Sole Proprietorship.................................................................................................................. 4
Registration .......................................................................................................................................... 4
Agency........................................................................................................................................... 6
Actual Authority .................................................................................................................................. 6
Express Actual Authority: ...........................................................................................................................6
Implied Actual Authority: ...........................................................................................................................6
Ostensible Authority ......................................................................................................................... 7
Breach of Warranty Authority ....................................................................................................... 8
Duties of the Agent to the Principal ............................................................................................. 8
Fiduciary Duties..............................................................................................................................................8
Duties of the Principal to the Agent ............................................................................................. 9
Events of Termination ...................................................................................................................... 9
Ratification......................................................................................................................................... 10
Undisclosed Principal .................................................................................................................... 10
Partnership .............................................................................................................................. 11
General Partnership P/P............................................................................................................... 11
Formation of a Partnership: ................................................................................................................... 11
Name/Registration and Liability:......................................................................................................... 15
Default Contract ........................................................................................................................................... 15
Ending a Partnership ................................................................................................................................. 16
Partnership is not a separate legal entity ......................................................................................... 17
Fiduciary Duties of Partners ................................................................................................................... 18
Liability of Partnerships to Third Parties ......................................................................................... 19
Limited Partnership LP/P ............................................................................................................ 21
Limited Liability Partnership LLP ............................................................................................. 24
Corporation: General............................................................................................................ 26
Reasons to Incorporate (Or Not To) ......................................................................................... 27
Closely Held Corporation .............................................................................................................. 28
Constitutional Jurisdiction ........................................................................................................... 28
Scope of Provincial Power ....................................................................................................................... 28
Scope of Federal Power ............................................................................................................................ 29
Overlapping Provincial and Federal Jurisdiction ........................................................................... 30
Extra-Provincial Incorporation ............................................................................................................. 31
Choosing Jurisdiction of Incorporation ................................................................................... 33
The Incorporation Process........................................................................................................... 33
Federal ............................................................................................................................................................. 33
Provincial........................................................................................................................................................ 35
Post Incorporation Process – Getting Up and Running ............................................................... 35
Subsidiaries and Affiliates ....................................................................................................................... 37
Corporate Status .............................................................................................................................. 38
The Corporate Veil .......................................................................................................................... 39
Lifting the Corporate Veil ............................................................................................................. 41
Requirement to Display the Corporate Name ....................................................................... 43
Reincorporation/Continuance ................................................................................................... 44
Pre-Incorporation Contracts ....................................................................................................... 46
Summary of the Common Law: ............................................................................................................. 46
Statutory Modification: ............................................................................................................................. 48
Ultra Vires Acts of Certain Corporations ................................................................................. 50
1
Shares and Shareholders .............................................................................................................. 51
Preferred Shares: ........................................................................................................................................ 53
Access to Information about Shares .................................................................................................... 54
Issuing and Paying for Shares:............................................................................................................... 54
Share Rights and Restrictions:............................................................................................................... 55
Dividends ............................................................................................................................................ 57
Repurchase and Redemption ...................................................................................................... 58
Dissolution  Rights on Liquidation or Winding Up: ........................................................ 59
Corporate Governance: Directors and Officers ........................................................... 61
Appointment and Removal of Directors.................................................................................. 61
Who can be Elected Director: ................................................................................................................. 61
Who can be Appointed Officer:.............................................................................................................. 61
Term of office:............................................................................................................................................... 62
Vacancies: ....................................................................................................................................................... 63
Meetings of Directors ..................................................................................................................... 64
Quorum ........................................................................................................................................................... 64
Notice ............................................................................................................................................................... 65
Validity of Acts: ............................................................................................................................................ 65
Resolution in Lieu of Meeting: ............................................................................................................... 65
Dissent: ............................................................................................................................................................ 65
Power of Directors .......................................................................................................................... 66
Common Law on Delegation ................................................................................................................... 68
Operation of the Boards of Public Corporations .................................................................. 69
Duties of Directors and Officers ....................................................................................... 70
Fiduciary Duty .................................................................................................................................. 71
Transacting With the Corporation ....................................................................................................... 71
Taking Corporate Opportunities/Competition............................................................................... 73
Widening the Scope of Fiduciary Duties ............................................................................................ 75
Duty of Care ....................................................................................................................................... 76
Defenses to Breaches of Duty ...................................................................................................... 78
Oppression Remedy........................................................................................................................ 79
Shareholder Ratification ............................................................................................................... 83
Other CBCA Duties of Directors .................................................................................................. 84
Joint and Several Liability for things that will make a corporation insolvent ................... 84
Joint and Several Liability for Wages .................................................................................................. 85
Obligations Under Other Legislation ........................................................................................ 87
Tort Liability of Directors and Officers.................................................................................... 88
Indemnification and Insurance .................................................................................................. 89
Corporate Governance: ........................................................................................................ 92
Shareholders ........................................................................................................................... 92
General Powers ................................................................................................................................ 92
No unusual management power:.......................................................................................................... 92
Access to Corporate Information: ........................................................................................................ 92
Resolutions: ................................................................................................................................................... 93
Election and Removal of Directors: ..................................................................................................... 93
Amendment of By-Laws: .......................................................................................................................... 93
Review of Financial Statements: ........................................................................................................... 94
Appoint an Auditor ..................................................................................................................................... 94
2
Shareholder Meetings .................................................................................................................... 95
When ................................................................................................................................................................ 95
Where: ............................................................................................................................................................. 95
Quorum: .......................................................................................................................................................... 96
Right to vote: ................................................................................................................................................. 96
Voting: .............................................................................................................................................................. 96
Resolution in lieu: ....................................................................................................................................... 97
Requisition of meeting by SH: ................................................................................................................ 97
Court may: order meeting, review election of directors ............................................................. 97
Shareholder Control of Fundamental Changes ..................................................................... 98
Amendment of the Articles of Incorporation .................................................................................. 98
Export or Continuation of CBCA corporation ............................................................................... 100
Extraordinary Sale, Lease, Exchange of substantially all corporate assets ...................... 100
Voluntary Liquidation and Dissolution ........................................................................................... 101
Shareholder Proposals ................................................................................................................ 101
Proposal Procedure: ............................................................................................................................... 102
Proxy Solicitation and Proxy Circulars .................................................................................. 103
Proxy: ............................................................................................................................................................ 104
Management Circulars ........................................................................................................................... 105
Vote Pooling Agreements ........................................................................................................... 107
Unanimous Shareholder Agreements .................................................................................... 108
3
Sole Proprietorship
An unincorporated business “owned” by a single individual who is the sole person
responsible for success, failure, liabilities, and assets.
Characteristics:
- Sole owner with decision-making power – no one else has ownership interest in
the business
- “Personal Liability”  Individual and sole proprietorship are one person legally
for all purposes
o Assets and income
o Liabilities and debt
o Vicariously liable for employees torts
- Creditors  Creditors are personal creditors, and the debt is personal
- Employees  Sole Proprietorship may have employees, even several levels of
complex management structure, but the employees are not owners of the business
Advantages:
- Small local enterprises with no need to acquire capital, can avoid corporate
reporting and tax requirements
- Since there is no separation of the business and personal assets, the proprietor can
deduct both the business’ and his personal losses
Disadvantages:
- difficult to grow, diff to raise capital (banks like to deal w/corps that are separate
bus entities)
Restrictions:
- Lenders will often put restrictions on the operation of sole proprietorships 
arises from situations where the sole proprietor does not have significant personal
funds (judgment proof) and could be tempted to use the lenders funds to make a
risky business move.
