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COMPANY Law
Contents
OrganiZation of a Business
[§1.01]The Unstructured Business1
[§1.02]Choosing a Business Structure2
[§1.03]Sole Proprietorship2
[§1.04]Partnership2
[§1.05]Limited Partnership3
[§1.06]The Corporation3
1. Immortality3
2. Limited Liability4
3. Transferability of Shares4
4. Separate Legal Entity4
5. Capital4
6. Tax Advantages4
7. Rights and Remedies of Shareholders4
[§1.07]Jurisdiction of Incorporation4
[§1.08]Choice of Jurisdiction5
[§1.09]Federal Corporations5
1. Canada Business Corporations Act (CBCA)5
2. Canada Corporations Act (CCA)5
3. Special Acts of Parliament6
4. Bank Act6
5. Trust and Loan Companies Act6
6. Pension Fund Societies Act6
7. Others6
[§1.10]Provincial Corporations (British Columbia)6
1. The Company Act6
2. Society Act6
3. Special Acts of the Legislative Assembly6
4. Financial Institutions Act6
5. Cooperative Association Act7
6. Railway Act7
7. Others7
[§1.11]Methods of Incorporation7
1. Letters Patent7
2. Registration of Memorandum and Articles7
3. Filing of Articles of Incorporation8
4. Statute8
[§1.12]Further Reading8
reporting and non-reporting companies in British Columbia
[§2.01]Reporting Company9
[§2.02]Non-Reporting Company9
[§2.03]Consequences of Being a Reporting or Non-Reporting Company9
[§2.04]Further Considerations10
Incorporation Procedures
[§3.01]Guidelines for Approval of Names11
1. Reservation of Name11
2. Form of Name11
3. Registrar's Discretion as to Names12
4. Name Approval Procedure12
5. Extraprovincial Names13
6. Name Not to Suggest Government Connection13
7. Name Not to Suggest Connection with Crown or Royal Family13
8. Name Not to be Objectionable on Public Grounds13
9. Well-Known or Established Names13
10. Identical or Similar Names Not Available13
11. Statutory Prohibitions or Restrictions on the Use of Words
in a Company's Name14
12. Miscellaneous Restricted or Prohibited Words14
13. Internet Names16
[§3.02]Memorandum16
1. Content Required16
2. Form of Memorandum16
3. Subscribers16
[§3.03]Articles16
[§3.04]Registration17
[§3.05]Post-Registration Procedures17
1. Initial Proceedings of Subscribers17
2. Initial Proceedings of Continuing Directors18
3. Initial Proceedings of Members18
Share Capital
[§4.01]Introduction19
[§4.02]Kinds and Classes of Shares19
[§4.03]All Shares are Created Equal, or are They?20
[§4.04]Special Rights20
[§4.05]Voting Rights20
[§4.06]Participation as to Income21
[§4.07]Cumulative and Noncumulative Dividends 21
[§4.08]Participation as to Capital Surplus21
[§4.09]Preemptive Rights21
[§4.10]Redemption and Retraction21
[§4.11]Repurchase/Convertibility22
[§4.12]Variations/Abrogations of Special Rights and Restrictions22
Precedents
Precedent A: Voting Rights23
Precedent B: Income Participation24
Precedent C: Participation as to Capital Surplus26
Precedent D: Preemptive Rights26
Precedent E: Rights of Redemption and Retraction 28
Precedent F: Restrictions Against Modification29
Governance
[§5.01]Introduction30
[§5.02]Management of the Company30
1. Control of the Corporation30
2. Directors30
(a)Election or Appointment of Directors30
(b)Number31
(c)Residency Requirements31
(d)Qualification of Directors31
(e)Improper Election or Appointment31
(f)Term of Office31
(g)Resignation31
(h)Removal31
3. The Powers of Directors 31
4. Officers32
5. Insiders32
6. Residual Powers of Shareholders32
7. Directors’ Meetings33
[§5.03]Duties and Liabilities of Directors and Officers34
1. What are the Duties?34
2. To whom are the Duties Owed?36
3. Avoiding the Duties38
4. Prohibited Resolutions38
[§5.04]Conflict of Interest 39
1. General39
2. Disclosure and Ratification39
[§5.05]Protection from Liability41
