Investment Partnership - Securities lawyer and inter-provincial rules

[original mungerville]

If any board members have started an investment partnership in Canada and understand the inter-provincial dynamics of securities law, I would really really like answers to the following two questions (before starting to spend money on lawyers, I am trying to get an idea of the high-level):

 

1) Do you have recommendations for a good securities lawyer in Quebec?

 

2) I live in Quebec, my clients would mainly be from Ontario. Does anyone understand how these regulations work: ie Can I just set-up the general partner (of the limited partnership) as a corporation in any province and thereby have that province's rules apply? Eg, could I set up a BC based general partnership and BC limited partnership with Ontario clients.  Or do I need to set up in Quebec because I reside in Quebec despite most of my clients likely to be Ontarians? Does where I reside personally even matter? or is the only thing that matters is where the general partner is set up? And BC seems to be the easiest province to deal with in terms of securities regulations.

 

 

 

[jacko2]

<get a high-level idea>: I'd suggest killing a Saturday evening or two by going through the materials for issuers at a relevant provincial securities website. I don't know about the Quebec securities commission; the BC securities commission has useful materials to read. There's a basic booklet now up on their website, but it's quite basic, so start there but drill down. Some years ago, Douglas Gray wrote a pretty good book about raising money in Canada. I don't know how up to date it is any more, but it's not a bad place to start for an overview, directed at a general, interested reader in the area, that goes into some of the technical law.

 

<securities lawyer in Quebec>: not off-hand. Try researching the people that Francois Rochon uses (Giverny Capital).

 

<how do securities regulations work>: It's a quite unpleasant area of law. Very Old Testament in its style, is the way I think about it -- "Do this (or don't do this), and you will die".

 

The basic requirement, though, is that the regulations apply to *both* sides of a trade -- so the jurisdiction where the issuer is located, and the jurisdiction where the investor is located. There are national policies that have been improved over the last 10 or 15 years, which help with ironing out some of the differences between provinces. But there are still provincial differences -- at times, trivial and unnecessary (Saskatchewan, I'm talking about you). Et bien sur, Quebec guards it's securities turf carefully. And there is *constant* change, so that it is difficult even for the specialists to keep up in the area. In general, the securities laws in BC, Alberta and to some extent Ontario are pretty good to work with -- so some smaller issuers will restrict their offerings to those three jurisdictions. I don't know how they compare to Quebec. Having to deal with the language difference is usually sufficiently offputting for most smaller issuers, so they give that province a pass.

 

For your specific questions, all I can say is get advice. There's more than one way to skin a cat. Because of the "both sides" rule, in the ideal world the issuer and the investors will all be in one jurisdiction. That keeps life simplest. Which in securities law is a good place to start from -- if it's possible (a big if, I realize).

[Mungerville]

Thanks Jacko, much appreciated. One question: Is it your take that where I reside personally is meaningless if I set up the general partner as a corporation in any province of my choice?

[jacko2]

Hi, Mungerville,

 

That's a question for particular legal advice, once you decide to go ahead. It's an interesting one -- I haven't seen any discussion of that particular issue -- though perhaps the securities law specialists already have. The reach of securities law usually comes down to the number and significance of connecting factors to the particular jurisdiction.

 

In a different context -- that of determining the residence of family trusts for Canadian tax purposes -- recent case law has drawn a distinction between the jurisdiction of the residence of the trustees of the trust with the jurisdiction where the operations of the trust are in fact being conducted. It's possible some of that analysis would spill over into a securities law context, but I don't know.

 

One other thing I wanted to mention on your original post. For most of us, it doesn't do to re-invent the wheel. Find a model you respect, and research how that model might work for you (under professional advice, and obviously understanding that your circumstance will likely be different than your model). The disclosure documents from SEDAR can be useful to research how people organize these things (the ones set up to file publicly, though) [be careful not to breach the SEDAR licence agreement], and will probably give you the names of professional advisers, too. Guys like Sanjeev of course and also Tim McElvaine and probably others you know of. And sometimes the issuance filings at the securities commissions will give clues, too (look for reports of recent issuances) -- as some of those filings will pick up issuers who aren't required to file at SEDAR.