Registration
Purpose of Registration
- (1) Identify the SP for Credit Checks
- (2) Identify the SP for the purpose of starting an action
- (3) Avoid the deception of a name indicating plural persons
- (4) Avoid “Passing Off” – SP passing off a claim to another SP/company with the
same business name
Remember, a Sole Proprietorship begins when the individual begins operating a business, NOT
when he registers a business name
4
PARTNERSHIP ACT Part 4:
88(1)
89
90
90.3
90.4
90.5
Business Name Registration:
- A Sole Proprietorship may operate under a business name, but is
required to register that name (within 3 months) if:
o the SP is in the business of trading, manufacturing, or mining
o the SP is not a partnership
o the business name is not the name of the SP, or implies a
plurality of persons
*required to register b/c name does not indicate who owner is, or is misleading
in indicating a plurality of ownership
*register is used to find out who is the entity behind the name
Names Already Registered:
- (1) SP cannot register or use a name that:
o has already been registered, or
o that is so close that it may be confused
- (2) SP can use a corporation’s name if:
o the corporation submits in writing
o the business name was used by the applicant before the
company incorporated
*applies to corps and their depts – including trade name used by corp (e.g.
McDonald’s)
Registrar must keep two indices
- enables you to search under either firm or personal name
(2) Firm index
- styles of registered firms
(4) Individual index
- names of members of each firm
Anyone can search the register
- (a) search name
- (b) inspect records
- (c) obtain copies
(1) It is an offence to file a misleading statement w/registrar that is:
(a) false or misleading statement that relates to material fact, or
(b) omits any material fact that makes the statement false or misleading
Person who commits offence under 90.4 is liable to a fine, if an individual of
not more that $2000, and if a non-person, not more than $5000
BC RULES OF COURT: (govern actions in the BCSC)
Rule 7: deals w/how to sue a partnership
7(10): a person carrying on a business under a name or style other than their own name
can be sued in that name (can be sued under trade name whether or not it is registered)
5
Agency
Fridman, The Law of Agency  “the relationship that exists between two persons when
one, call the agent, is considered in law to represent the other, called the principal, in
such a way as to be able to affect the principal’s legal position in respect of strangers to
the relationship by the making of contracts or the disposition of property.”
The principal “clothes” an agent with authority to affect the principal’s legal relationships
Characteristics:
- (1) Legally Recognized
- (2) Consensual
- (3) May be a contractual relationship
- (4) Fiduciary Duties
- (5) Principal or Agent may terminate the relationship at will
Actual Authority
Express Actual Authority:
Authority that is actually stated, orally or in writing, between the principal and agent
- Actual authority includes authority that can be inferred from the wording or
context of an agreement between principal and agent
Implied Actual Authority:
Authority that is associated with the relationship. It goes with the commercial context
and circumstances.
The authority is not spelled out, but is understood with reference to the usual or
customary authority of the agent:
-
-
(1) Usual Authority  determined by looking at what THAT AGENT has been
allowed to do in the past
o Must look to what this principal has allowed this agent to do
o if the agent has done certain things in the past that are outside the express
authority of the agent but the principal has allowed the agent to do those
things, then the agent may be said to have usual authority to those things
 Freeman & Lockyer v. Buckhurst Park Properties
(2) Customary Authority  determined by looking at the kind of authority
AGENTS OF THAT TYPE normally have.
o An express grant of authority that is inconsistent with some aspect of the
customary authority of agents of that type \ would override the customary
authority
o The usual authority of a certain agent would also overrule customary
authority
6
Freeman & Lockyer v. Buckhurst Park Properties
Example of both usual and customary implied actual authority
Architects thought they were retained by Buckhurst, were not paid, the man they worked
with, Mr. Kapur (agent), had never been formally made managing director of Buckhurst –
however, Buckhurst had allowed Kapur to act as their managing director.
Held:
- Kapur had implied actual authority, and Buckhurst was liable
- Kapur was acting with the customary authority of a managing director, and the
usual authority of what he had done in the past with this particular company
Ostensible Authority
“Agency by Estoppel” can arise in the absence of express or implied actual authority; it
protects the reliance of innocent third parties
Where a principal has made representations that a party has authority to act as an
agent, intending for the third party to act on that representation, they will be barred
by equity from refusing to honour that contract  Freeman & Lockyer
Elements:
- (1) Alleged principal must have made a representation OR permitted a
representation that the alleged agent had the authority to act on their behalf
-
(2) The third party reasonably relies on the representation to his or her
detriment
Lloyd v. Grace Smith
lawyer leaves conveyancing clerk in charge, clerk defrauds widow of her property, clerk
had been working for lawyer for many years as a conveyancing agent
Held:
- Firm was liable, clerk has ostensible authority
o (a) Clerk was permitted to act as with authority; “clothed with authority”
by the law firm
o (b) and the widow’s reliance was reasonable
Freeman & Lockyer v. Buckhurst Park Properties
Foundational Case on Ostensible Authority
Architects thought they were retained by Buckhurst, were not paid, the man they worked
with, Mr. Kapur (agent), had never been formally made managing director of Buckhurst –
however, Buckhurst had allowed Kapur to act as their managing director.
Held:
- Buckhurst was liable, Kapur operated with ostensible authority, and Buckhurst
was barred from refusing to honour the contract
- Kapur was acting with the customary authority of a managing director, and his
usual authority with this particular company – Thus; the principal had permitted a
7
representation to be made that Kapur was their agent, and Freeman’s reliance was
reasonable
Policy Rationales:
- (a) Protection of 3rd party reliance
- (b) Least Cost Avoidance
o Alleged principal can check the agent’s trustworthiness, monitor the
agent’s behavior, and dismiss an agent that acts beyond his authority at a
much lower cost than the third party
Breach of Warranty Authority
Where third party fails in action against the principle (in contract) they may attempt
action against the agent (in tort)
This is an action by the third party against an agent in tort; where the agent warranted but
did not have actual or ostensible authority
Elements:
- (1) The Agent represented that she/he had authority
- (2) The Representation was False
- (3) The third party acted to her/his detriment
Damages: Expectation (put the third party in the position they would have been in had
the warranty been true)
Duties of the Agent to the Principal
Based on the fiduciary relationship between principal and agent, they can be varied by
express agreement
To Perform Agency Obligations
- Or, when the object of the agency relationship cannot be completed, the agent
must do his/her best
- Agent will not be liable when the obligation placed on them is illegal
To Perform with Reasonable Care
- Standard is the skill and diligence an agent in his or her position would normally
possess and exercise
NOT to exceed the scope of authority
Fiduciary Duties
(1) Duty of Loyalty
a. Duty to act in the best interests of the principal
b. Duty not to put oneself in a position where one’s personal interests
conflict with the principal’s interest
i. Normal Remedy: transaction is void and the agent is required to
8
account for any profits made
(2) Duty not to Delegate
a. Normally: no delegation (agent is assumed to be trusted representative
designated by the principal)
b. In some situations: circumstances or express authorization make
delegation allowable
i. (e.g.: Captain that has been made an agent to trade goods at port
has circumstantial authority to delegate some tasks to people who
speak the language and understand the local market)
(3) Duty to Keep Proper Accounts
a. If an agent does not keep proper accounts, the court will take a view of the
amount of the profit to the agent or loss to the principal that is most
favourable to the principal (Evidentiary Presumption)
b. If an agent has multiple principles, he/she must keep separate accounts for
each of the principles
(4) Duty not to take Secret Profits
a. Thompson v. Meade: Agent should not take secret profit (breach of FD);
stockbroker asked to sell stock for 10, sold for 12, kept the 2
b. Remedy: equitable remedy of accounting for profits (person in breach has
to account for any gain)
Duties of the Principal to the Agent
(1) Requirement to Pay Remuneration
a. normally requires express agreement, since agency relationships can be
gratuitous
b. In situations where there is no express agreement BUT circumstances are
such that the agent would not reasonably have been acting gratuitously –
courts may award merit on a quantum merit basis
(2) Requirement to Pay the Agent’s Expenses and Indemnify the Agent Against
Losses
a. Agent must be acting within the scope of their actual authority
b. Expenses must be necessary and reasonable for carrying out the agency
c. Losses must not be the fault of negligence of the agent
d. Agent may not receive reimbursement for expenses incurred that are
illegal
Events of Termination
(1) By Act of the Parties
a. Agency Relationships are Unilaterally Terminable On Notice – no
requirement for reasonable notice period (as in employment)
b. When the task that the agent was set to is complete, the powers of the
agent is complete
(2) By Operation of Law
a. When either party becomes bankrupt
b. Death or Incapacity (i.e. insanity) by either party
9
c. Where the whole purpose of the relationship is presumed to have been
frustrated
Ratification
Where the agent acted beyond his/her authority, the principle can nonetheless ratify the
interaction
Conditions for ratifying a contract:
(1) The Agent purported to act on behalf of another person who seeks to ratify
(2) The person who seeks to ratify was in existence and was ascertainable at the time
the other person purported to act as agent, and at the time of ratification
(3) The person who seeks to ratify must have had the legal capacity to do the act both
at the time the other person acted and at the time of the ratification
Ratification can be:
(1) Express
(2) By Conduct
a. By beginning to fulfill a contract
(3) By Acquiescence
a. By failing to reject the transaction within a reasonable time of learning
that the purported agent entered into it
b. Ratification must be based on a knowledge of all the facts
Consequences of Ratification:
(i)
The ratification relates back to the time of the offer and acceptance between
the agent and the third party
(ii)
The principal can sue the third party and can be sued by the third party
(iii)
The agent is no longer liable for a breach of warranty of authority
(iv)
The agent is no longer liable to the principal for exceeding her or his authority
(v)
The principal will be liable to the agent for reasonable remuneration and to
indemnify the agent for expenses reasonably incurred by the agent in effecting
the contract
Policy Reasons for Allowing Ratification:
- Allow for transactional flexibility – both principal and agent want the deal
- Certainty – once there has been an act of ratification, the principal must be legally
bound
- Prevention of unjust enrichment – not allowing principal that has ratified to back
out of a deal
Undisclosed Principal
Agents that act for principals (potentially several principals) and have their own
premises (distributor for many manufacturers) may contract with the third party and not
disclose that they are acting for a principal
10
(a) Generally, an undisclosed principle can, by disclosing their interest, enforce a
contract with a third party
a. the principal may disclose to the third party that they are the principal, and
in doing so take ownership of the contract
(b) Undisclosed principal CANNOT enforce a contract if:
a. The third party was under the distinct impression and had the intention
that the Agent personally comply
b. and/or that the third party can demonstrate that they would never have
contracted with the principal.
