproduced; that the Competition Bureau is identified as the source institution; and that the reproduction is not represented as an official version of the information reproduced, nor as having been made in affiliation with, or with the endorsement of the Competition Bureau. For permission to reproduce the information in this publication for commercial redistribution, please Apply for Crown Copyright Clearance or write to:

Communications and Marketing Branch
Industry Canada
C.D. Howe Building
235 Queen Street
Ottawa, ON K1A 0H5


Aussi offert en français sous le titre Avis d'interprétation no 9 sur les préavis de fusion : Conventions d'actionnaires

This Interpretation Guideline is issued by the Commissioner of Competition ("Commissioner"), who is responsible for the administration and enforcement of the Competition Act ("Act"). The purpose of this Guideline is to assist parties and their counsel in interpreting and applying the provisions of the Act relating to notifiable transactions. This Guideline sets out the general approach taken by the Competition Bureau ("Bureau") and supersedes all previous statements made by the Commissioner or other Bureau officials. This Guideline is not intended to be a binding statement of how discretion will be exercised in a particular situation and should not be taken as such, nor is it intended to substitute for the advice of legal counsel to the parties, or to restate the law. Guidance regarding a specific proposed transaction may be requested from the Merger Notification UnitFootnote 1.


Paragraph 2(4)(a) of the Act provides that a corporation is controlled by a person if that person holds more than 50 percent of the votes that may be cast to elect directors of the corporation. Shareholders of a corporation may enter into agreements, among themselves or with other parties, whereby voting interests may be acquired, transferred or suspended, either on a temporary or permanent basis. These voting interests found in shareholder agreements may include rights to elect directors. The question of the potential impact of shareholder agreements may arise in the context of threshold calculations for purposes of section 109 or subsection 110(3) of the Act.


Arrangements between parties to a shareholder agreement regarding the number of votes to be cast for the election of directors will not alter the basis for determining whether a person controls a corporation for purposes of paragraph 2(4)(a) of the Act and, hence, whether two corporations are affiliated under subsection 2(2) of the Act. Accordingly, when interpreting "control" in paragraph 2(4)(a) in the context of a shareholder agreement, it is the number of voting shares owned by each shareholder which is relevant, not the number of votes for the election of directors which each shareholder will exercise pursuant to the shareholder agreement.

Example 1 — Affiliation Determination

A corporation (Acorp) is owned by two corporate shareholders. Forty percent of the voting shares are owned by corporate shareholder B (Bcorp) and 60 percent by corporate shareholder C (Ccorp). Bcorp and Ccorp enter into a shareholder agreement whereby Bcorp and Ccorp agree to share on a 50/50 basis the votes for electing corporate directors. For purposes of paragraph 2(4)(a) of the Act, Ccorp controls Acorp. Accordingly, under subsection 2(3) and paragraph 2(2)(a) of the Act, Acorp is a subsidiary of, and is therefore affiliated with, Ccorp. Although Ccorp has entered into a shareholder agreement which grants another shareholder the right to cast additional votes for the election of directors, Ccorp owns more than 50 percent of the voting shares. If Ccorp sells to another corporation (Dcorp) its 60 percent holding in Acorp, and if Dcorp replaces Ccorp in the shareholder agreement between Bcorp and Ccorp, Dcorp will be considered as acquiring 60 percent of the voting shares of Acorp for purposes of subsection 110(3) of the Act. In this case, for purposes of calculating party‑size thresholds in section 109 of the Act, Acorp will be considered an affiliate of Ccorp.

Example 2 — Voting Trusts

Occasionally, shareholders of a corporation (Acorp) may create a voting trust whereby some or all the shareholders collectively confer their voting rights to a voting trustee. In some circumstances, the voting trustee may have the right to exercise voting rights that, in aggregate, constitute more than 50 percent of the outstanding voting rights attached to the shares of the corporation. Further, the voting trust agreement may require that the shares subject to the agreement be registered in the name of the voting trustee. However, corporate control and, as a consequence, corporate affiliation are primarily dependent on the beneficial ownership of voting shares, not their registered ownership. Accordingly, where a shareholder who is the beneficial owner of shares with more than 50 percent of the outstanding voting rights enters into a voting trust agreement that grants a voting trustee the right to exercise such voting rights, the shareholder still controls the corporation. If the shareholder is a corporation, it is affiliated with Acorp for purposes of subsection 2(2) of the Act. The voting trust could not be affiliated with Acorp in any event because the affiliation provisions in subsection 2(2) do not extend to trusts.

For further information, please contact:

Merger Notification Unit
Mergers Branch, Competition Bureau
Competition Bureau
50 Victoria Street
Gatineau, Quebec K1A 0C9

Telephone: 819‑953‑4297
Toll‑free: 1‑800‑348‑5358
Fax: 819‑994‑0998

How to Contact the Competition Bureau

Anyone wishing to obtain additional information about the Competition Act, the Consumer Packaging and Labelling Act (except as it relates to food), the Textile Labelling Act, the Precious Metals Marking Act or the program of written opinions, or to file a complaint under any of these acts should contact the Competition Bureau's Information Centre:

Web site


Information Centre
Competition Bureau
50 Victoria Street
Gatineau, Quebec
K1A 0C9


Toll‑free: 1‑800‑348‑5358
National Capital Region: 819‑997‑4282
TTY (for hearing impaired) 1‑800‑642‑3844



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