Practice Material - Company - Law Society Of British Columbia

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CAUTIONThe Professional Legal Training Course provides the Practice Material to users as anaid to developing entry level competence, with the understanding that neither thecontributors nor the Professional Legal Training Course are providing legal or otherprofessional advice.Practice Material users must exercise their professional judgment about the accuracy,utility and applicability of the material. In addition, the users must refer to the relevantlegislation, case law, administrative guidelines, rules, and other primary sources.Forms and precedents are provided throughout the Practice Material. The users also mustconsider carefully their applicability to the client’s circumstances and their consistencywith the client’s instructions.The Law Society of British Columbia and the Professional Legal Training Course canaccept no responsibility for any errors or omissions in the Practice Material andexpressly disclaim such responsibility.

Professional Legal Training Course 2021Practice MaterialBusiness: CompanyRecent Contributors:Grant FosterW. Fraser HartleyRiley O. LalondeSamuel LiJennifer MacGregor-GreerChat OrtvedRobert G. OwenDierk UllrichSteve WarnettPractice Material Editor:Katie McConchieFebruary 2021A requirement for admission to the bar of British Columbia, the Professional Legal Training Course issupported by grants from the Law Society of British Columbia and the Law Foundation of British Columbia. 2021 The Law Society of British Columbia. See lawsociety.bc.ca Terms of use.

BUSINESS: COMPANYCONTENTSORGANIZATION OF A BUSINESS[§1.01]The Unstructured Business1[§1.02]Choosing a Business Structure1[§1.03]Sole Proprietorship1[§1.04]Partnership2[§1.05]Limited Partnership2[§1.06]Limited Liability Partnership3[§1.07]Corporation1. Immortality2. Limited Liability3. Transferability of Shares4. Separate Legal Entity5. Capital6. Tax Advantages7. Rights and Remedies of Shareholders34444555[§1.08]Unlimited Liability Company5[§1.09]Community Contribution Company5[§1.10]Benefit Company6[§1.11]Jurisdiction1. Jurisdiction of Incorporation2. Choice of Jurisdiction666[§1.12]Federal Corporations1. Canada Business Corporations Act (“CBCA”)2. Canada Corporations Act (“CCA”)3. Special Acts of Parliament4. Bank Act5. Trust and Loan Companies Act6. Pension Fund Societies Act7. Others77777777[§1.13]Provincial Corporations (British Columbia)1. Business Corporations Act2. Societies Act3. Special Acts of the Legislative Assembly4. Financial Institutions Act5. Cooperative Association Act6. Others8888888[§1.14]Methods of Incorporation1. Letters Patent2. Registration of Memorandum and Articles3. Incorporation Application4. Filing Articles of Incorporation5. Statute or Special Act889999[§1.15]Further Reading9

(ii)PUBLIC AND PRIVATE COMPANIES IN BRITISH COLUMBIA[§2.01]Public Companies10[§2.02]Private Companies10[§2.03]Consequences of Being a Public Company Under the Business Corporations Act11INCORPORATION PROCEDURES[§3.01]Name Approval1. Reserving a Name2. Form of Name3. Registrar’s Discretion as to Names4. Name Approval Procedure5. Extraprovincial Names6. Name Not to Suggest Government Connection7. Name Not to Suggest Connection with Crown or Royal Family8. Name Not Objectionable on Public Grounds9. Well Known or Established Names10. Identical or Similar Names Not Available11. Statutory Restrictions on a Company’s Name12. Miscellaneous Restricted or Prohibited Words13. Internet Names1212121313141414141415151516[§3.02]Formation of a Company1. Incorporators2. Incorporation Agreement3. Incorporation Application4. Form of Incorporation Application1616161617[§3.03]Notice of 8[§3.06]Post-Registration Procedures1. Initial Proceedings of Incorporators2. Initial Proceedings of Directors3. Initial Proceedings of Shareholders18181919SHARE CAPITAL[§4.01]Introduction20[§4.02]Kinds and Classes of Shares20[§4.03]Equality of Shares21[§4.04]Special Rights21[§4.05]Voting Rights21[§4.06]Participation as to Income22[§4.07]Cumulative and Non-Cumulative Dividends22[§4.08]Participation as to Capital Surplus22[§4.09]Pre-emptive Rights22