Said v. Butt
Undisclosed principal could not enforce a contract, because the third party successfully
showed that they never would have contracted with the principal
S had friend (Agent) buy a ticket to a theatre which he had maligned, denied entry on
night of performance, theatre was successful in barring him because they reasonably
expected the Agent to be performing the contract
Partnership
General Partnership P/P
There is no formality to a general partnership relationship  Two or more persons
carrying on business in common with a view of profit are partners
Characteristics:
- Partners share rights and liabilities equally
- Partners act as agents for each other
o One partner can affect the legal relationships of all partners with third
parties
o All partners owe fiduciary duties to each other
- Partnerships are not treated as separate legal entities for Tax purposes
Formation of a Partnership:
-
There is no formal process for the creation of a general partnership (except
registration), partnerships can be created without the express intention of the
parties (Backman v. Canada)
Partnership Act s. 2  Partnership is a Relation which subsists between persons
carrying on business in common with a view of profit
Backman v. Canada
(1) Whether a partnership has been established in a particular case will depend on
an analysis and weighing of the relevant factors in the context of all the
11
surrounding circumstances
(2) Calling a partnership does not make it a partnership – it must conform to the
definition in s.2
(3) People can form partnerships without intending to or expressly agreeing to
Appellant and 38 others sought to take advantage of apartments (in Texas) that were
costly beyond their fair market value by buying the apartments and selling them back to
the Texans, then deducting the “loss” from their taxes – Revenue Canada argues they
were not a partnership, since they never had an intention of “carrying on a
business….with a view of profit”
Held:
- There was no real partnership, despite the claims of the parties involved
o
Properties were just window dressing to make a tax-motivated transaction
seem like a partnership
o
They had no real view of profit, they had a view of loss
The Court went on to examine components of a partnership: (OBJECTIVE TEST)
- PERSONS
o
“Person” is defined in s. 29 of the B.C. Interpretation Act  “a
corporation, partnership or party, and the personal or other legal
representatives of a person to whom the context can apply according to
law.”
o
Can be a corporation, a partnership, or an individual
- CARRYING ON A BUSINESS: can be either short- or long-term organized
commercial activity (can be a single transaction or ongoing); can be either new or
existing, active or passive, but there must be some form of business
o
“business” broadly defined in Part 6 – “every trade, occupation or
profession” (can’t rely on this – Part 6 does not apply to Part 1)
o
Ordinary Definition: Black’s Dictionary, “to hold one’s self out to others
as engaged in the selling of goods or services”
o
Gordon v. The Queen: Carrying on a business:
 (1) occupation of time, attention, and labour
 (2) incurring of liabilities to other persons
(3) purpose of livelihood and profit
o
Not necessary to hold partnership meetings or regularly enter into new
agreements – business can be passively receiving rent
 Partner does not need to manage, you can be a silent partner
(Volzke)
o
Must have some sort of assets generating or with the potential to generate
income, and the intent to generate income
- IN COMMON: partners have to act together, whether by oral, written or express
agreement/consent in a common enterprise (each partner contributes, though not
necessarily equally, each is entitled to share in profits)
o
the authority of each partner is relevant, but the fact that management rests
with a single partner does not necessarily invalidate a partnership
o
Evidence must be consistent with an intention to carry on business in
common
o
s. 4(a)  common ownership of property (although it is an indicator of
12
-
partnership) does not, by itself, make co-owners partners
o
Relevant Factors:
 contribution of skill, knowledge or assets to a common undertaking
 joint property interest in the subject-matter of the venture
 sharing of profits and losses (4(c) – creates a rebuttable
presumption of partnership) (Volzke)
 filing of income tax returns as partnership, joint financial
statements/bank accounts (Volzke)
 holding themselves out as partners (Volzke)
VIEW OF PROFIT: objective must be commercial in nature (i.e. not charitable
or social), must at least be the intention to profit (partnership that loses money is
still a partnership)
o
Tax motivation will not derogate from validity of a partnership
o
Ancillary profit-making purpose will be sufficient
 e.g. having a primary tax motive won’t mean you aren’t partners,
you just must be able to show ancillary motive of profit-making
(OBJ test)
o
Does not require a net gain
o
s. 4(b)  Sharing of gross returns does not, by itself, make a
partnership
 Travelling play and theatre share profits of show, and are
not in partnership
o
s. 4(c)  Presumption: The receipt by a person of a share of net profits
in a business is proof in absence of contrary evidence that he or she is a
partner in the business
o
Except:
 (i) repayment of a debt by installments out of profit does not in of
itself make the creditor a partner in the debtor’s business.
 (ii) a contract for the remuneration of an employee or agent by a
share of the profits of a business does not of itself make the person
a partner
 (iii) a spouse or child of a deceased partner who receives an
annuity out of continuing profits from the partnership is not a
partner merely because of the receipt of profits
 (iv) Bovil’s Act (controversial)
 (i) an advance of money by way of a loan;
 (ii) to a person engaged in business or about to engage in a
business
 (iii) on a contract between that person and the lender;
 (iv) where the contract is in writing
 (v) the contract is signed by or on behalf of all parties to it;
and
 (vi) under the contract the lender is to receive a rate of
interest varying with the profits or a share of the profits
from the business
 does not of itself not make the lender a partner with the person
13
carrying on the business.
 This covers a lender getting X interest or share of profits
for the period of the loan – as opposed to a partner taking
a share of profits commensurate with stake in the firm
 Allows investors to share in profits without having to
become partners and expose themselves to associated risks
Reasons for Finding a Partnership:
- Least Cost Avoidance
- Reliance
o
On a known or unknown participant to the business
- Unjust Enrichment
o
Grace v. Smith: should not share in the profit without sharing in the loss
A.E. Lepage v. Kamex Developments
Example of the court determining on the facts that persons were co-owners and not
partners
Kamex (Corporation) holds legal title to apt. bldg. in trust for beneficial owners in
accordance with their specific interests (common – because partnerships cannot hold title
to land, not a legal entity) – One co-owner signed exclusive listing agreement with
Lepage – question: are the beneficial owners partners, such that beneficiary’s contract is
binding on all partners?
