Canadian Controlled Entity

A Canadian-controlled entity is a status defined in section 26 of the Investment Canada Act. The test starts with ownership of voting interests. An entity qualifies when one Canadian, or two or more Canadians acting in a voting group, own a majority of those voting interests. The full wording is in section 26 of the Act.

The term is not an abbreviation, and it is a legal classification, not a certification or a registry listing. An entity does not apply for it. Whether an entity holds the status depends on who owns it, who controls it in fact, and in some cases who sits on its board. The sections below set out how those rules work.

How section 26 sets the ownership test

Section 26(1)(a) is the starting point. If one Canadian, or a voting group of two or more Canadians, owns a majority of an entity's voting interests, the entity is Canadian-controlled. Section 26(1)(b) is the reverse case. If one non-Canadian, or a voting group of non-Canadians, owns a majority of the voting interests, the entity is not a Canadian-controlled entity. Both rules turn on voting interests, so the number of people who hold shares matters less than who holds the votes. The text is available in section 26 of the Investment Canada Act.

When control in fact decides the outcome

Majority ownership by Canadians does not always settle the question. Where Canadians own a majority but the ownership structure does not resolve control, the Act asks whether the entity is controlled in fact by a non-Canadian or a voting group of non-Canadians. An entity can therefore pass the simple ownership test and still be examined for who actually directs it. The analysis looks at the real influence exercised through voting interests, not only at the share register.

The presumption and the two-thirds board route

Section 26 also covers entities where Canadians hold less than a majority of the voting interests. In that case the entity is presumed not to be Canadian-controlled, unless the statutory contrary conditions are established. For a corporation or a limited partnership, one route to rebut the presumption involves at least two-thirds of the board members, or of the general partners, being Canadian. Board composition and general partner makeup can therefore matter when ownership alone falls short. The conditions and their exact wording are set out in section 26.

Use of the term in federal regulatory guidance

The phrase appears outside investment review. Canadian Heritage refers to a corporation being a Canadian-controlled entity as determined under sections 26 to 28 of the Investment Canada Act, in its frequently asked questions on regulations. That use is regulatory interpretation. It shows that other federal programs borrow the Act's test instead of writing their own, so the same sections of the Act are the reference point.

What it means for a supplier bidding on public contracts

The definition of Canadian-controlled entity comes from investment law, not from a procurement regulation. When a solicitation refers to Canadian ownership or control, read the wording of that solicitation and confirm which test it applies. If it points to the Investment Canada Act, use sections 26 to 28 as the reference.

• Map who holds the voting interests in your company, and whether Canadians hold a majority.
• Identify any non-Canadian shareholder or voting group that could hold a majority, since that ends the status under section 26(1)(b).
• Check whether control in fact could rest with a non-Canadian party.
• Record the nationality of your directors or general partners, since the two-thirds board route depends on it.

Keep ownership and board records current so you can answer any ownership question in a bid without delay.