Labour-Sponsored Venture Capital Corporations Regulation

Labour-Sponsored Venture Capital Corporations Regulation, M.R. 239/97 The Labour-Sponsored Venture Capital Corporations Act , C.C.S.M. c. L12 Regulation 239/97 Registered December 8, 1997 bilingual version (HTML) Table of Contents Section 1 Definitions 2 Repealed 3 Application fee 4 Restrictions re share transfers and redemptions 5 Repealed 6 Share valuation 7-9 Repealed 10 Ineligible and exempt investments 11-13 Repealed 14 Flow-through investment vehicles 15 Promotion of shares in workplace 16 Merger transaction 17 Records and reporting 18 Information return Definitions 1 In this regulation, "Act" means The Labour-Sponsored Venture Capital Corporations Act ; («  Loi  ») "board" , in relation to a labour-sponsored venture capital corporation, means its board of directors; (« conseil ») "initial year" means the fiscal year of a labour-sponsored venture capital corporation in which it first issues a Class A share; (« exercice initial ») "qualifying trust", in relation to an individual, means a trust governed by a registered retirement savings plan or registered retirement income fund, as those terms are defined under the Income Tax Act (Canada), under which the individual or a spouse of the individual is the annuitant; (« fiducie admissible ») "specified individual" , in relation to a share, means the individual whose labour-sponsored funds tax credit under section 11.1 of The Income Tax Act in respect of the share is not nil; (« particulier visé ») "tax-credited Class A share" means a Class A share in respect of which a receipt referred to in subsection 11.1(3) of The Income Tax Act has been issued; (« action de catégorie A faisant l'objet d'un crédit d'impôt ») "valuation date" means a date for the valuation of the Class A shares of a labour-sponsored venture capital corporation, as determined by by-law of the corporation or by its board. (« date d'évaluation ») M.R. 195/2001 ; 155/2008 2 [Repealed] M.R. 155/2008 Fee for application for registration 3 The fee payable for an application for registration under the Act is $5,000., all of which shall be refunded if the application satisfies the requirements for registration but registration is not granted. Restrictions against share transfers 4(1) The articles of a labour-sponsored venture capital corporation shall provide that no transfer of a tax-credited Class A share of the corporation by the specified individual in respect of the share, a qualifying trust for the individual or the individual's spouse or former spouse shall be registered unless (a) the transfer is to the specified individual, the individual's spouse or former spouse or a qualifying trust for the individual; or (b) the corporation is notified in writing that (i) the transfer occurs as a consequence of the death of the specified individual or of individual's spouse, (ii) the transfer occurs after the specified individual dies, or (iii) the specified individual became disabled and permanently unfit for work or terminally ill after the share was issued and before the transfer. 4(1.1) [Repealed] M.R. 75/99; 155/2008 Restrictions against redemptions 4(2) The articles of a labour-sponsored venture capital corporation shall provide that the corporation shall not redeem a tax-credited Class A share unless (a) where the share is held by the specified individual in respect of the share, the individual's spouse or former spouse or a qualifying trust for the individual, (i) the holder has made a written request to the corporation to redeem the share and the receipt issued under subsection 11.1(3) of The Income Tax Act in respect of the share has been returned to the corporation, or (ii) the corporation is notified in writing that the specified individual in respect of the share became disabled and permanently unfit for work or terminally ill after the share was issued; (b) the corporation is notified in writing that the share is held by a person on whom it has devolved as a consequence of the death of (i) a holder of the share, or (ii) an annuitant under a qualifying trust that was a holder of the share; (c) the redemption occurs more than eight years after the day on which the share was issued; or (d) the holder requests the corporation to redeem the share and the corporation is authorized by the holder, or by the rights, privileges, restrictions and conditions attached to the share, to withhold from the amount otherwise payable to the holder the amount of tax payable by the holder under section 11.5 of The Income Tax Act . M.R. 155/2008 5 [Repealed] M.R. 155/2008 Share valuation 6(1) The board of a labour-sponsored venture capital corporation must cause the fair value of the Class A shares to be determined as at each valuation date in accordance with the board's valuation policies. M.R. 155/2008 Valuation policies 6(2) The board of a labour-sponsored venture capital corporation must ensure that its valuation policies are consistent, in all material respects, with the guidelines of Canada's Venture Capital and Private Equity Association for the valuation of investments. If those guidelines change, the board must review the changes and implement them as soon as it is reasonably practicable to do so, having regard to any recommendations of the corporation's independent valuator that are intended to ensure that the value assigned to the corporation's assets is their fair value. M.R. 69/2000 ; 62/2006 ; 155/2008 7 [Repealed] M.R. 155/2008 8 [Repealed] M.R. 195/2001 9 [Repealed] M.R. 88/98; 195/2001 "Financial institution" defined 10(1) In this section, "financial institution" means a corporation, partnership or trust that (a) is a