1. Due Diligence41
2. Indemnification41
3. Insurance42
4. Resignation42
5. Trust Funds42
6. Relief by Court43
[§5.06]The Lawyer as a Director43
1. Duties43
2. Conflicts44
3. Loyalty44
4. Use of Confidential Information44
5. Privilege44
appendices
Appendix 1 – BC Company Law – Role of Corporate Actors46
Finance
[§6.01]Introduction to Methods of Finance47
1. Shareholder Loan (Debt Finance)47
2. Share Purchase (Equity Finance)48
3. Corporate Borrowing48
4. Procedural Aspects – Overview49
[§6.02]Issue of Shares49
1. Initial Proceedings49
2. Kinds of Shares49
3. Share Registers and Certificates49
4. Form of Share Certificates50
5. Dating of Share Certificates and Other Formalities50
6. Lost Share Certificate50
7. Price for Shares50
8. Non-Cash Consideration for Shares50
9. Limitation of Liability50
10. Payment for Shares/The Paper Trail51
11. Partly Paid Shares51
12. Commissions and Discounts51
13. Restrictions on Subsequent Allotments51
14. Transfer of Shares51
15. Restrictions on Share Transfers51
16. Transmission52
17. Conflicts52
[§6.03]Borrowing and Granting of Security52
1. Introduction52
2. Capacity to Borrow52
3. What the Lender's Lawyer is Looking For52
4. Opinions53
5. Registration of Charges53
6. Register of Debentures53
[§6.04]Restricted Transactions/Loan and Financial Assistance54
1. Introduction54
2. Reasons for Restrictions54
3. Authority for Purchase or Redemption of Shares54
4. Solvency Test54
5. Requirement to Purchase Pro Rata54
6. Provision of Financial Assistance and Guarantees55
7. Section 10255
8. Section 10355
9. Exceptions to the Financial Assistance Restrictions55
10. The Employee Stock Purchase Exception56
11. The Acquisition Exception56
12. Related Company Exception56
13. Saving Provision56
14. Planning Tips and Traps for the Unwary56
Ordinary Procedures
[§7.01]Transfers of Shares57
1. General Information57
2. Transmission of Shares on Death and Bankruptcy57
[§7.02]Shareholders' Meetings57
1. Definitions: "Members" and "Resolutions"57
2. Annual General Meetings: Calling, Notice, Quorum and Waiver57
3. Voting58
4. Proxies58
[§7.03]Financial Statements59
[§7.04]Annual Report59
[§7.05]Registrar of Companies59
1. Records Maintained by the Registrar59
2. Filings With the Registrar60
[§7.06]Registered and Records Offices60
1. Records Office Functions60
2. Duty of Care60
3. List of Members and Debentureholders; Forms of Records Generally60
4. Records to be Kept at Records Office60
5. Examination of the Records61
6. Time Coverage of Records61
7. Other Records and Material61
[§7.07]Auditors and Audits61
1. Requirements for Auditor61
2. Appointment of Auditor61
Special Procedures
[§8.01]Alteration of Memorandum and Articles Generally62
1. Alteration of Memorandum62
2. Alteration of Articles62
[§8.02]Alteration of Share Rights63
1. Creation of Special Rights and Restrictions63
2. Variation or Abrogation of Special Rights and Restrictions63
3. Interfering With or Prejudicing Class and Series Rights64
4. Right to Apply to Court64
5. Filing With the Registrar65
6. Series of Shares65
[§8.03]Increase in Authorized Capital66
[§8.04]Subdivision, Consolidation and Change of Shares66
1. Subdivision66
2. Consolidation66
3. Changes66
[§8.05]Reduction of Capital and Cancellation of Shares67
[§8.06]Capital Alterations Generally67
1. General Information67
2. Records Office Filings68
[§8.07]Change of Corporate Name68
Amalgamations and Reorganizations
[§9.01]Amalgamations69
1. Meaning69
2. General Procedure for Amalgamations69
3. Name69
4. The Amalgamation Agreement69
5. Share Exchanges70
6. Adoption and Approval of the Amalgamation Agreement71
7. Post-Amalgamation Matters73
[§9.02]Compulsory Acquisitions73
[§9.03]Compromises and Arrangements74