(iii)[§4.10]Redemption and 4.12]Variations/Abrogations of Special Rights and Restrictions23PRECEDENTS—NOT AVAILABLE IN ONLINE VERSIONPrecedent A—Voting RightsPrecedent B—Income ParticipationPrecedent C—Participation as to Capital SurplusPrecedent D—Pre-emptive RightsPrecedent E—Rights of Redemption and RetractionPrecedent F—Restrictions on tion31[§5.02]Management of the Company1. Control of the Corporation2. Directors3. The Powers of Directors4. Officers5. Insiders6. Residual Powers of Shareholders7. Directors’ Meetings3131313333343435[§5.03]Duties and Liabilities of Directors and Officers1. The Duties2. Duties to Whom?3. Avoiding the Duties4. Prohibited Resolutions3636384040[§5.04]Conflict of Interest1. General2. Disclosure and Ratification414142[§5.05]Protection From Liability1. Due Diligence2. Indemnification3. Insurance4. Resignation5. Trust Funds6. Relief by Court44444545464646[§5.06]The Lawyer as a Director1. Duties2. Conflicts3. Use of Confidential Information4. Privilege4747474848

(iv)FINANCE[§6.01][§6.02]Introduction to Methods of Finance1. Shareholder Loans (Debt Financing)2. Share Equity Financing3. Corporate Borrowing4. Procedural Aspects—OverviewIssue of Shares1. Initial Proceedings2. Kinds of Shares3. Securities Registers and Certificates4. Form of Share Certificates5. Issuing Share Certificates6. Lost Share Certificate7. Price for Shares8. Non-Cash Consideration for Shares9. Limitation of Liability10. Payment for Shares/the Paper Trail11. Partly Paid Shares12. Commissions and Discounts13. Restrictions on Subsequent Allotments14. Transfer of Shares15. Restrictions on Share Transfers16. Transmission17. 55555[§6.03]Borrowing and Granting of Security1. Introduction2. Capacity to Borrow3. Searches by the Lender’s Lawyer4. Opinions5. Registration of Charges6. Debentures55555556565656[§6.04]Restricted Transactions/Loan and Financial Assistance1. Introduction2. Reasons for Restrictions3. Authority to Purchase or Redeem Shares4. Solvency Test5. Requirement to Purchase Pro Rata6. Lawyers’ Obligations in Reviewing Security Documents7. Disclosure Requirements of Section 1955757575757585858ORDINARY rs’ Meetings1. Definitions: “Shareholders” and “Resolutions”2. Annual General Meetings: Notice and Quorum3. Voting4. Proxies5959596061[§7.03]Financial Statements61[§7.04]Annual Report61

(v)[§7.05]Registrar of Companies1. Records Maintained by the Registrar2. Filing Records616162[§7.06]Registered and Records Offices1. Records Office Functions2. Duty of Care3. Copies of Records4. Records Kept at Records Office5. Examination of Records6. Time Coverage of Records7. Share Certificates, Seals and Accounts6262626262636363[§7.07]Auditors63SPECIAL PROCEDURES[§8.01]Alterations of Notice of Articles Generally1. When Permitted2. Types of Resolutions3. Filing Alteration4. When Effective5. Withdrawal of Notice of Alteration646464646565[§8.02]Alterations of Articles Generally1. When Permitted2. Types of Resolutions3. Alteration of Articles Affecting Notice of Articles4. When Effective5. Subsequent Copies656565666666[§8.03]Altering Majorities for Resolutions1. Special Resolutions2. Special Separate Resolutions666667[§8.04]Altering Table 1 Articles67[§8.05]Altering Restrictions on Businesses and Powers67[§8.06]Exceptional Resolutions67[§8.07]Unalterable Provisions67[§8.08]Majorities—Conflicts Between Articles and Business Corporations Act68[§8.09]Voluntary Change of Name1. General2. Resolutions3. New Name4. Reservation of Name5. Filing With the Registrar6. Withdrawal of Notice of Alteration7. When Effective8. Alteration of Articles9. Effect of Change of Name10. Filings in Records Office6868686868686869696969