bank; (b) is a credit union; (c) is authorized under the laws of Canada or a province to carry on the business of offering its services as a trustee to the public; (d) is authorized under the laws of Canada or a province to carry on the business of insurance; (e) is a trader or dealer in securities; (f) has as its principal business the lending of money or the purchasing of debt obligations or any combination thereof; (g) has as its principal business the earning of gross revenue that is rent, royalties, interest, dividends or gains from the disposition of investments; or (h) has as its principal businesses any combination of the businesses referred to in clauses (a) to (g). M.R. 195/2001 Ineligible investments 10(2) Unless it is exempt under subsection (3), an investment that belongs to one or more of the following classes is an ineligible investment for the purposes of the Act: (a) a debt obligation that is secured by an interest in real property that is held primarily for (i) the purpose of gaining or producing gross revenue that is rent, (ii) development, subdivision or sale, or (iii) use in producing agricultural or horticultural crops; (b) a debt obligation that is secured by an interest in a Canadian resource property or foreign resource property (as defined in subsection 66(15) of the Income Tax Act (Canada)) held primarily for the purpose of gaining or producing gross revenue that is rent or a royalty; (c) a share in the capital stock of, or an interest in, a financial institution; (d) a debt obligation of a financial institution that was not issued by it in the ordinary course of its business; (e) an investment in an entity that carries on one or more of the following businesses: (i) a profession that is regulated by a governing body of the profession under an Act of the Legislature, (ii) the business of developing or exploring for mineral resources, unless substantially all of the development or exploration is carried on in Manitoba or as part of a business that includes the extraction, processing or distribution of mineral resources, (iii) the business of producing agricultural or horticultural crops, (iv) the business of the leasing, rental, development or sale, or any combination thereof, of real property owned by it; (f) an investment in an entity substantially all of the assets of which are (i) real property referred to in clause (a), (ii) an interest in a Canadian resource property or foreign resource property referred to in clause (b), (iii) assets used in a business referred to in clause (e), or (iv) investments of a type referred to in clauses (a) to (e) or subclauses (i) to (iii). M.R. 195/2001 Exempt investments 10(3) On application by a labour-sponsored venture capital corporation, the minister may exempt a specific investment from one or more classes of ineligible investments. M.R. 195/2001 11 [Repealed] M.R. 195/2001 ;155/2008 12 and 13 [Repealed] M.R. 195/2001 Definitions 14(1) In this section, "flow-through investment vehicle" at any time means a partnership or taxable Canadian corporation, other than a prescribed labour-sponsored venture capital corporation as defined in section 6701 of the Income Tax Regulations (Canada), in which a labour-sponsored venture capital corporation owns an interest, if (a) no interest in the partnership or corporation is or ever has been an eligible investment of the labour-sponsored venture capital corporation, and (b) throughout the fiscal year of the partnership or corporation that includes that time, at least 80% of the total carrying value of its assets is attributable to shares, partnership interests, bonds, marketable securities or cash; (« moyen de placement intermédiaire ») "interest" , in relation to a flow-through investment vehicle, means (a) in the case of a partnership, a partnership interest, and (b) in the case of a corporation, one or more shares in the capital stock of the corporation; (« intérêt ») "proportionate share" of a labour-sponsored venture capital corporation means (a) in relation to a flow-through investment vehicle at any time, the proportion, expressed as a percentage, that the fair market value at that time of its interest in the flow-through investment vehicle is of the fair market value at that time of all the interests in the flow-through investment vehicle, and (b) in relation to an underlying investment, the labour-sponsored venture capital corporation's proportionate share determined under subsection (3); (« part proportionnelle ») "underlying investment" means an investment owned by a flow-through investment vehicle. (« placement sous-jacent ») M.R. 195/2001 Application 14(2) This section applies for the purposes of the Act and sections 11.1 to 11.5 of The Income Tax Act . M.R. 195/2001 Proportionate share of underlying investment 14(3) A labour-sponsored venture capital corporation's proportionate share of an underlying investment of a flow-through investment vehicle is the percentage determined according to the following rules: Rule 1 If (a) the underlying investment is acquired by the flow-through investment vehicle when the corporation owns an interest in the flow-through investment vehicle, and (b) the underlying investment would have been an eligible investment of the corporation had it been issued to the corporation when it was acquired by the flow-through investment vehicle, the corporation's proportionate share of the underlying investment, until increased under Rule 3 or decreased under Rule 4, is the corporation's proportionate share of the flow-through investment vehicle as at the time of the acquisition of the underlying investment. EXAMPLE: The LSVCC's proportionate share of the FIV is 