Anonymised, illustrative composite. Outside capital can own part of an Ontario pharmacy corporation — up to 49% of it. What defeats the usual structure is that the test is applied to each class of shares separately, which is exactly where a preferred instrument is designed to sit.
At a glance
A healthcare-focused fund had spent nine months building a thesis around independent Ontario pharmacy: fragmented ownership, an ageing owner cohort, real purchasing scale available across three to six stores. Its first target was a three-store group in a mid-sized city, owned by two pharmacist founders through a single corporation. Headline value $9,400,000, of which the fund would put in $5,600,000.
The structure proposed was the one a fund proposes every time. The founders keep the common shares and the votes. The fund takes a new class of non-voting preferred carrying a fixed return and a liquidation preference, sized to most of the economics. Nobody on the deal team thought of it as an ownership question, because the fund would hold no votes.
The relevant test is not a voting test. Drug and Pharmacies Regulation Act s.142(2) provides: “No corporation shall own or operate a pharmacy unless a majority of each class of shares of the corporation is owned by and registered in the name of pharmacists or in the name of health profession corporations each of which holds a valid certificate of authorization issued by the College.”
Read it against the proposed cap table and it fails immediately. The new Class B would have been 100% owned by the fund. A majority of that class would not be registered in the name of pharmacists. It does not matter that the class carries no votes, that it is economically preferred, or that it represents a minority of the corporation's total equity. The subsection does not ask about the corporation in aggregate; it asks about each class.
That is the whole point of the drafting. Parking outside money in a separate class is the standard way to keep a professional owner's control intact while third-party capital comes in. Section 142(2) defeats it by choosing the class, rather than the corporation, as the unit it measures.
Recut to comply, the arithmetic is precise rather than approximate. The fund could hold no more than 49% of the common and no more than 49% of any preferred class. On a $9,400,000 enterprise value with a $2,100,000 equity cushion already in place, that ceiling let the fund deploy roughly $4,500,000 as equity against the $5,600,000 it wanted to commit — a gap of about $1,100,000.
The gap went in as a subordinated loan, deliberately drafted with no conversion right, no warrant and no other feature capable of turning into a share. That was not tidiness. An instrument that can become a share can become a share in a class whose majority is not registered in the name of pharmacists, and the compliance test in s.142(2) is a continuing one, not a closing one.
Two subsections have to be read together. Section 142(2) sets the share test. Section 144(1) supplies the consequence: “No person other than a pharmacist or a corporation complying with the requirements of section 142 shall own or operate a pharmacy.” A corporation that fails s.142 is not merely non-compliant in the abstract; it is a person who may not own or operate the pharmacy at all.
The two exceptions in the section were checked and neither was available. Section 142(4): “Subsection (2) does not apply to any corporation operating a pharmacy on the 14th day of May, 1954.” Section 142(5): “This section does not apply to the operation of a pharmacy by a non-profit corporation having as its objects and providing health services by members of more than one health discipline.” A 2026 acquisition vehicle is neither.
One live diligence point was flagged for the fund's later deals. A new s.142(6), in force 1 January 2026 (2025, c. 11, Sched. 3, s. 3), provides that despite the general definition in s.1(1), a reference to a pharmacist in s.142 does not include a person prescribed by the regulations. Who counts as a pharmacist for the purposes of the share and director tests can therefore be narrowed by regulation without the Act changing. A cap table that clears the test today is not self-evidently a cap table that clears it in three years.
It is worth naming what this rule is not. It is not the professional corporation rule. Under Business Corporations Act s.3.2(2), a professional corporation must satisfy the condition that “All of the issued and outstanding shares of the corporation shall be legally and beneficially owned, directly or indirectly, by one or more members of the same profession.” That is all, not a majority. Pharmacy is the more permissive regime on one axis and the stricter one on another, and reasoning from either to the other produces a structure that is wrong in a way nobody notices until the College does.
The deal closed on 49% of each of two classes plus the subordinated note. The fund's economics were lower than its model assumed and its recovery on an exit was slower, because the note ranked as debt rather than sharing in equity growth. It accepted that in exchange for a governance package built at shareholder level — see reserved matters and investor veto rights — rather than at board level, for reasons set out in the companion file on the director test.
The share register itself became a closing deliverable. Section 142(2) speaks of shares “owned by and registered in the name of” pharmacists, so beneficial arrangements sitting behind a registered holder are not what the subsection measures. The register had to read correctly on its face, on the closing date and every day after it.
A corporation that fails s.142 is caught by s.144(1) and exposed under the accreditation regime that licenses each of its stores. The general offence provision, s.165, sets a fine for a corporation “not exceeding $50,000 for a first offence or $200,000 for a second or subsequent offence”. The commercial loss is larger and less bounded: three stores whose right to operate depends on a share register that a regulator can read.
The tell was the phrase “non-voting” doing load-bearing work in a term sheet for a regulated business. Whenever a structure depends on the difference between economics and control, the first question is whether the governing statute draws that line at all. Section 142(2) does not. It draws its line at the class.
For the neighbouring problem in the same statute, see buying a professional practice and the share restrictions and buying a veterinary practice: accreditation and ownership.
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