(vi)CAPITAL ALTERATIONS[§9.01]Creation, Variation or Deletion of Special Rights or Restrictions1. Alteration of Special Rights or Restrictions2. Type of Resolution707070[§9.02]Interfering With or Prejudicing Class or Series Rights70[§9.03]Series of Shares1. Creation of Series2. Safeguards717171[§9.04]Changes in Authorized Share Structure1. Classes and Series of Shares2. Maximum Number of Shares3. Subdivision of Shares4. Consolidation of Shares5. Par Value Shares6. Change of Shares7. Alteration of Identifying Name of Shares8. Procedure727272727273737373[§9.05]Reduction of Capital73[§9.06]Exceptions to Reduction of Capital Requirements74[§9.07]Concurrent Alterations of Authorized Share Structure and Shares74DISSOLUTION[§10.01]Dissolution by Registrar for Failure to Comply1. Introduction2. Procedure3. “Letting It Die”75757575[§10.02]Voluntary Dissolution (“Short-Form Dissolution”)1. Introduction2. Procedure3. Extraprovincial Companies76767677[§10.03]Voluntary and Court-Ordered Liquidation1. Introduction2. Voluntary Liquidation3. Court-Ordered Liquidation4. Dissolution Following Liquidation7777778081[§10.04]Post-Dissolution Matters1. Survival of Liabilities2. Record Keeping818181RESTORATION AND REINSTATEMENT[§11.01]General1. Introduction2. Assets of Dissolved Company3. Restoration or Reinstatement Discretion4. Who Can Apply5. Reasons for Applying6. Time Limits82828282828383

(vii)[§11.02]Procedures for Restoration or Reinstatement1. Publication and Mailing of Notice2. Application to Restore or Reinstate3. Consent of the Registrar4. Limited Restorations and Reinstatements5. Court Order838383838484[§11.03]Effect of Restoration or Reinstatement84EXTRAPROVINCIAL COMPANIES[§12.01]The Registration Requirement1. Foreign Entities Exempted From Registration2. Provincially Registered Corporations From Other Western Provinces3. Carrying on Business4. Effect of Registration5. Limited Liability Companies858585858686[§12.02]Registration Procedure1. Name2. Assumed Name3. Registration Requirements4. Registration8686868686[§12.03]Duties of an Extraprovincial Company1. Attorneys2. Annual Reports3. Amalgamations4. Change of Name8787878787SHAREHOLDERS’ RIGHTS AND REMEDIES[§13.01]Introduction88[§13.02]Court Proceedings1. General Provisions2. Rectification of Irregularities3. Relief From Oppression4. Derivative Actions5. Order for Liquidation and Dissolution888888888990[§13.03]Dissent Proceedings1. General Information2. Waiver3. Notice of Corporate Action4. Notice of Dissent5. Notice of Intention to Proceed6. Completion of Dissent7. Payment8. Loss of Right to Dissent909091919191919191SHAREHOLDERS’ AGREEMENTS[§14.01]Introduction92[§14.02]Business Corporations Act1. Allotment2. Purchase or Redemption3. Approval by Special Resolution or Exceptional Resolution92929292