Dissolution and Restoration
[§10.01]Cancelling and Striking from Register75
1. Involuntary Dissolution75
2. Dissolution by Request75
[§10.02]Winding–Up75
1. Voluntary Winding-Up75
2. Powers and Duties of Liquidator During Wind-Up;
Status of Company During Wind-Up76
3. Winding-Up by Court Order77
[§10.03]Restoration78
Continuations
[§11.01]Continuations Into British Columbia79
[§11.02]Continuations Out of British Columbia79
Extraprovincial Companies
[§12.01]Extraprovincial Companies81
1. Definition81
2. Registration81
3. Duties of Extraprovincial Companies81
4. Failure to Register an Extraprovincial Company82
Shareholders – Rights and Remedies
[§13.01]Introduction83
[§13.02]Court Proceedings83
1. General Provisions83
2. Rectification of Irregularities83
3. Relief from Oppression83
4. Derivative Actions84
5. Order for Winding Up85
[§13.03]Dissent Proceedings85
1. General Information85
2. Preliminary Steps85
3. Application and Price85
4. The Rights and Duties of the Dissenting Member/Relief85
Shareholders' Agreements
[§14.01]Introduction87
1. Allotment: Section 4187
2. Purchase or Redemption: Section 23787
3. Approval by Special Resolution87
[§14.02]Parties89
[§14.03]Conduct of the Affairs of the Company89
1. Management of the Company89
2. Major Decisions89
3. Employment Contracts89
4. Non-Competition Agreement89
[§14.04]Financing/Shareholders' Contributions/Distribution of Net Profit90
[§14.05]Restrictions on Transfer/Right of First Refusal91
[§14.06]Compulsory Buy–Out92
[§14.07]Investment Sale on Death93
[§14.08]Default94
[§14.09]Tax Considerations95
[§14.10]Model Shareholders' Agreement96
Company Act Forms and Precedents
Precedent 1 – Instruction Form112
Precedent 2 – Memorandum115
Precedent 3 – Articles116
Precedent 4 – Notice of Offices137
Precedent 5 – Subscriber's Resolutions137.1
Precedent 6 – Resignation of Subscriber as Director137.2
Precedent 7 – Consent to Act as Director137.3
Precedent 8 – Director's Resolutions137.4
Precedent 9 – Notice of Directors137.5
Precedent 10 – Share Subscription137.5
The Canada Business Corporations Act
[§15.01]Introduction138
[§15.02]Capacity and Powers of CBCA Corporations139
[§15.03]Whether to Use a Company Act Company or a CBCA Corporation139
1. Advantages of CBCA Corporations139
2. Usual Commercial Practice140
3. Advantages of Company Act Companies140
[§15.04]Words with Special Meanings under the CBCA140
[§15.05]Incorporation Procedures141
1. Name Selection and Reservation141
2. Documents141
3. Differences Between Articles of Incorporation and a Memorandum142
4. Organizational Meetings142
5. Registered Office143
6. Rights of Examination of Corporate Records143
[§15.06]Corporate Finance143
1. No Par Value Shares Only143
2. Unlimited Number of Shares Permitted143
3. Shares to be Fully Paid143
4. Stated Capital143
5. Directors May Fix Special Rights143
6. Trafficking in Shares144
7. Financial Assistance144
[§15.07]Security Certificates, Registers and Transfers144
1. Negotiable Instruments144
2. Registers144
[§15.08]Directors and Officers144
1. Restraints on Directors' Powers144
2. Shareholder Democracy145
3. Residence145
4. By-laws146
5. Delegation of Directors' Powers146
6. Standard for Directors’ Duties146
7. Officers146
[§15.09]Insider Trading, Going-Private Transactions and Squeeze-Out Transactions147
[§15.10]Shareholders147
1. Meetings147
2. Record Dates147
3. Form of Notice of Meeting147
4. Right to Vote148
5. Cumulative Voting148
[§15.11]Financial Disclosure148
1. Report of Directors148
2. Approval of Financial Statements148
3. Filing of Annual Financial Statements148
4. Waiver of Auditor148
5. Independent Auditor148
6. Resignation or Removal of Auditor149