Held:
- Co-owners were not partners, they were simply co-owners acting collaboratively
in their best interests
o
Lepage could not enforce agreement on other owners
o
Note that there was no argument for ostensible authority or breach of
warranty of authority – why not?
- Facts suggesting co-owners and not partners:
o
Sharing ownership with others alone does not make a partnership, though
can be a potentially important component
o
Each co-owner had the right to sell his/her share to a stranger without the
approval of the other co-owners
Volzke Construction Ltd. v. Westlock Foods Inc.
Example of the court determining on the facts that persons were partners, not coowners
Volsky suing Westlock, arguing that W is a partner with another company, Bonelle, that
V wants to recover from – V had already shown breach of K by B.
Held:
- W and B were partners
- Facts Considered:
o
The held themselves out to be partners
 Owner of Westlock represented Bonelle as their partner
 Intention of the parties is considered but not determinative
o
You do not need to have managerial authority to be a partner
14

o
Westlock and Bonelle opened joint account in their corporate
names, but ONLY Bonelle had signing rights
 Partners do not have to have equal interests
They were jointly liable for mortgages
Name/Registration and Liability:
-
-
-
-
s. 81  Persons associated in partnership for trading, manufacturing, or mining
must file a registration statement with the Registrar (within 3 months of
formation 82)
o
Registrar keeps an index of names of registered partnerships
o
Mandatory BUT not Required
s. 83  new registration form must be filled out if there is any change or
alteration to the membership of a firm
o
Retiring partner will be considered to remain a partner until changes are
registered
s. 85  Can’t escape liability by not registering (you will just be fined under
the Offence Act)
o
(1) just because you have been omitted from the partnership registration
does not make you immune, if you are in fact, a partner
o
(3) un-registered partners are jointly and severally liable like regular
partners
o
s. 87  If a 3rd party wants to sue an unregistered partnership, they bear
the burden of proving that it is a partnership
s. 86  Notice of Dissolution
o
On the dissolution of a firm, any or all of the persons who composed the
firm may, in the prescribed manner, submit to the registrar for filing a
notice advising the registrar of the dissolution of the firm
Default Contract
-
-
-
-
As Between Partners: the BCPA sets out a default contract: This contract ca
be altered by the parties through express agreement or inference from the course
of dealings
s. 21  This “default contract” is variable by consent
o
Provisions in the Partnership Act will operate to govern partnerships, but
can be overridden by express agreement or through conduct (normally
there is a written agreement)
s. 23  Partnership Property:
o
applies to property brought into the partnership, acquired on account of
the firm, or for the purposes of and in the course of partnership business
o
(1) – property must be held and applied for the purposes of the partnership
o
(2) - land in the name of individual partners is held in trust for the
partnership
s. 24  Presumption about Property
o
Presumption that property bought by money belonging to the firm is
partnership property
15
-
-
-
s. 27  Default Rules: List of presumptions about partnership Capital, Profits,
Losses, Management, Admission of New Partners and Record Keeping
o
(a) partners share capital, losses, profits equally
o
(b) firm must indemnify partners for payments/liabilities in the ordinary
and proper conduct of business for the firm
o
(c) partner that invests capital above what he agreed to make is entitled to
interest at a fair rate
 essentially a loan to the partner that invests more but does not
want to increase stake in partnership
o
(d) A partner is not entitled to interest on the required capital subscribed
by that partner
o
(e) Every partner may take part in the management of the business
o
(f) Partners are not entitled to remuneration for working in the partnership
business (they are entitled to a share of the profits)
o
(g) No new partner can be admitted to the partnership without the consent
of each of the partners
 fiduciary relationship – every partner must accept a new agent
o
(h) Decisions on ordinary business matters are to be decided by a majority
of the partners – Changes to the nature of the partnership must be
unanimous
o
(i) Partnership books are to be kept at the principal place of business of the
partnership and every partner may have access to the books to inspect
them or copy them
 fiduciary duty to keep proper accounts
s. 28  Removal of Partners
o
No majority of partners can expel any partner unless power to do so has
been conferred by express agreement AND the power is exercised in
good faith
o
Such a change to the partnership would have to be made unanimously
(27(h))
s. 34  Assignment of Partnership Interest
o
Partnership interests can be assigned, but this does not result in the
assignee becoming a partner
o
Partners cannot be forced to accept another partner, as it is a fiduciary
relationship
Ending a Partnership
-
-
s. 29  Normal Rule for Informal General Partnerships
o
If the partnership is not for a fixed term, or a particular venture, then it
may be dissolved by notice of intention to dissolve – dissolution will take
effect from the date of the notice unless otherwise specified
s. 30  Continuing a Partnership After a stated date of Expiry
o
(1) where partners carry on after a stated date of dissolution, the
partnership is presumed to continue on the same terms
o
(2) A continuance of the business by the partners or those of them as
habitually acted in it during the term, without any settlement or liquidation
16
-
-
-
of the partnership affairs, is presumed to be a continuance of the
partnership
s. 35  By Act of the Partners
o
Partners can set a fixed term for the relationship
o
Any partner can give notice of intention to dissolve
s. 36  By Operation of Law
o
Death, bankruptcy, or dissolution of a partner
o
Note: 36(1)(b)  when one partner ceases to exist by operation of law,
the partnership is dissolved only as between the gone partner and the
remaining partners. The remaining partners continue on as the same
partnership.
s. 38  Powers of the Court to Dissolve a Partnership
o
(1) On application by a partner, the court may decree a dissolution of the
partnership in any of the following cases:
 (a) if a partner is incapable of managing his or her affairs or
incapable of discharging his or her duties (declared insane)
 (b) when a partner becomes in any other way permanently
incapable of performing his or her duties
 (c) when a partner has been guilty of conduct that is calculated to
affect prejudicially the carrying on of the business
 (d) when a partner willfully or persistently commits a breach of the
partnership agreement
 (e) when the business of the partnership can only be carried on at a
loss
 (f) whenever circumstances have arisen that, in the opinion of the
court, render it just and equitable that the partnership be dissolved.
Being a Shareholder does not make you a Partner
s. 3  Corporations do not make partners
- This does not mean that corporations cannot be partners
- Simply creates a special exception that says that shareholders in a corporation are
NOT made by necessary implication also partners
o
This is a way of avoiding inevitable application of the Partnership Act to
corporations – which are governed by a different Act
Partnership is not a separate legal entity
Re: Thorne
A partnership is not recognized as a separate legal entity
Thorne worked with a partner (faller and miller), was injured, denied Worker’s
Compensation because it is meant for “employees” and Thorne and his co-worker were
partners (Thorne argued partnerships are separate legal entities, and that he was an
employee for the partnership)
Held:
- Thorne was not an employee, partnerships are not separate legal entities
- What Thorne thought were “wages” were actually “partnership draws”
17
Consequences:
(1) Each partner is liable to the full extent of his personal assets for debts and other
liabilities of the firm (any creditor can look to any partner)
(2) A partner may not be an employee for the partnership business
(3) A partner cannot be a creditor of the partnership (except in specific circumstances
in the PA)
Fiduciary Duties of Partners
Partners owe fiduciary duties to each other, as they act as each others’ agents. The
Partnership Act serves as a default partnership agreement amongst the partners, where
there are no express terms
s. 22  Partner must act w/utmost good faith and fairness towards other partners, and
duties imposed by s.22 are in addition to those imposed by law and equity
-
s. 31  Partners must render full accounts
s. 32  Partners must keep proper records
s. 33  Partners must account for profits made from competing business
Rochwerg v. Truster
Court reinforced that fiduciary duties are owed by partners to other partners
- duty not to make secret profits
- duty to keep proper accounts
- duty to avoid conflicting personal interests
R was partner in firm with T, also director of a company that was a client of their firm –
R disclosed director’s salary and remitted it to firm, but did not disclose stock options
with which he made a substantial profit
Held:
- where undisclosed benefits are derived by a partner from a transaction
"concerning the partnership", or from use by a partner of the "partnership
property, name or business connection", a duty to account will arise
- In this case, the partner had a duty to account:
o
profits “concerning the partnership”, because they were paid by a client of
RTZ
o
benefits derived by him from his use of a "partnership . . . business
connection"  he got the position because of his work with Tech
previously as part of RTZ, and he would not have had the stock options if
it were not for the directorship
Dockrill v. Coopers & Lybrand
Duty of Disclosure  each partner has a duty to keep proper accounts, which means
full disclosure to other partners
Partnership needed to downsize after merger, managing partners sought legal and
received in-house legal advice and asked for partner’s resignation, terminated partner
sued for wrongful dismissal and applied to have the legal advice produced in court.
