The control of a corporation and the right to remuneration

The Real Estate Brokerage Act provides that when a broker has the control of a corporation and that the corporation acquires an interest in an immovable, the broker is not entitled to his remuneration.¹ Upon receipt of a remuneration invoice for such a purchase, the agency representing the seller often seeks to determine whether or not the said broker had the control of the corporation. To do this, it must examine the concept of control, which can be quite complex.

This concept includes two aspects that need to be taken into account: de jure control and de facto control.

De jure control

In Canadian and Quebec corporate law, the law grants the control of the corporation to the person whose majority shares enable him to elect the majority of directors of that corporation.

To determine if such control exists, the following elements should be considered:

1. The incorporating documents governing the corporation (letters patent, statutes, by-laws, etc.);
2. The corporation’s share register (proportion of voting shares, etc.).

This is primarily a literature review of the incorporating documents of the corporation. For example, a director with 90% of voting shares will be deemed to have the control.

A broker who does not have the majority of shares and therefore has no de jure control of the corporation could, in some situations, be considered as having de facto control of the corporation.

De facto control

The courts have had to address some cases where a person had de facto control of a corporation. In one of these cases, the children had the majority of shares, but the father continued to manage all the commercial and financial aspects of the business. Indeed, a resolution granted him the title of general manager and specified that he could acquire, sell or mortgage the corporation’s assets, borrow on its behalf, or purchase the necessary equipment for operations. The court concluded that despite holding only 0.2% of shares, the father had de facto control of the corporation.

The jurisprudence recognizes several other elements that can be decisive in the analysis of the de facto control concept:

• Having the power to negotiate and sign contracts for the corporation, be required to personally intervene in any decision, be omnipresent in important actions, be the financial organizer or the directing mind;
• Accepting and fulfilling the mandatory role of the corporation, holding a power of attorney under which the company authorizes the person to transact on its behalf;
• Having the power to change the board of directors or to reconsider its decisions;
• Having the power to control the corporation’s transactions;
• Having the power to directly or indirectly terminate the corporation.

As part of this analysis, the shareholders’ agreement is a very useful document that helps determine the role and powers of each person, and whether certain powers that have an impact on the decisions and control of the corporation are granted to minority shareholders for instance.

Conclusion

The broker who has an interest in a corporation that offers to acquire an immovable and who intends to avail himself of his right to remuneration should discuss it with the seller’s broker earlier in the transaction and ensure to provide evidence for his right. Remember that a dispute over the right to remuneration between brokers or agencies is excluded from the liability insurance coverage held by all licence holders.

Determining the control is a complex issue that may require special expertise. The analysis should be made on a case-by-case basis both on paper and in practice. If in doubt, consult an expert in the field.

For more information, read the following article: Am I entitled to remuneration when I become a lessee, buyer or borrower?

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¹ Section 23 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising of the OACIQ:

“A licence holder may not claim or receive remuneration when the holder becomes a lessee, obtains a loan secured by immovable hypothec or acquires an interest in an immovable or enterprise for the holder, a partnership or legal person controlled by the holder, or if the married or civil union spouse of the holder, the person with whom the holder is in a de facto union or a legal person or a partnership controlled by that spouse or person becomes a lessee, acquires an interest in the immovable or enterprise or obtains a loan secured by immovable hypothec.”