[§15.12]Fundamental Changes149
1. Special Resolution149
2. Meaning of "Fundamental Change"149
3. Dissent Proceeding149
4. Procedure150
5. Amalgamation150
6. Arrangements151
[§15.13]Continuances (Import and Export)151
1. Export151
2. Import152
[§15.14]Compulsory and Compelled Acquisitions152
[§15.15]Liquidation and Dissolution, Investigation, Remedies,
Offences and Penalties152
1. Summary Dissolution152
2. Long Form Dissolution152
3. Investigation152
4. Remedies, Offences and Penalties152
[§15.16]General Provisions152
cbca precedents
Precedent 11 – Articles of Incorporation153
Precedent 12 – Notice of Registered Office157
Precedent 13 – Notice of Directors159
Precedent 14 – By-laws161
Society Act
[§16.01]Purposes and Characteristics179
[§16.02]Advantage of Incorporation179
[§16.03]Essential Difference Between a Society and a Company179
[§16.04]Registrar of Companies179
[§16.05]Incorporation Procedure179
1. Constitution and By-laws179
2. Additional Filings179
[§16.06]Annual Filings180
[§16.07]Reporting Societies180
[§16.08]Borrowing180
[§16.09]Practice Point180
Securities Law
[§17.01]Introduction181
[§17.02]Overview of Securities Legislation181
[§17.03]The Private Issuer Exemption181
[§17.04]Who is the “Public”?183
[§17.05]What other Securities Laws are Relevant?183
[§17.06]What should the Subscription Agreement Say?184
[§17.07]Other Private Placement Exemptions185
[§17.08]What are Securities Anyway?185
[§17.09]Exempt Securities185
[§17.10]Distribution of Debt Securities185
[§17.11]What about Bank Debt?186
[§17.12]Resale of Securities186
[§17.13]Sale of the Business186
[§17.14]Securities Act Exemption Orders187
[§17.15]Information Available to the Public187
[§17.16]Shareholder Reporting Requirements187
[§17.17]Representing the Unhappy Investor188
[§17.18]Breach of the Securities Act188
The Corporate Tax System and Tax Aspects of Incorporation
[§18.01]Canadian–Controlled Private Corporation189
[§18.02]Taxation of Canadian–Controlled Private Corporations189
1. Active Business Income190
2. Capital Gains191
3. Aggregate Investment Income191
4. Dividend Income192
[§18.03]Taxation of Dividends193
[§18.04]Integration in Practice193
[§18.05]Tax Advantages of Incorporation193
1. Deferral Advantage193
2. Income Splitting194
3. Estate Freeze194
4. Qualified Small Business Corporation Shares194
[§18.06]Disadvantages of Incorporation195
1. Double Taxation195
2. Double Taxation where Refundable Tax is not used195
3. Segregation of Profits and Losses195
4. Capital Gains Exemption195
5. Filing Requirements195
6. Shareholder Benefits195
7. Transferring Assets out of the Corporation195
8. Absolute Tax Costs196
appendices
Appendix 3197
Appendix 4198
Transfers of Property to Corporations, Corporate ReorganiZations and Estate Planning
[§19.01]Transfers of Property to Corporations199
1. Situations where Property is Transferred to Corporations199
2. The General Rule199
[§19.02]The Rollover Alternative (Section 85)199
1. Requirements200
2. Determining the Elected Amount: General Rules and Specific Rules201
3. Cost of Property Received by the Transferor203
4. Valuation Concerns204
5. Paid-Up Capital Adjustments205
[§19.03]Corporate Reorganizations205
1. Section 85.1205
2. Section 86207
3. Proposed Section 86.1209
4. Proposals Regarding Sales to Foreign Corporations210
5. Section 51210
[§19.04]Estate Planning211
[§19.05]Attribution Rules212
1. Conceptual Outline of the Rules212
2. Loans or Transfers to Spouses or Minors212
3. Attribution Arising from Transfers to Corporations214
4. Attribution Arising from Interest Free or Low Interest Loans216
[§19.06]Income Splitting Tax216
[§19.07]Dispositions of Property217
1. Spousal Rollovers217
2. Rollovers to Minors218