Partnership claimed solicitor-client privilege.
18
Held:
- Common property principle  documents were not privileged because they were
generated at a time that the respondent was a member of the partnership which
had ordered them
- Until Dockrill had notice that he was going to be expelled, he was entitled to
access to all the privileged information as part of the fiduciary duties of full
disclosure among partners (knowledge of one partner is presumed to be
knowledge of all partners)
McKnight v. Hutchinson
Law firm that ended when M learned H had received earnings from part ownership of a
private company. Partnership agreement contained specific provision that contemplated a
partner conducting business outside of the partnership so long as the business was not the
practice of law.
Held:
- Violation of the Partnership Agreement
o
Proper disclosure was not made
o
Some of the profits may also have been made through the practice of law
Liability of Partnerships to Third Parties
Contract:
- s. 11  Partners are Jointly and Severally Liable: for all debts/obligations
incurred while they were partners
- s. 7  Every partner is an agent acting with apparent authority for the other
partners of the firm, capable of binding other partners to debts/obligations where
“carrying on in the usual way business of the kind carried on by the firm”
o
UNLESS:
 (1) the partner did not have authority to act in this specific matter,
AND
 (2) the third party knew the person had no authority OR did not
believe the person he dealt with to be a partner
Pledges of a Partner will NOT bind the firm where:
- s. 9  they are pledged for a purpose apparently not connected to the firm’s
ordinary course of business, and the partner was not specifically authorized
- s. 10  if 3rd party has actual notice of restrictions on partner’s authority
Tort:
- s. 7  Every partner is an agent acting with apparent authority for the other
partners of the firm, and binds the other firm partners where “carrying on in the
usual way business of the kind carried on by the firm”
- s. 12  Partners are Jointly and Severally Liable: for wrongful
acts/omissions of another partner, where that other partner:
 Acted in the authority of partners; OR
 Acted in the ordinary business of the firm
Holding Out  person who is not a partner can be as liable as a partner:
19
16(1): those who appear to be partners, or hold themselves out as partners
(by words or conduct), or knowingly allow themselves to be represented
as partner, are liable as partner
 e.g. using firm letterhead, business card, etc. (Tower Cabinet)
o
16(2): a general holding out is sufficient, it does not have to be made
directly to the person relying on it
 partners will still be liable (doesn’t have to be direct
communication – all 3P must show is that they heard about it and
relied on it)
 partner will only have a defence if can show 3P knew that the
person w/whom he was dealing had no auth to bind the firm on the
particular matter or did not know or belief him to be a partner
(7(2))
o
16(3): If after a partner’s death the partnership business is continued, the
continued use of that name or the deceased partner’s name will not make
the deceased partner’s estate liable for debts incurred after death
Someone who has lent $$ to the firm relying on the person who has held
themselves out would usually sue the partnership, in addition to the non-partner
o
19(1) and (2): New partner is not liable for debts/obligations incurred prior to joining
firm
84(b): Retired partners will be liable for the debts/obligations of the firm until a change
to the partnership registration is filed
o
39(1): 3rd Party is entitled to treat all apparent partners of old firm until
person has notice of change
 39(2): notice in gazette is sufficient
 39(3): retired partner not liable unless the 3rd Party knew, at the
time of dealing with the partnership, that s/he was a partner (Tower
Cabinets)
19(3) and (4): A retiring partner may be discharged from debts/liabilities of the
partnership by an (express or inferred) agreement to that effect with the new partnership
and the creditors
Ernst&Young v. Falconi
Application of s. 7  Partners are agents of other partners, and bind those other
partners when carrying on in the usual way of business of the kind carried on by the
firm.”
Falconi was a lawyer in a firm with Klien, pled guilty to fraud, Klein had not been
involved, though the fraud involved legal services from the firm.
Held:
- It was enough that Falconi provided ordinary legal services, even if used for
illegal purposes, to bind his partners as vicariously liable (presumed to be acting
as an agent)
o
Falconi was an ostensible agent
o
Other partners are liable for the debts incurred
20
Narrowing Joint and Several Liability:
- s. 53 of the Law and Equity Act
o
(1) person sued does not have the right to stay proceedings until the other
parties indicated in the suit are engaged
o
(2) As long as the others have been named in the suit, proceeding against
any one person who is jointly liable does not release the other jointly
liable persons
o
(3) Every person against whom an order has been obtained who has
satisfied the order is entitled to demand and recover in the court
contribution from any other person jointly liable with the person.
- Supreme Court Rule 7
o
Partnership can be sued in the name of the firm (do not have to serve one
person in particular)
Limited Partnership LP/P
-
Governed by Part III of BCPA
Remember:
- Sections 1 and 2 of the BCPA applies EXCEPT where varied in this section
(49)
- To be valid, an LP must be a Partnership within the definition in s.2 (see also
Backman) AND registered under 51
-
Characteristics:
o
Usually one GP and a number of “silent” LPs that invest some funds but
remain at arms length from the business and from liability
o
combines flexibility of partnerships in general and some of their tax
attributes, with ltd liability
o
useful if starting a speculative venture, expect losses – able to use losses to
personal tax adv
o
ideal vehicle for sleeping/silent partners
80: LPs formed outside BC may carry on bus in BC if registered under BCPA
REQUIREMENTS:
- 50(1): LP may be formed to carry on any business that a general partnership may
carry on
- 50(2): Composition – LP must have one or more GPs, and one or more LPs
o
must be at least one GP, so that if the partnership fails, and the liabilities
of the partnership exceed the assets of the partnership, those liabilities can
be claimed against the personal assets only of the general partner
- 51(1): Registration – L/P can ONLY be formed by the express filing of a
certificate under s.51 (no formation by conduct)
o
registration is necessary but not sufficient to form LP  must also meet
definition of a partnership in s.2 (carrying on bus with a view to profit)
o
(2): registration certificate must contain:
a. business name under which LP will operate
21
b.
c.
d.
e.
o
o
general nature of the business
full name and address of each GP
term for which LP is to exist
aggregate amount of case and the nature and fair value of any other
property to be contributed by all the LPs
f. aggregate amount of any additional contributions agreed to be
made by LPs and the times at which or events on the happening of
which the additional contributions are to be made
g. the bases on which LPs are entitled to share in profits or receive
other compensation
(3): LPs themselves do not have to register
 public can look at register to see what is behind LP, but registry
may not list all LP’s (just GPs)
(4): if PA contains provisions respecting any of the following, the
certificate must also contain those provisions:
a. the times when contributions of LPs are to be retuned
b. the right of a LP to substitute an assignee as contributor in his or
her place, and the terms and conds of the substitution
c. the right to admit additional LPs
d. the extent to which one or more of the LPs has greater rights than
the others
e. the right of a remaining GP to continue the business on the
bankruptcy, death, retirement, mental incompetence, or dissolution
of a GP
f. the right of a LP to demand and receive property other than cash in
return for his contribution
g. the right of the LPs or ay of them to admit an additional general
partner to the partnership or to permit or require a GP to retire
from the partnership
56: PROTECTION OF THE LPs: GP has all the rights and powers of GP in general
partnership, subject to limitations (unless written consent of LPs):
- (a) can’t do an act which makes it impossible to carry on the bus of the
LP
- (b) can’t consent to judgment against the LP
- (c) can’t hold LP property or dispose of any rights in LP property, for
other than partnership purpose
- (d) can’t admit a person as a GP or LP unless right to do so is expressly
given in the certificate
- (e) can’t cont the bus of the LP on the bankruptcy, death, retirement,
mental incompetence or dissolution of a GP, unless the right to do so is
given in the cert
- 57: LP is not liable for the obligations of the limited partnership except in respect
of the amount of property he or she contributes (subject to this Part)
- 58: Rights of a Limited Partner
- (1) A limited partner has the same right as a general partner to:
22
a.
