Canadian corporate law


Canadian company 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.

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:

Takeover bids

In takeover situations, Canada gives shareholders no straightforward right to extinguish a frustrating measure. However, ordinary directors' duties regarding conflicts of interest apply.
Rules governing takeover bids come from various sources:
Relatively little litigation has taken place in this matter in the Canadian courts. The current régime came into effect in 2008. The Canadian Securities Administrators issued proposals in 2013 on tightening early warning requirements in their rules, while in Quebec the Autorité des marchés financiers issued a proposal favouring an alternative approach concerning all take-over bid defensive tactics.

Corporate reorganizations

Canadian corporate law offers a variety of options in which to conduct reorganizations, depending on whether the context concerns mergers and acquisitions or insolvency.

Companies' Creditors Arrangement Act

A unique feature of Canadian law is found in the Companies' Creditors Arrangement Act, which provides a scheme for allowing insolvent corporations, which owe in excess of $5 million to their creditors, a method for restructuring their business and financial affairs.
Under the CCAA, the court has broad discretion in administering any issues that may arise. As the Act says,
This has allowed for very creative applications for resolving difficult scenarios, including:

Plans of arrangement

The various Canadian statutes also allow for plans of arrangement to be devised for companies that are solvent. In that regard, the CBCA defines arrangements as including:
Plans of arrangement have been employed in cross-border mergers to great success. They have also been used for debt restructuring in insolvency situations, which is a recent innovation in Canadian proceedings.
The Supreme Court of Canada, in its ruling in BCE Inc. v. 1976 Debentureholders, stated that, in seeking court approval of an arrangement, the onus is on the corporation to establish that
To approve a plan of arrangement as fair and reasonable, courts must be satisfied that
Courts should refrain from substituting their views of the "best" arrangement, but should not surrender their duty to scrutinize the arrangement. Only security holders whose legal rights stand to be affected by the proposal are envisioned. It is a fact that the corporation is permitted to alter individual rights that places the matter beyond the power of the directors and creates the need for shareholder and court approval. However, in some circumstances, interests that are not strictly legal could be considered. The fact that a group whose legal rights are left intact faces a reduction in the trading value of its securities generally does not constitute a circumstance where non‑legal interests should be considered on an application for an arrangement.
The courts take their duty seriously in assessing such plans, as was evidenced in Ontario in 2014. In determining that a plan of arrangement was fair, no weight was given by the court to the fairness opinion obtained by the directors, as:
However, such concern may not apply where a transaction is not being contested, in which case the opinion may considered as evidence that the board had "considered the fairness and reasonableness of the proposed transaction on the basis of objective criteria to the extent possible."

Liquidation and dissolution

can occur in several ways:
Liquidation under the incorporating statute can occur with or without an accompanying court order that provides for the orderly payment of debts and/or the dissolution of the corporation. Under the BIA, an insolvent corporation exits bankruptcy after the court approves its discharge. Under the WURA the corporation is required to cease business.
Dissolution is a separate process, which may occur:

Resources by jurisdiction

The following list provides links relating to general Acts of incorporation, other than those relating to cooperatives, financial institutions and organizations incorporated by special Act:
JurisdictionFor-profit corporationsNot-for-profit corporationsRegistry or agentCorporate tax rates

15%/11%
12%/2%
12%/0%
11.5%/4.5%
16%/3.5%
16%/1%
14%/4%
15%/4%
11.5%/4%
12%/4%