(viii)[§14.03]Notice of Articles and Articles93[§14.04]Parties94[§14.05]Conduct of the Affairs of the Company1. Management of the Company2. Major Decisions3. Employment Contracts4. Non-Competition, Non-Solicitation and Confidentiality Agreements5. Model Agreement949494949595[§14.06]Financing, Shareholders’ Contributions, and Distribution of Net Profit95[§14.07]Restrictions on the Transfer of Shares or Right of First Refusal or Offer96[§14.08]Compulsory Buy-Out98[§14.09]Investment Sale on Death98[§14.10]Default99[§14.11]Tax Considerations100[§14.12]Model Shareholders’ Agreement—NOT AVAILABLE IN ONLINE VERSION100BUSINESS CORPORATIONS ACT FORMS AND PRECEDENTS—NOT AVAILABLEIN ONLINE VERSIONPrecedent 1—Instruction Form (Short Form)109Precedent 2—Articles of Incorporation113Precedent 3—Incorporation Application and Notice of Articles129Precedent 4—Consent to Act as Director133Precedent 5—Post-Incorporation Resolutions of the Director(s)134CANADA BUSINESS CORPORATIONS ACT[§15.01]Introduction136[§15.02]Capacity and Powers of CBCA Corporations136[§15.03]Comparison of a CBCA Corporation With a BCA Company1. Differences2. Similarities136137139[§15.04]Words With Special Meanings Under the CBCA139[§15.05]Incorporation Procedures1. Name Selection and Reservation2. Documents3. Articles of Incorporation4. Organizational Meetings5. Registered Office6. Rights of Examination of Corporate Records140140140141141141142[§15.06]Corporate Finance1. No Par Value Shares Only2. Unlimited Number of Shares Permitted3. Shares Fully Paid4. Stated Capital5. Shares in Series6. Trafficking in Shares142142142142142142142

(ix)[§15.07]Security Certificates, Registers and Transfers1. Negotiable Instruments2. Registers143143143[§15.08]Directors and Officers1. Restraints on Directors’ Powers2. Shareholder Democracy3. Residence4. Bylaws5. Delegation of Directors’ Powers6. Standard for Directors’ Duties7. Officers8. Recent Changes143143143144144144144145145[§15.09]Insider Trading, Going-Private and Squeeze-Out Transactions145[§15.10]Shareholders1. Meetings2. Record Dates3. Form of Notice of Meeting4. Right to Vote5. Cumulative Voting146146146146146146[§15.11]Financial Disclosure1. Report of Directors2. Approval of Financial Statements3. Filing Annual Financial Statements4. Waiver of Auditor5. Independent Auditor6. Resignation or Removal of Auditor146146146146147147147[§15.12]Fundamental Changes1. Meaning of “Fundamental Change”2. Special Resolution3. Dissent Proceedings4. Procedure5. Amalgamation6. Arrangements7. Extraordinary Sale, Lease or ces (Export and Import)1. Export2. Import149149149[§15.14]Compulsory and Compelled Acquisitions150[§15.15]Dissolution, Liquidation, Revival1. Dissolution2. Revival150150150[§15.16]Investigation and Remedies1. Investigation2. Derivative Actions3. Oppression Remedy150150150150[§15.17]General Provisions151CBCA PRECEDENTS—NOT AVAILABLE IN ONLINE VERSIONPrecedent 6— Form 1 – Articles of Incorporation & Notes to Form 1Precedent 7— Form 2 – Initial Registered Office Address and First Board of DirectorsPrecedent 8—Model By-laws152154156

(x)NOT-FOR-PROFIT ntage of Incorporation161[§16.03]Differences Between an Incorporated Not-for-profitOrganization and a Company161[§16.04]Canada Not-for-profit Corporations Act – Overview161[§16.05]Societies Act – Overview161[§16.06]Comparing the Societies Act and the Canada Not-for-profit Corporations Act1. Societies Act Advantages2. Canada Not-for-profit Corporations Act Advantages162162162[§16.07]Purposes and Characteristics Under the Societies Act162[§16.08]Registrar Under the Societies Act162[§16.09]Incorporation Procedure Under the Societies Act1. Name Approval and Reservation2. Incorporation Application3. Constitution and Bylaws4. Additional Filings5. Transition al Matters Under the Societies Act1. General Meetings2. Annual Filings3. Financial Statements4. Audit Requirements5. Society Records164164164165165165[§16.11]Operational Matters Under the Societies Act1. Directors and Officers2. Investing and Borrowing3. Corporate Status4. Capacity166166167167167[§16.12]Member-Funded Societies Under the Societies Act167[§16.13]Cooperative Associations167[§16.14]Public and Private Foundations168[§16.15]Applying for Charitable Status168[§16.16]Lawyer as Director of a Not-for-profit Organization1. General Comments2. Insurance3. Duties4. Other Considerations168168168168169[§16.17]Pro Bono Legal Services1. Definition2. Indemnity Coverage169169169

