Anonymised, illustrative composite. Deal counsel reached for the corporate percentages everyone already knew — 20%, 35%, 50% of the vote — on a deal with no votes and no shares, and nearly cleared a transaction the size test alone made notifiable.
At a glance
Four independent grain-elevator operators in Saskatchewan agreed to pool their rail-loading and storage assets into a single, jointly operated unit-train loading facility, rather than each investing separately in capacity none of them could fill alone. Rather than incorporate a joint venture company, they structured it as a general partnership, with each of the four contributing assets and holding an interest in the partnership in proportion to its contribution. The largest of the four would hold a 40% interest.
Deal counsel's first pass at the Competition Act question reached for the framework everyone on the team already knew from corporate deals: 20% if the target's shares are publicly traded, 35% if not, 50% on a top-up. Forty percent sits between the second and third of those figures, and the conclusion was that it “isn't notifiable because it's under every threshold I know” for a controlling stake. That conclusion used the wrong test. There are no voting shares here. There is no target corporation. Part IX has a separate subsection for exactly this kind of vehicle, and it does not ask about percentages at all when a combination is being formed for the first time.
The assets being contributed to the new partnership — the shared unit-train loading facility, the rail spur, and the storage capacity being pooled in — were valued at $58,000,000 in aggregate, well past the size-of-transaction figure on their own. The largest member's 40% interest represented roughly $23,200,000 of that contributed value.
Competition Act s.110(5) governs the formation of a new combination: “this Part applies in respect of a proposed combination of two or more persons to carry on business otherwise than through a corporation if one or more of those persons… proposes to contribute to the combination assets that form all or part of an operating business… and if (a) the aggregate value of the assets in Canada… that are the subject-matter of the combination would exceed the amount… or (b) the gross revenues… would exceed the amount…”. Read it closely: there is no paragraph (c) about voting percentage, profit share or dissolution entitlement. Forming a combination is tested on the value of what is being contributed, full stop. A member holding 5% of a large enough combination is caught exactly the same as one holding 95%, because the size test does not care how the pie is split among the partners — only how big the pie is.
The percentage test the deal team was remembering does exist, but for a different transaction: buying an interest in a combination that already exists. Section 110(6) applies “(a)… if the aggregate value of the assets in Canada… that are the subject-matter of the combination would exceed the amount…; and (b) if, as a result of the proposed acquisition of the interest, the person or persons acquiring the interest… would hold an aggregate interest in the combination that entitles the person or persons to receive more than 35% of the profits of the combination, or more than 35% of its assets on dissolution, or, if the person or persons acquiring the interest are already so entitled, to receive more than 50% of such profits or assets”. That test runs on profit and dissolution entitlement, not votes, and it is a size-and-percentage conjunctive test structurally like s.110(3) for shares — but it only applies to someone joining a combination that is already up and running, which this was not.
Once the right subsection was identified, the answer was straightforward: forming the partnership crossed the size test in s.110(5) on the value of the contributed assets, so the transaction was notifiable regardless of any member's percentage interest, including members holding well under 40%. All four members filed under s.114(1)(c), which covers “two or more persons… propose to form a combination in the circumstances set out in subsection 110(5)”, and the facility began operating after the waiting period ran.
Closing on the mistaken “40% is under every threshold” conclusion — reached by applying a percentage test that has no application to a combination being formed — would have been an unnotified, notifiable transaction. The exposure would not have stopped at the 40% member. Part IX does not exempt smaller contributors to a large combination: all four partners would have faced the remedies in s.123.1, including a court order to dissolve the arrangement they had just spent a year negotiating and building.
The tell is pattern-matching a new legal structure onto the mental model built from corporate share deals. A partnership has no votes to count, so a team trained to think in voting percentages will, reasonably but wrongly, hunt for the closest-looking number and stop there. “Combination” is Part IX's deliberate catch-all for exactly this kind of non-corporate vehicle, and its formation test runs on one variable only: how much is being put in.
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