Canadian corporate law


Canadian corporate law concerns the operation of corporations in Canada, which can be established under either federal or provincial authority.
Federal incorporation of for-profit corporations is governed by Corporations Canada under the Canada Business Corporations Act. All of the Canadian provinces and territories also have laws permitting the incorporation of corporations within their area of jurisdiction. Often, the choice of whether to incorporate federally or provincially will be based on many business considerations, such as scope of business and the desire for application of particular rules which may be available under one corporate statute but not another.

History

Prior to Canadian Confederation, companies were organized through several procedures:
Before 1862, limited liability was the exception, being conferred on specific companies through royal charter or special Act. When it was introduced into UK company law by the Companies Act 1862 as a matter of general application, the Canadian colonies introduced legislation to enable the same locally.
Upon Confederation, s. 92 of the Constitution Act, 1867 gave provinces jurisdiction over "Incorporation of Companies with Provincial Objects." The judicial construction of this phrase has been the subject of several significant cases in the courts, and most notably at the Judicial Committee of the Privy Council:
The first Federal and Provincial Acts generally provided for incorporation through letters patent, but the procedure was excluded federally for certain classes of company, which still had to be incorporated by special Act of Parliament. It was in this manner that the Canadian Pacific Railway was originally formed.
Current Acts generally provide for formation by articles of incorporation, but Prince Edward Island still retains the letters patent procedure and Nova Scotia provides for incorporation by memorandum of association.

Corporations Canada

Corporations Canada is Canada's federal corporate regulator, operating under Innovation, Science and Economic Development Canada. It is responsible for administering laws regarding the incorporation of Canadian businesses as well as "corporate laws governing federal companies, except for financial intermediaries."
It has the authority to dissolve a corporation that has not filed its annual returns. Corporations Canada is responsible for the administering the following laws:
  • Canada Business Corporations Act
  • Canada Cooperatives Act
  • Boards of Trade Act
  • ''Canada Not-for-Profit Corporations Act''

    Corporate governance

Board of directors

The articles of incorporation can provide for different classes of shares. Like most of the Commonwealth and Europe, the "one share, one vote" principle prevails in public companies, but cumulative voting can occur where the articles of incorporation so provide.
Shareholders must elect directors at each annual meeting, and, where the articles are silent, directors remain in office until the annual meeting after their election. after incorporation. There can be staggered boards, but any director's term is limited to three annual meetings. Directors elected by a particular class cannot be removed without consent of that class. All changes in directors have to be filed with the registrar.
Where a company's securities are traded publicly on the Toronto Stock Exchange, from 31 December 2012, it is required to:
In October 2012, the TSX also issued a proposal to require majority voting at uncontested elections.
The larger pension plans and other investment funds have instituted practices relating to the behaviour that is expected of the companies they invest in. Publications in that regard include:
On September 29, 2016 the Financial Post reported that a "Bill introduced in Parliament would vanquish 'zombie' directors who fail to win majority shareholder votes"

Board structure

Directors set their own remuneration. They have a fiduciary duty to not put their own interests first when setting it. Some case law exists where decisions about remuneration were not reached fairly, or where directors' fees are unusually high, thus attracting oppression remedy claims under the various corporate statutes. Otherwise the remuneration committee should be composed of independent directors. There is no say on pay rule in the CBCA. However, a large number of Canadian companies have been having say on pay votes, as a result of shareholder proposals to change company constitutions in order to introduce them.
For publicly traded companies, the Canadian Securities Administrators have issued various National Instruments that have been implemented to varying degrees by the provincial and territorial securities regulators in order to assure better-functioning boards. They include:

Shareholder rights

Under s. 140 of the CBCA, all shareholders have the right to vote. Shareholders holding the same class of shares must be treated equally, and so, for instance, no voting ceilings are allowed.
With 5% of the voting rights, known as a requisition, shareholders may require directors to call a meeting. Uniquely, under s. 137 of the CBCA:
While a starting point of Canadian companies is that directors "manage or supervise the management of, the business and affairs of a corporation", shareholders may unanimously agree to do a corporate act, regardless of what directors think. Shareholders can amend the articles with a three-quarters majority vote.
Political donations by corporations have been prohibited since the Federal Accountability Act repealed s. 404.1 of the Canada Elections Act in 2006.

Directors' duties

The laws in the various jurisdictions governing the duties of directors generally follow that laid out in s. 122 of the CBCA:
Extensive jurisprudence in the Canadian courts have expanded on the matter:
Within the general duty to avoid conflicts of interest there is a duty for directors and officers to disclose self-dealing. A director has to disclose a material interest in any transaction the company enters into. The same strict standard as in the UK applies to this day, so even having a close friendship with someone that benefits from a company contract counts. They must state any conflict of interest that may result from the conclusion of a contract with a third party, and if they do not respect this obligation any shareholder or interested person may ask for the annulment of the decision taken. If a breach of duty has already taken place, the Canadian rules on ex post shareholder approval provide that a shareholder resolution does not affect the invalidity of a transaction and the liability of the director, but it may be taken into account when the court decides whether or not to let a derivative action continue by a minority shareholder. The position on taking corporate opportunities begins with the case of Cook v Deeks, where directors must have authorization by independent directors before they try to make any profit out of their office, when the company itself could possibly have an interest in the same deal.
More modern cases show some differences in the strictness of the courts' approach:
'''Tripartite Fiduciary Duty and the Principle of Fair Treatment'''

Corporate litigation

In addition to being initiated by the corporation, litigation can be exercised through either derivative actions or the oppression remedy. The two types of action are not mutually exclusive, and the differences between them were noted in 1991:
Access to derivative actions and the oppression remedy is available to any complainant, which in the case of the CBCA includes current and former shareholders, current and former directors and officers, the Director, and "any other person who, in the discretion of a court, is a proper person to make an application under this Part." In that regard, it can include a creditor of the corporation, but not every creditor will qualify. The court has discretion to dismiss an action where it is found to be frivolous, vexatious, or bound to be unsuccessful.
Shareholders can also bring claims based on breaches for personal rights directly, such as having one's right to vote obstructed.

Derivative actions

Derivative actions may be pursued by a complainant if:
  1. fourteen days' notice is given to the directors,
  2. the complainant is acting in good faith, and
  3. it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued.

    Oppression remedy

Canadian legislation provides for a broad approach to the oppression remedy. In Peoples Department Stores Inc. v. Wise, the Supreme Court of Canada noted:
In BCE Inc. v. 1976 Debentureholders, the Supreme Court of Canada stated that, in assessing a claim of oppression, a court must answer two questions:
Where conflicting interests arise, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation. There are no absolute rules and no principle that one set of interests should prevail over another. This is defined as a "tripartite fiduciary duty", composed of an overarching duty to the corporation, which contains two component duties — a duty to protect shareholder interests from harm, and a procedural duty of "fair treatment" for relevant stakeholder interests. This tripartite structure encapsulates the duty of directors to act in the "best interests of the corporation, viewed as a good corporate citizen". Following BCE, the Court of Appeal of British Columbia noted that "breach of fiduciary duty... 'may assist in characterizing particular conduct as tending as well to be 'oppressive', 'unfair', or 'prejudicial'". More recently, scholarly literature has clarified the connection between the oppression remedy and the fiduciary duty in Canadian law:
Under the business judgment rule, deference should be accorded to the business decisions of directors acting in good faith in performing the functions they were elected to perform, but such deference is not absolute.
The remedy can extend to a wide variety of scenarios:
The court's discretion is not unlimited, as the Court of Appeal of Newfoundland and Labrador observed in 2003: