Commercial

This article is part of our two-part series on what foreign buyers of, and investors in, business ventures need to know about the Charter of the French language (the “Charter”) in the context of a business transaction involving operations and employees in Quebec. The first instalment focused on French language issues during the due diligence process. Reference is made to the following hyperlink for access to part one. Continuing our exploration of the Charter in the context of merger and acquisition transactions, this part two focuses on the importance of language compliance during and after the deal-making process, from incorporating language obligations into representations and warranties to post-closing strategies for addressing compliance issues. 6. In the Deal-Making Process: Your Closing Documents Representations and warranties in transaction documents shall generally address language-related matters. For example, the target corporation may be required to represent and warrant that it has fulfilled its language obligations as imposed by the Charter. As a foreign buyer/investor, you may want to ensure that findings from the due diligence investigation are incorporated into the representations and warranties of your share or asset purchase agreement. As you prepare your closing agenda, it is of utmost importance to assess whether the principal and accessory agreements themselves will be subject to French language requirements. For example, it will be advisable to translate into French restrictive covenant agreements or intellectual property assignment agreements that will be applicable to Quebec-based employees or other agreements that may be deemed contracts of adhesion. The requirement to translate any agreement or documents following the results of the due diligence analysis can be included as a closing deliverable in a form satisfactory to the foreign buyer/investor. 7. Post-Closing: Addressing Language Compliance Beyond the Deal Obviously, not all aspects of French language compliance under the Charter will be addressed during the merger and acquisition transaction itself. Potential areas of non-compliance noted during the due diligence stage can give dealmakers a roadmap of steps to undertake after closing to mitigate risks. In recent transactions, there has been a growing need for law firms to provide post-closing support in French language matters. If a purchase price adjustment clause is included in the share or asset purchase agreement, a buyer/investor could benefit from using the costs associated with rectifying any translation defaults as a lever for the negotiation of the price to be paid. This could also include any penalties imposed by the OQLF on the target corporation. Recent amendments to the Charter have significantly increased the fines that a corporation may face for non-compliance with an order issued by the OQLF, which range from $3,000 to $30,000. These fines are doubled for a second offence and tripled for subsequent offences. If an offence persists for more than one day, it is considered a separate offence for each day it continues. Additionally, directors of the corporation are presumed to have committed the offence unless they can demonstrate that they exercised due diligence by taking all necessary precautions to prevent the offence. In cases of complaints, our experience indicates that the OQLF tends to prioritize achieving compliance rather than imposing fines when companies are responsive to complaints. This presents a positive outlook for foreign buyers/investors, as it underscores that the intent of the new Charter and its enforcement provisions is not to penalize foreign buyers/investors, but rather to reaffirm the status of the French language as the official language of work and business in Quebec. Conclusion Prospective foreign buyers/investors may question the wisdom of doing business in Quebec, given its Charterrequirements. However, achieving Charter compliance can provide a distinct competitive edge. By embracing it, you open doors to the predominantly French-speaking market in and outside Quebec, unlock opportunities in thriving sectors like mining, renewable energy and aerospace, and pave the way for lucrative partnerships with the Quebec government. However, considerations relating to the French language shall not be overlooked when it comes to due diligence or other phases of a merger and acquisition transaction as compliance is key to accessing the thriving Quebec market. Moreover, failing to address these aspects could result in various challenges to a buyer/investor’s entry into the market, such as the unenforceability of restrictive covenant agreements with key employees, potential fines, penalties and director liability. A reputational risk can also be associated with non-compliance with the Charter, in light of the media attention that surrounds this type of issue in the Quebec landscape. By adhering to the requirements of the Charter, foreign buyers/investors can position themselves as responsible corporate citizens and set the stage for successful ventures in Quebec's dynamic business landscape. As more guidance becomes available regarding the application of the new provisions of the Charter, and as we gain practical experience from upcoming transactions with foreign investor/buyers, additional instalments to this series will be published.

As part of the Quebec budget for 2025, the provincial government has announced a host of new tax measures and changes to existing tax measures. This series of bulletins will provide an overview of three of these measures which introduce significant tax changes and will have a considerable impact on many Quebec businesses: the introduction of the CRIC, changes to the tax credit for the development of e-business (TCEB) and changes to the public utility tax (PUT). Research and development tax credits, such as the R&D tax credit for salaries and wages, the university research tax credit and the pre-competitive research tax credit, all have a very important place in Quebec’s tax and economic systems. They were designed to provide substantial tax support for businesses investing in research and development (R&D), while reducing the financial risks inherent to such activities. The new CRIC simplifies and centralizes these tax measures by grouping them under a single tax credit, making application for Quebec businesses more consistent and efficient. This new credit’s basic rate will be 20%, with an increased rate of 30% applicable to the first million dollars of eligible expenses. This structure is designed to be internationally competitive and help Quebec businesses maintain a significant tax advantage over their counterparts in other jurisdictions. To benefit from the credit, a business must carry out R&D or commercialization activities in Quebec and incur eligible expenses in the course of these activities. Eligible expenses include salaries directly linked to research, payments to subcontractors and research organizations and certain capital expenditures, save for those made to acquire real estate property such as land, buildings and rights of use over buildings. The real estate exclusion is intended to ensure that tax support is spent on technological innovation rather than real estate investments. The credit takes effect for all tax years ending after March 25, 2025. The tax credits for scientific research and experimental development, university research or public research centres, private partnership pre-competitive research, fees and dues paid to a research consortium, technological adaptation services and industrial design are all abolished, as they are now included in the new CRIC.