-
-
inspect and make copies of or take extracts from the limited
partnership books at all times
b. be given, on demand and when reasonable, true and full
information of all things affecting the limited partnership
c. obtain dissolution and winding up of the limited partnership by
court order
59: Share of the Profits
- (1) Subject to this Act and the partnership agreement, a limited partner
has the right:
a. to a share of the profits
b. to have his contribution to the LP/P returned
- (2) No “Abandoning Ship” (see – Protection of 3rd parties)
64: A limited partner is not liable as a general partner unless he or she takes
part in the management of the business
PROTECTION OF THIRD PARTIES:
- 53(1): business name of each LP must end w/words “Ltd Partnership”
- 53: name of the LP must not appear on the name of the Partnership
- 55: limited partner may not contribute services to the partnership business
- 64: limited partner may not take part in the management of the partnership
- 59(2): “no abandoning ship” provision – no return of capital to partners is
permitted if after the return of capital the partnership would be insolvent (prevents
general partners from pulling out in the face of financial difficulty and leaving
creditors with limited partners only)
s.77: how to sue an LP – don’t have to name all LPs (Rule 7 – sue in firm name)
LIABILITY:
- 57: Limited Liability  LP is only liable for partnership obligations to the extent of
his contribution (personal assets are protection from execution – creditors have no
access)
- Exceptions from ltd liability:
- 64: LP is not liable as GP, UNLESS s/he or it takes part in the management of
the bus (Haughton, Nordile)
- If person who invests as LP is also a management taking part in mgmt
of bus of LP on behalf of GP corporation (52(1))
- 55(1): LP may contribute money or other property but not services
(confusing w/prohibition from involvement in mgmt)
- 60(1): LP may lend $$ to, borrow $$ from and trade w/LP
- 53(2), (3), (4): LP should ensure name is not included in firm name otherwise will
be liable as GP
o
Exceptions: won’t be liable if the business had that name before it became
an L/P, or the L/P has the same surname as a GP
-
75: if partner thinks they are investing as LP, but no one ever registers LP, as a
matter of law that partner will be treated as GP, BUT:
23


(a): a person is not, by exercising the rights of an LP, a GP
(b): as long as you stay out of mgmt you don’t become liable for
partnership obligations
IF: on ascertaining the mistaken belief, s/he promptly renounces his/her interests in
profits or other compensation by way of income from the business (escape liability by
immediately renouncing share of profits)
Robinson v. R
All partners, even Limited Partners, are deemed to be “carrying on business” as part of
the partnership (even if they have waived the right to actually be active)
LP/P formed for building and operating a nursing home. Appellant trust was a limited
partner. Issue is whether the particular trust “did not carry on any active business” – if the
trust did not, it will not be taxed for that year.
Held:
- the LP was carrying on business as part of the partnership
- LPs cannot have a managerial role in a partnership without becoming GPs, but
they are still partners
- All partners in a partnership are “carrying on” the business of the partnership, by
definition
Limited Liability Partnership LLP
-
-
New to BC – Legislation came into force January 17, 2005
o
Response to lobbying from large firms who were facing MONSTER claims
and unable to avoid liability
Distinct from LPs  no restriction on participation in management of the business
Relevant provisions in Part VI of BCPA
In BC, the legislation governing LLPs is much more flexible and business-friendly:
o
In BC, any business can be an LLP
o
In BC, LLPs have full shield protection (as opposed to protection only
from professional negligence and misappropriation of funds)
- Full Shield Protection:
o
Same protection that LPs have in a LP/P (104(1))
o
Personal assets can be made vulnerable only: (104(2))
 (1) through your own negligence
 (2) If you were actually aware of a partner’s negligence and did
nothing
CREATION:
- 94: LLP MEANS a partnership registered as an LLP
o
Note that a partnership must still exist, as defined in s.2
- 96(2): MUST register  otherwise will be treated as GP
o
107: must provide NOTICE of registration as LLP to clients in writing
- 97: Professional partnerships can’t register as LLP unless
o
(a) the act regulating the profession permits it, and
o
(b) have complied with pre-requisites in that Act (usually, that you have
registered the LLP as such)
24
-
100: An LLP must have the words “Limited Liability Partnership” or their French
equivalents, in the name of the business (or LLP)
Liability
- 104(1): FULL SHIELD PROTECTION: Ltd liability affords protection to partners
against anything (not just negligence on part of other partner)
o
partnership obligations
o
obligations under agreement between partnership and another person
o
not liable to indemnify another partner where they have met a
liability with personal assets
- 104(2): EXCEPTIONS TO PROTECTION: Ltd liability doesn’t extend to your
own NEG, OR that which you new about AND failed to prevent
o
106: will be liable for obligations that arose prior to registration as LLP
- 95(2): the following sections of the BCPA DON’T APPLY to LLPs
11: liability of the firm – partners jointly liable for debts and obligations of
firm
12: firm liable for loss, injury or penalty arising out of any wrongful act or
omission of any partner
14: joint and several liability
**13 not excluded (liability for misapplication of funds)
Liability same as directors (but no FD or DoC – because directors owe duties to the
corporation, and partners only owe duties to other partners)
- 105(1): Partners are liable for obligations of partnership as if they were directors of a
corporation
- 105(2): but partners do not owe a fiduciary duty or duty of care to the LLP ITSELF
o
this means partners are liable for obligations of the partnership where,
under an Act of the BC Leg, personal liability is imposed on directors of a
corporation
o
e.g. Liable for wages under 119
o
e.g. under ESA, environmental protection leg,
 104(1) may open door to liability of partner, as a dir would, under
s.96 of ESA for up to 2 months unpaid wages
Cancellation:
- s. 129:
o
o
(1) Conditions in which Registrar can Cancel Registration of an LLP
 LLP fails to file an annual report for 2 years
 Request or cancellation by the LLP
 LLP is not authorized to carry on business as a profession
(2) Registrar must notify and give LLPs 2 month’s notice of cancellation
o
(4)&(5) Lapse or Cancellation of registration does not
dissolve the partnership, but simply turns it back into a
general partnership
o
(7) Cancellation does not affect liability shield with regard to obligations
accrued as an LLP
25
Corporation: General
Canada Business Corporations Act (CBCA) – model/reference act which most provinces
have followed
BC Business Corporations Act (BC BCA) – came into force Jan 05, more complex and
more permissive than CBCA (favours flexibility in corporation formation and
reorganization)
Key Features:
(1) Separate legal existence: (CBCA 15)
o
corp is a legal person, recognized as having personhood
o
corp has capacity to act for itself
o
SH/mgrs are distinct from the corps in which they participate (e.g. Nordile – B
& R were SH and execs, but were not the GP, the corp was the GP)
o
Corp’s property is not the SH’s property – SH own a share (bundle of rights
that entitle them to share in profits of corp)
(2) Limited Liability of SH: effect of separate legal existence of corp (CBCA 45)
o
SH not liable for corp’s liabilities (most they will lose is value of shares)
o
SH can participate in mgmt of corp w/o losing shield of ltd liability (distinct
from LPs, LLPs)
o
Become SH either by: subscribing for shares (buy shares from corp itself at
first issue), or by acquiring existing shares (secondary market – TSX, gift,
private transaction, etc.)