1Chapter 1Organization of a Business 1All references in this and the following chapters of thePractice Material: Business: Company to the “BusinessCorporations Act,” the “BCA” or to the “Act” and itssections are references to the Business Corporations Act,S.B.C. 2002, c. 57, as amended, and to sections of thatAct, unless otherwise indicated. References to the “Regulation” are references to the Business CorporationsRegulation, B.C. Reg. 65/2004, as amended. Referencesto the CBCA are references to the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as amended, andreferences to the Company Act are to the Company Act,R.S.B.C. 1996, c. 62. References to the “registrar” are tothe Registrar of Companies under the BCA.This chapter and most of the following chapters of thePractice Material: Business: Company focus on theBusiness Corporations Act. However, there are severaldefined terms in the Business Corporations Act that reference or include terms used in the former act—theCompany Act. See, for example, the terms “memorandum” and “articles” in s. 1(1). There also continue to bereferences to “pre-existing companies,” which meanscompanies incorporated under the Company Act thatwere given two years to transition to the BCA. Althoughthe two-year period for transition has passed, that termstill forms the basis for some distinctions in legislativeprovisions.Refer to the Practice Checklists Manual found on theLaw Society of BC’s website (www.lawsociety.bc.ca)for checklists on incorporation procedures, partnershipagreements, shareholders’ agreements, and other business law topics.For a more detailed discussion of business organizations,please see the British Columbia Company Law PracticeManual (Vancouver: CLEBC), Chapter 1.[§1.01]The Unstructured BusinessA First Nations or Indigenous band is a unique legalstructure in Canada that derives power and authorityfrom inherent Indigenous rights, through the Indian Act,and through delegated authority by agreement. The lawrecognizes most Indigenous peoples as being organizedin bands, which consist of members and which controlreserve lands. A chief and council govern a band. Beyond this legal recognition, bands will often create corporations or societies to conduct certain business anddeal with land. For instance, Indigenous peoples mayincorporate societies to establish a separate legal entitythat can deliver programs and services for the benefit ofmembers.[§1.02]Choosing a Business StructureAlthough persons may be sole proprietors or partnerswithout appreciating that fact, they may also deliberatelyselect one of the many other forms of business organization. They may decide to form a business corporation,under either the federal or a provincial corporate statute;some may decide to form a limited partnership or a limited liability partnership.There are three objectives that most clients are interestedin achieving: limited liability; optimal tax position; andMany people carry on a business without any formallegal organization. If a person carries on business alone,the business is called a sole proprietorship.If two or more people are carrying on a business withoutformal organization, they will probably be a partnership.The Partnership Act, R.S.B.C. 1996, c. 348 (the1“Partnership Act”) defines partnership as “the relationwhich subsists between persons carrying on business incommon with a view of profit” (s. 2). People carrying ona business together may not be aware that they are legally in partnership, and may have no formal agreement.There is a body of case law concerned with determiningwhether or not people are in partnership. Generally, thetest is related to the law of agency. If individuals carryon a business as agent for, or on behalf of, one another,they will be partners (this test is reflected in s. 7 of thePartnership Act). Section 4 of the Partnership Act provides guidelines for deciding whether or not there is apartnership. The most important guideline provides thata person who receives a share of the profits of the business will be treated as a partner in the business, in theabsence of evidence to the contrary (s. 4(c)).Grant Foster, Fasken, Vancouver, kindly revised this chapter inAugust 2019. Previously revised by Jennifer MacGregor-Greer(2016) and Jason Harris (2011); Brock H. Smith (2004 and2005); Darwin Hanna (for Indigenous law content, in 2003);Robert J. Fenton (1994); Jennifer A. McCarron (1996); and JohnD. Montgomery (1993). control of all major decisions.Unfortunately, no form of business organization allows aclient to achieve all three objectives.[§1.03]Sole Prop

legislation, case law, administrative guidelines, rules, and other primary sources. Forms and precedents are provided throughout the . Practice Material. The users also must consider carefully their applicability to the client’s circumstances and their consistency with the client’s instructions. The Law Society of British Columbia and the

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