Anonymised, illustrative composite. A growth-equity fund's non-controlling preferred stake cleared every ordinary Investment Canada Act threshold with room to spare, and still sat inside the one Part of the Act that does not ask about control at all.
At a glance
A foreign growth-equity fund led a $22,000,000 Series C preferred round in a Toronto company developing quantum-sensing components. The round gave the fund 15% of the company on a fully-diluted basis, one board observer seat, and the ordinary suite of protective provisions on a priced financing — no control, no majority board seats, no veto over day-to-day operations. Counsel's standard foreign-investment screen concluded there was nothing to review: no acquisition of control, no Part IV filing, done.
That conclusion was correct as far as Parts II through IV go, and wrong about the Act as a whole. Every mechanic addressed elsewhere in this cluster — the review thresholds, the net-benefit process, the indirect-acquisition rules — starts from an acquisition of control as defined in s.28(1): a majority or deemed-controlling interest. A 15% preferred round with no control rights sits outside every one of those provisions. Part IV.1, the national security review regime, is built on different language entirely.
$22,000,000 invested for 15%, implying a post-money valuation of roughly $147,000,000 — a mid-sized venture round by any ordinary measure, and one that would clear no dollar threshold anywhere else in the Act even if it had needed to.
Read the unit. Section 25.1 sets Part IV.1's scope, and paragraph (c) is the one that reaches this round: the Part applies to an investment by a non-Canadian “to acquire, in whole or in part, or to establish an entity carrying on all or any part of its operations in Canada if the entity has (i) a place of operations in Canada, (ii) an individual or individuals in Canada who are employed or self-employed in connection with the entity's operations, or (iii) assets in Canada used in carrying on the entity's operations”. “In whole or in part” is doing the work here. Every other ICA mechanic in this cluster starts with an acquisition of control under s.28(1); paragraph (c) deliberately does not use that language at all — it does not cross-reference s.28, and it asks about the target's presence in Canada, not about how much of the target the investor ends up controlling.
Paragraph (b) of the same section, by contrast, does route through control — it applies Part IV.1 “to acquire control of a Canadian business in any manner described in subsection 28(1)”, alongside paragraph (a)'s new-business-establishment trigger. Paragraph (c) is the standalone one, and it is the one that catches a minority stake with no control rights, because “in whole or in part” reaches a part.
The fund cooperated with an informal pre-closing screen, provided a summary of its LP base and the target company's technology roadmap, and closed on schedule six weeks later with no formal order under s.25.2 or s.25.3 ever issued. The delay was real but modest; the larger cost was the fund's standing process, which now flags every Canadian technology investment for a Part IV.1 screen regardless of the round's size or the fund's resulting ownership percentage.
Skipping the screen entirely would not have been a paperwork failure — Part IV.1 carries no filing requirement to skip, no threshold to clear. The exposure is that the Minister can issue a notice under s.25.2 at any time after implementation just as readily as before it, and the interim-conditions and divestiture powers addressed elsewhere in this cluster apply to a completed minority investment exactly as they apply to a completed control acquisition. Treating a small stake as automatically safe removes none of that exposure; it only removes the chance to manage it before closing.
The tell was the screening memo's own structure: it walked through s.14 and stopped, because s.14 had nothing to say about a non-controlling stake. Part IV.1 is not a higher tier of the same test — it is a separate scope provision that has to be checked on its own terms, every time, regardless of what the control-based provisions concluded.
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