(3) Perpetual existence: corp can live forever
o
Shares can be traded forever to whomever (corp doesn’t die upon death of SH
– unlike SP, GP)
o
Can cease to exist on neglect (e.g. failure to file w/Director) or by design (SH
can vote to dissolve corp) (Part 18  211, 212)
Agency & corps:
corps are legal fiction, must act through human agents (no body to kick, no soul to damn)
o
Agents not usually liable for actions on behalf of principal, so directors will
not be personally liable for acts or neg in course of carrying on corp’s bus
o
Corp alone will be fixed w/liability
o
Corps deemed to have rights, incl Ch rights (freedom of expression, right to
be free from unreasonable search and seizure, but not s.7)
o
Amendments to CC to make it easier to convict corp execs of criminal acts
(CL test made it too diff to hold people at fault for negotiation)
 Aberdeen Railway
Separation of ownership and management:
o
SH own interest in a corp – they own property rights relative to the corp, but
don’t own the corporation’s property (Sparling)
o
Management means, at its broadest, the Board of Directors and Officers – but
more commonly refers just to the exec (high level officers – Pres, VP, CEO,
26
o
o
COO, CFO, etc.)
Neither directors or officers are necessarily SH – SH status carries no
entitlement to participate in mgmt, may overlap but not necessarily
SH are passive, management makes the decisions (either Board of Directors
102, or Board of Directors delegates 115
Reasons to Incorporate (Or Not To)
Limited Liability
o Limits the liability of each shareholder
o Note: this can be effectively negated in situations where creditors
require personal guarantees from shareholders to advance credit
(common)
o Note: The limiting of personal liability against tort claims against the
corporation may, in some cases, be nullified if courts “pierce the
corporate veil”  particularly in closely-held corporations (few
shareholders)
Perpetual Existence
o Corporation does not end when one shareholder dies or goes bankrupt
o Note: The problems of reconstituting partnerships upon the death or
bankruptcy of one partner are usually anticipated in express
partnership contracts (partnerships are not necessarily at a
disadvantage here)
Ease of Assignment of Shares
o Shares are freely transferrable unless there is an express restriction on
the transfer of shares
o Note: Because the shareholders in closely-held corporations are
usually involved in management, and usually want to carefully choose
who to go into business with, it is common for such corporations to
have virtually identical restrictions on the transfer of shares to the
restrictions out on transfer of partnership interests
Shareholders Alone Cannot Bind the Corporation
o Individual shareholders do not have the power to bind the corporation
o Note: In closely-held corporations, individual shareholders are usually
officers of the corporation and have authority delegated to them as
agents to bind the corporation in certain capacities
A Shareholder Can Contract With a Corporation
o Because a corporation is a separate legal entity, a shareholder can
contract with a corporation
o Note: This can be simulated in a partnership by a partner entering into
a contract with his partners that is separate from and in addition to the
partnership agreement
27
Closely Held Corporation
Remember: some provisions can only really be effectively applied to small corporations
EXAMPLES
132(2): for annual shareholder meetings, if it is not going to be held in Canada, all the
shareholders must agree to hold it elsewhere
139(4): if there is only one shareholder, you only need that one for a meeting
142(1): possible to have a unanimous shareholders resolution in writing
163(3): shareholders of a non-distributing corporation can unanimously dispense with the
need for an auditor
117(1): can have a unanimous written director’s resolution instead of a meeting
Constitutional Jurisdiction
-
-
Provincial:
o
s.92(11)  Provinces have exclusive power over the incorporation of
“companies with provincial objects” (what does that phrase mean?)
 “Provincial object” has largely been ignored as a restriction,
provincial companies have great freedoms in their objects 
Bonanza Creek
Federal:
o
Residual power under POGG  held to include all Matters not coming
within the Classes of Subjects by this Act assigned exclusively to the
Legislatures of the Provinces
 Constitution itself is silent on any specific fed power over
incorporation
 Federal power over corporations is POGG residual power; 92(11)
restricts exclusive provincial power to corps with provincial
objects – therefore, companies with objects that weren’t purely
provincial fall w/in fed jurisdiction  Parsons
 Ancillary powers for particular types of corps (e.g. banks/banking)
Scope of Provincial Power
(1) Provincially Incorporated companies have the POWER but NOT the right to
operate throughout the country  Bonanza Creek Gold Mining v. The King
A company can be incorporated under a provincial statute and still carry on business
in any other province (or anywhere in the world), as long as the other jurisdiction
grants the company the right to carry on business in its jurisdiction.
Federal govt. grants mining licenses to BCGM (a company incorporated in Ontario). Fed
refuses to grant additional licenses as provided under the contract. BCGM sues feds, feds
argue that contract was invalid because BCGM had no capacity to operate outside
28
Ontario, as it was incorporated with “Provincial Objects”
Held:
- In this case, the contract was valid because the corporation had been granted the
power to carry on business extra-provincially
o
Provincially Incorporated Companies can operate extra-provincially
o
Whether the provincially incorporated company has the right to operate
on that jurisdiction is up to the other jurisdiction
Scope of Federal Power
(1) A federally incorporated company has the POWER and the RIGHT to operate
throughout the country
- John Deere Plow Co v. Wharton
o
Shareholder in provincially incorporated “John Deere Plow Co.” tried to
prevent federally incorporated “John Deere Plow Company” from
operating in BC because the names were confusingly similar
- John Deere Plow Co v. Duck
o
Duck resisted paying in claim from federally incorporated “John Deere
Plow Company” on the grounds that provincial legislation prevented
companies from operating in BC with names that were prohibited by
statute (in this case for being too similar)
Appeals Held Together
- (1) A federally incorporated company has the power and the right to operate
throughout the country
- (2) Provincial powers cannot refuse to register a federal corporation, on the
basis of a name conflict, since that would have frustrated the federal
corporation’s right to operate anywhere in the country
- (3) Federal incorporation does not confer general immunity from provincial
laws of general application
Federal Companies are NOT limited by:
- It is not necessary for the validity of a federal corporation that the company carry
on business in more than one province  Colonial Building and Investment
Association v. AG Quebec
- Federal powers of incorporation are not limited to companies incorporated for
purposes that would fall within the enumerated federal powers under s. 91
(2) Great West Saddlery  Provincial laws cannot affect the NATURE of federally
incorporated corporations
Legislation prohibiting a federal company from maintaining an action in the province
unless it had obtained a license to carry on business in the province was found to be
inapplicable to the federal company
Held:
- In this case:
o
Legislation inoperative because the law required the federal corporation to
affect its corporate nature
o
The ability to maintain an action goes to the nature of a corporation
29

It is a necessary component of the ability to carry on business
(3) Canadian Indemnity  Provincial laws of GENERAL APPLICAITON can affect
the business of a federally incorporated company, as long as they are not targeting the
core of a federal company
(4) Royalite Oil Company  Provinces can fine federally incorporated companies for
not complying with their regulations
Potentially Broad Scope of Federal Powers  AG Can v. AG Man
Building on the Broad Scope of Federal Powers enumerated in John Deere
Provinces cannot prevent federal companies from operating in their jurisdiction, or
even create a system in which such prevention COULD occur
Man passed legislation requiring anyone seeking to sell shares within the province to
obtain a license, which could be refused if the investment had no merits. Fed argued this
could not be applied to federal corporations.
Held:
- Federally incorporated company could not be refused a license, because the sale
of shares was necessary to finance, without which a company could not carry on
its business
o
Note that modern securities legislation allows for this kind of legislation
o
The cases seem to say that a province cannot prevent a federally
incorporated company from carrying on a business in the province
Reigning in of Federal Power  Lymburn v. Mayland
Narrowing AG Can v. AG Man  Provinces can require that a company carry on
business in the province in a certain way (though not prevent them from carrying on
business)
An Alberta statute that prohibited the sale of securities except through a licenced broker
could be applied to a federally incorporated company.
Held:
- Regulating the manner in which a company can sell shares does not infringe on
Federal Authority, because it does not prevent the federally incorporated company
from operating in the province
- Other types of Provincial Legislation regulating the operation of Federal
companies that have been held to be valid:
o
Provincial laws which prohibit any corporations from owning land 
Canadian Indemnity Co.
o
Provincial legislation requiring a federal company to register its corporate
name, and any names under which it carries on business  Reference Re:
Constitution Act
Overlapping Provincial and Federal Jurisdiction
Multiple Access v. McCutcheon
Federal and Provincial laws can apply concurrently, as long as the Provincial laws do
not infringe the basic essence or status of the federal corporation
30
Ontario securities commission alleging under Ontario securities law a violation by a
federal corporation of insider trading rules. Federal corporation said that either the
legislation was ultra vires, or that even if it was valid it should be suspended in favour of
the federal rules. Can you have a provincial securities regulator applying laws that are
essentially the same as federal corporate laws, and have both laws apply?