30%. The FIV subscribes for 100 shares of another entity. If they were issued instead to the LSVCC, they would be an eligible investment. The LSVCC's proportionate share of the 100 shares is 30%. Rule 2 If (a) the underlying investment was owned by the flow-through investment vehicle when the corporation first purchased an interest in the flow-through investment vehicle, and (b) the underlying investment would have been an eligible investment of the corporation had it been issued to the corporation when the corporation purchased its interest in the flow-through investment vehicle, the corporation's proportionate share of the underlying investment, until increased under Rule 3 or decreased under Rule 4, is the corporation's proportionate share of the flow-through investment vehicle immediately after purchasing the interest. EXAMPLE: The FIV owns a partnership interest. On a certain day, the LSVCC acquires a 20% proportionate share of the FIV. The partnership interest would qualify as an eligible investment if it were issued to the LSVCC on that day. The LSVCC will be considered to have a 20% proportionate share of that partnership interest. Rule 3 If the corporation purchases an additional interest in a flow-through investment vehicle, increase the corporation's proportionate share of each underlying investment of the flow-through investment vehicle that would, if it were issued to the corporation at the time of the purchase of the additional interest, be an eligible investment of the corporation, by the proportionate increase, as a result of the purchase, in the corporation's proportionate share of the flow-through investment vehicle. EXAMPLE: The LSVCC has a 50% proportionate share of the FIV and, by virtue of Rule 1, a 50% share of a partnership interest owned by the FIV. On a certain day, the LSVCC purchases an additional 10% interest in the FIV, bringing its proportionate share of the FIV to 60%. The partnership interest would qualify as an eligible investment if it were issued on that day to the LSVCC. The LSVCC's proportionate share of the partnership interest owned by the FIV will be considered to have been increased from 50% to 60%. Rule 4 If the corporation disposes of all or part of its interest in a flow-through investment vehicle, reduce the corporation's proportionate share of each underlying investment of the flow-through investment vehicle by the proportionate decrease, as a result of the disposition, in its proportionate share of the flow-through investment vehicle. EXAMPLE: Because of Rule 1 or 2, the LSVCC has a 50% proportionate share of an underlying investment owned by the FIV. The LSVCC sells one-half of its interest in the FIV. Its proportionate share of the FIV's investment is correspondingly reduced from 50% to 25%. Rule 5 A change in the corporation's proportionate share of a flow-through investment vehicle that does not result from an acquisition or disposition of an interest in the flow-through investment vehicle by the corporation does not affect the corporation's proportionate share of an underlying investment of the flow-through investment vehicle. EXAMPLE: The LSVCC has a 50% proportionate share of the FIV and, because of Rule 1 or 2, a 50% proportionate share of the FIV's underlying investments. Two other investors, Aco and Bco, each own a 25% share of the FIV. Aco's 25% share is redeemed by FIV. As a result, the LSVCC's proportionate share of the FIV is increased to 66 2/3%. Because of Rule 5, there is no corresponding increase in its proportionate share of the FIV's investments. M.R. 195/2001 Underlying investment as eligible investment 14(4) A labour-sponsored venture capital corporation's proportionate share at any time of an underlying investment is deemed to be an eligible investment of the corporation. Its cost to the corporation at that time is that same proportionate share of the flow-through investment vehicle's cost for income tax purposes of the underlying investment. M.R. 195/2001 Examples 14(5) The examples in subsection (3) are not to be taken as exhaustive. If an example is inconsistent with a rule, the rule prevails. M.R. 195/2001 Promotion of shares in workplace 15 Subsection 8(2) of the Act (restrictions re workplace) does not apply to a person authorized under The Securities Act to trade in securities or to advise others with respect to buying, selling or investing in securities. M.R. 62/2006 MERGER TRANSACTION Definitions 16(1) The following definitions apply in this section. "continuing corporation" has the meaning assigned by the definition "merger". (« corporation maintenue ») "merger" includes a transaction or series of transactions that results in all or substantially all of the assets and Class A shareholders of one corporation (referred to in this section as a "merging corporation") becoming assets and Class A shareholders of another corporation (referred to in this section as the "continuing corporation"). (« fusion ») "merging corporation" has the meaning assigned by the definition "merger". (« corporation fusionnante ») "replaced shares" means the Class A shares of a merging corporation in exchange for which the replacement shares issued by the continuing corporation are distributed. (« actions remplacées ») "replacement shares" means shares that (a) have rights, privileges, restrictions and conditions that meet the requirements of clauses (a) to (c) of the definition "Class A share" in subsection 1(1) of the Act; and (b) as part of a merger of two labour-sponsored venture capital corporations, (i) are issued by the continuing corporation to the merging corporation as consideration for the transfer of all or substantially all of the assets