Many Canadian entities and other entities conducting business in Canada have reporting obligations under the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Modern Slavery Act”), which came into effect on January 1, 2024. These obligations include completing an online questionnaire and filing an annual report on the steps taken to prevent and reduce the risk of forced labor or child labor in their supply chain. The Modern Slavery Act applies to government institutions producing, purchasing or distributing goods in Canada or elsewhere, and to “entities” producing goods in Canada or elsewhere or importing goods produced outside Canada or controlling such entities. An "entity" refers to organisations that are listed on a Canadian stock exchange or have a business presence or assets in Canada and satisfy certain thresholds related to assets, revenue, or number of employees. As organizations prepare for the upcoming reporting deadline of May 31, 2025 - a second report for many - they should consider the following: It is useful to review guidelines, which were updated by Public Safety Canada in November 2024 to clarify key terms such as assets, goods, and importer. Failure to submit the report in accordance with the Modern Slavery Act may result in substantial penalties, including fines and potential liability for the directors, officers, and employees involved. The report must encompass a broad range of information, receive approval from the entity's governing body, and include the required attestation. Sufficient resources and time should therefore be allocated to the preparation and approval of the report. In summary, reporting entities and governmental institutions subject to the Modern Slavery Act should promptly review their obligations and gather the necessary information for their reports. Timely and accurate reporting is crucial to avoid legal and financial consequences. For assistance or clarification on compliance with the Modern Slavery Act, please contact Mylène Vallières at mvallieres@lavery.ca.

While the world is focused on how the tariff war is affecting various products, it may be overlooking the risks the war is posing to information technology. Yet, many businesses rely on artificial intelligence to provide their services, and many of these technologies are powered by large language models, such as the widely-used ChatGPT. It is relevant to ask whether businesses should rely on purely US-based technology service providers. There is talk of using Chinese alternatives, such as DeepSeek, but their use raises questions about data security and the associated control over information. Back in 2023, Professor Teresa Scassa wrote that, when it comes to artificial intelligence, sovereignty can take on many forms, such as state sovereignty, community sovereignty over data and individual sovereignty.1 Others have even suggested that AI will force the recalibration of international interests.2 In our current context, how can businesses protect themselves from the volatility caused by the actions of foreign governments? We believe that it’s precisely by exercising a certain degree of sovereignty over their own affairs that businesses can guard against such volatility. A few tips: Understand Intellectual property issues: Large language models underlying the majority of artificial intelligence technologies are sometimes offered under open-source licenses, but certain technologies are distributed under restrictive commercial licenses. It is important to understand the limits imposed by the licenses under which these technologies are offered. Some language model owners reserve the right to alter or restrict the technology’s functionality without notice. Conversely, permissive open-source licenses allow a language model to be used without time restrictions. From a strategic standpoint, businesses should keep intellectual property rights over their data compilations that can be integrated into artificial intelligence solutions. Consider other options: Whenever technology is used to process personal information, a privacy impact assessment is required by law before such technology is acquired, developed or redesigned.[3] Even if a privacy impact assessment is not legally required, it is prudent to assess the risks associated with technological choices. If you are dealing with a technology that your service provider integrates, check whether there are alternatives. Would you be able to quickly migrate to one of these if you faced issues? If you are dealing with custom solution, check whether it is limited to a single large language model. Adopt a modular approach: When a business chooses an external service provider to provide a large language model, it is often because the provider offers a solution that is integrated to other applications that the business already uses, or because it provides an application programming interface developed specifically for the business. In making such a choice, you should determine whether the service provider can replace the language model or application if problems were to arise. If the technology in question is a fully integrated solution from a service provider, find out whether the provider offers sufficient guarantees that it could replace a language model if it were no longer available. If it is a custom solution, find out whether the service provider can, right from the design stage, provide for the possibility of replacing one language model with another. Make a proportionate choice: Not all applications require the most powerful language models. If your technological objective is middle-of-the-road, you can consider more possibilities, including solutions hosted on local servers that use open-source language models. As a bonus, if you choose a language model proportionate to your needs, you are helping to reduce the environmental footprint of these technologies in terms of energy consumption.  These tips each require different steps to be put into practice. Remember to take legal considerations, in addition to technological constraints, into account. Licenses, intellectual property, privacy impact assessments and limited liability clauses imposed by certain service providers are all aspects that need to be considered before making any changes. This isn’t just about being prudent—it’s about taking advantage of the opportunity our businesses have to show they are technologically innovative and exercise greater control over their futures. Scassa, T. 2023. “Sovereignty and the governance of artificial intelligence.” 71 UCLA L. Rev. Disc. 214. Xu, W., Wang, S., & Zuo, X. 2025. “Whose victory? A perspective on shifts in US-China cross-border data flow rules in the AI era.” The Pacific Review, 1–27. See in particular the Act respecting the protection of personal information in the private sector, CQLR c. P-39.1, s. 3.3.