The Investment Dealers Association of Canada announced Tueday that its board has approved proposed By-law 39 Principal and Agent Relationships, effective immediately. The by-law, however, will not allow personal corporations.
Under the current IDA rules and regulations there are no provisions for principal and agent relationships. Individuals selling securities to the public are required to be employees of IDA firms. The new by-law was proposed in order to allow alternative business structures.
Firms and reps may now organize themselves so that their relationship may be that of employer and employee or that of principal and agent. “However, the relationship between the member and any person conducting securities related business on behalf of the member may not be that of an incorporated salesperson. Salespersons are prohibited from conducting securities related business through their unregistered personal corporations,” it says.
“Since most of these personal corporations are not registered with the relevant securities commissions they are prohibited from carrying on the business of selling or advising in securities. Furthermore, the protections available to investors in an employer and employee relationship or principal and agent relationship are not available to investors when dealing with incorporated salespersons operating through their personal corporations,” the IDA explains.
Firms are permitted to structure their businesses using a principal and agent relationship provided that certain conditions are met, including:
- firms must enter into a written agreement with every agent;
- firms are required to provide the IDA with a certificate by an officer or director confirming that the agreement is in compliance with the provisions of the by-law; and
- at the IDA’s request, a legal opinion.
The IDA notes that the new by-la will not apply in Nova Scotia at this time. However, the Nova Scotia Securities Commission is currently considering a rule that would allow it there, too.