of the merging corporation to the continuing corporation, and (ii) are promptly transferred by the merging corporation to the holders of the merging corporation's Class A shares in exchange for those shares. (« actions de remplacement ») M.R. 155/2008 Determination of investment pacing deficiency after merger 16(2) After a merger of labour-sponsored venture capital corporations, section 9.1 of the Act no longer applies to the merging corporation and applies to the continuing corporation as if (a) each Class A share issued by the merging corporation after February 2001 and before the merger had been issued by the continuing corporation at the time that it was actually issued by the merging corporation; (b) the amount designated by the merging corporation under section 11.1 of The Income Tax Act in respect of a share referred to in clause (a) had been so designated by the continuing corporation; and (c) each eligible investment that was acquired by the merging corporation after February 2001 and before the merger were acquired by the continuing corporation, at the time it was acquired by the merging corporation, at a cost equal to the merging corporation's cost of the investment. M.R. 155/2008 Merging corporation continued 16(3) After a merger of labour-sponsored venture capital corporations, the continuing corporation is deemed for the purposes of sections 9.2, 9.3 and 10 of the Act to be the same corporation as, and a continuation of, the merging corporation. M.R. 155/2008 Application of rules relating to redemption of Class A shares 16(4) For the purpose of section 11.5 of The Income Tax Act , (a) the replaced shares that are redeemed, acquired or cancelled as part of a merger are deemed not to have been redeemed, acquired or cancelled; (b) no amounts shall be designated by the continuing corporation under section 11.1 of The Income Tax Act in respect of the replacement shares; and (c) each replacement share is deemed to be the same share as, and a continuation of, the replaced share in exchange for which it is distributed, and the date of its original acquisition is deemed to be the date of the original acquisition of the replaced share. M.R. 155/2008 Tax where venture capital business discontinued after merger 16(5) For the purpose of applying section 11.5.1 of The Income Tax Act after a merger, (a) replacement shares distributed as part of the merger are deemed to be Class A shares and are deemed to have been outstanding since the day that the replaced shares in exchange for which they were distributed were issued; (b) the continuing corporation is deemed to have received, as consideration for the issue of the replacement shares, the consideration that the merging corporation received for the replaced shares; and (c) although the merging corporation will cease, in connection with the merger, to be registered, its registration is deemed not to be cancelled. M.R. 155/2008 RECORDS AND REPORTING Corporation to keep records 17(1) A labour-sponsored venture capital corporation must keep the following records: (a) records that are reasonably necessary to allow the administrator to carry out his or her duties under the Act; (b) all records that are reasonably necessary to allow the commission to carry out its duties under the Act; (c) any other records that are reasonably necessary to allow the minister to monitor or verify the corporation's compliance with the Act and this regulation. M.R. 155/2008 Records to be made available for inspection, etc. 17(2) A labour-sponsored venture capital corporation must (a) make the records that it is required to maintain under the Act available for inspection, examination or audit under the Act at the place where they are maintained; and (b) if the records are not maintained in Manitoba, pay to the Minister of Finance, upon receipt of a statement from the minister, the administrator or the commission, the amount charged to the corporation for reasonable expenses incurred in inspecting, examining or auditing the records at the place where they are maintained. M.R. 155/2008 Information return 18 The information return to be filed under subsection 12(2) of the Act with the administrator, in a form approved by the administrator, must include the following information: (a) the name of the corporation; (b) the fiscal year to which the return relates; (c) a declaration signed by the chief executive officer and the chief financial officer, or their equivalent, attesting to the completeness and accuracy of the information in the return; (d) the amounts, as specified by the form, that are used to determine the existence of, or the amount of, the corporation's investment pacing deficiency, if any, under section 9.1 of the Act; (e) the amount of the penalty, if any, payable under section 9.1 of the Act in respect of an investment pacing deficiency; (f) particulars, as specified by the form, of the eligible investments and the eligible small investments acquired by the corporation in the fiscal year, including the date of acquisition, the name of the investee and the corporation's cost of the investment; (g) particulars, as specified by the form, respecting the stated capital for the corporation's tax-credited Class A shares, including the opening and closing balances for the fiscal year, and any changes in the year; (h) particulars, as specified by the form, respecting the corporation's redemptions of tax-credited Class A shares during the fiscal year; (i) any other information that the administrator considers necessary to carry out his or her duties under section 10.1 of the Act and has specified on the form as information to be provided by the corporation. M.R. 155/2008