Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
V.A. Sider 613-995-1178
November 20, 1981
Dear XXXX,
Your letter of September 22, 1981 describes the following situation:
1. Mr. A holds 100% of the shares of A Company which holds 50% of the shares of AB Company.
2. Mr. B holds 100% of the shares of B Company, which holds 50% of the shares of AB Company.
3. It is proposed that an Agreement be entered into between A Com- pany, B Company, and AB Company, the terms of which might be guaranteed by A and B that on the happening of certain events including death and retirement of A and B as employees of AB Company, that all the shares owned by A Company or by B Company, depending on the circumstances, will be repurchased by AB Company.
You have also indicated that without the Agreement in place, A and B are unrelated and A Company and B Company are unrelated.
You have asked us if A Company and B Company will be considered to be associated with AB Company, despite the fact that A Company and B Company do not have an entitlement to acquire the shares of the other or of AB Company as contemplated by paragraph 251(5)(b).
It is our opinion that paragraph 251(5)(b) could apply in a situation such as this with the result that A Company and B Company could be associated with AB Company. In this regard, it should be noted that paragraph 251(5) (b) can apply when a person has the right under a contract to control the voting rights of shares in a corporation even though he does not have a right to acquire shares of a corporation. Whether or not paragraph 251(5)(b) would be applied in a situation such as this would depend on all the facts in the situation.
Yours truly,
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch
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