Held:
- Both Laws are Valid:
o
Federal laws under POGG
o
Provincial laws under 92(11)
- Provincial laws did not contradict the federal law – simultaneous compliance was
possible
o
Both laws apply concurrently
At this point  the two constitutional powers stand side-by-side, there have not been
many examples of a law being struck down for infringing on the core of another head of
power’s authority over corporations
Extra-Provincial Incorporation
Canada Business Corporations Act/ BC Business Corporations Act
15(1) Capacity of a corp – subject to the act, the corp has capacity, rights, powers and
privileges of a natural person
15(2) Corp may carry on business throughout Canada
Extra-territorial capacity – corp has capacity to carry on its bus, conduct its
15(3) affairs and exercise its powers in any jurisdiction outside Cad to the extent that
the laws of such juris permit
30
A company has the capacity and the rights, powers and privileges of an
individual of full capacity.
BC Business Corporations Act
“foreign entity” = foreign corporation or limited liability corporation
2
28
“foreign corporation” – a corp that was not incorporated under BC law (corp
incorporated under CBCA or law of any other prov)
(1) If a name applied for by company contravenes any of the prescribed
requirements: the registrar may order the company to change its name (control
over companies name in BC)
(2) Registrar has same authority over the name of extra-provincial companies
32
(3) This section doesn’t apply to FIC (constitutional rule that federal corporation
has right to use it’s name throughout Cad)
unless restricted by its Charter or by an act, each BC corporation has the capacity
31
to carry on its bus, conduct its affairs, exercise its powers, to the extent that the
laws of that jurisdiction permit
375
Foreign corporation MUST register as extra-provincial
company w/in 2 months of carrying on bus in BC
(2) Foreign entity is DEEMED to be “carrying on bus” if:
- (a) If’s name or bus name is in phonebook in BC and that listing shows a
BC phone # or address
- (b) Its name or any name under which it carries on bus appears in an ad in
BC, giving BC phone # or address
- (c) it has, in British Columbia
o
(i) a resident agent
o
(ii) a warehouse, office, or place of business
- (d) It otherwise carries on bus in BC (lots of room for interpretation)
376
(4) Shipping Exception  A foreign entity need not be registered if it’s
principle business is the operation of ships and it doesn’t maintain warehouse,
office or place of bus
Application for Registration
(1) To apply to register as an extra-provincial company under this Act, a
foreign entity must provide to the registrar the records and information the
registrar may require and must:
- (a) reserve its name or an assumed name under section 22 or 26, as the
case may be
- (b) appoint one or more attorneys if required under section 386, and
- (c) submit to the registrar for filing
o
(i) a registration statement
o
(ii) any other records the registrar may require
377
(2) Requirement in 376(1)(a) to reserve corp name as part of registration process
does not apply to fed corporation (fed corp gets name and registrar will require
prov corp to change their name)
Registration
378
Once foreign entity has complied with all terms, the registrar must if it is a
fed corp, and may if it is a foreign corp, file the registration
- (rarely says no – registration is not really a control mechanism, more a
means of keeping track of who’s operating, where and when)
Effect of Registration
(1) Proof of registration of foreign entity is cert as an extra-provincial company
(2) Sets out powers, rights, etc. of extra-provincial company – recognition of the
incorporation power of the foreign jurisdiction, subject to general laws of BC
32
384
(e.g. environ laws, safety regulations, employ standards, consumer protection,
etc.) – issue becomes to what extent provincial laws can apply to fed
incorporated companies
Liability if name of extra-provincial company not displayed
(1) A director or officer of an extra-provincial company who knowingly permits
the extra-provincial company to contravene section 27 (1) (a), (b) or (c) is
personally liable to indemnify any of the following persons who suffer loss or
damage as a result of being misled by that contravention
398
Registrar has ability to cancel incorporation of extra-provincially incorporated
company, but not Federally Incorporated Companies
Choosing Jurisdiction of Incorporation
Choice between Federal and BC incorporation:
- CBCA
o
Name protection
o
No restriction on maintaining an action
o
Lawyers and shareholders in other provinces are familiar with it
- BCBCA
o
Lawyers in BC are more familiar with it
o
Easier to talk to Victoria than Ottawa
o
Cheaper
The Incorporation Process
(1) file articles of incorporation (see s. 5 and 6 and Form 1);
(2) file notice of the registered office (ss. 7, 19, and Form 3);
(3) file a notice of directors (ss. 7, 106, and Form 6);
(4) pay the prescribed fee (Reg. s. 97 and Schedule 5); and
(5) if the corporation is to have a name other than a numbered name, filing a NUANS
Name Status Report.
Issuance of a Certificate of Incorporation:
Ss.8 and 12(1)  On receipt of the required documents, and upon assessment that the
documents meet the requirements of the Act the Director shall issue a certificate of
incorporation
Federal
-
Process:
o
5  Who can incorporate
 (1) any person who is 18, of sound mind and not bankrupt
 (2): incorporation by signing articles of incorporation and
complying with s.7
o
6  The Articles
33

o
o
o
o
(1): Articles of incorporation must include:
(a) name
(b) province where registration office is located
(c) classes and any max # of shares corporation is auth to issue
(d) any restrictions on shares
(e) the number of directors, or min-max of directors
(f) any restrictions on the bus the corporation may carry on
 (2): articles may set out any additional provisions permitted by the
act
 (3): subject to USA and (4), the articles can specify a greater
number of votes than required in the act
 (4): articles may not require more than a simple majority to remove
a director
7  To Incorporate, you must Send to the Director:
 articles of incorporation
 notice of registered office (19) and
 notice of directors (106)
8  Director issues certificate of incorporation
10  Name requirements
 (1) Name must include a corporate designation (Inc. Ltd. Corp.
etc.)
 (5) corporate name MUST be on certain documents:
 contracts
 invoices
 negotiable instruments and orders for goods and services
BCBCA also has requirements for places you must display
your name, and there are more of them
 (6) A corporation may carry on business under or identify itself by
a name other than its corporate name if that other name does not
contain a corporate designation
 Name must not be the same as or confusingly similar to another
corporate or business name
 The CBCA allows for the granting of a numbered name in which
the Director gives the corporation the next number in sequence
together with the words “Canada Ltd.”
o
Remember that under BCBCA s.27 a corporation or extraprovincial
company must display its name and under BCBCA 158: A director or
officer of a company who knowingly permits the company to contravene
section 27 (1) (a), (b) or (c) or (2) is personally liable to indemnify any
of the following persons who suffer loss or damage as a result of being
misled by that contravention:
 purchaser of goods/services from the company
 supplier of goods/services from the company
 person holding security in the company
263  Requirement to file an annual return
 failing to file an annual return can lead to the corporation being
34
o
-
stricken by the director
266  If you pay the required fee, public can inspect the records
Result:
o
o
15: Corp has capacity, rights, powers and privileges of individual
45: SH not liable for any liability, defaults or acts of corporation, subject to
exceptions
Provincial
Governed by the BCBCA  For all practical purposes, the BC company is no different
than a federally incorporated company
Corporate law will be governed under BC jurisdiction; in which it was incorporated
(“takes its corporate statute with it wherever it goes to carry on business”)
Differences from CBCA Incorporation:
34  Subject to section 40, a company must maintain a registered office and a records
office in British Columbia
124  Who can become a Director
- (1) A person must not become or act as a director of a company unless that person
is an individual who is qualified to do so.
- (2) An individual is not qualified to become or act as a director of a company if
that individual is:
o
(a) under 18
o
(b) found by a court to be incapable of managing his affairs
o
(c) bankrupt
o
(d) convicted in or out of British Columbia of an offence in connection
with the promotion, formation or management of a corporation or
unincorporated business, or of an offence involving fraud, unless
 (i) the court orders otherwise
 (ii) 5 years have elapsed since:
 (A) the expiration of the period set for suspension of the
passing of sentence without a sentence having been passed
 (B) imposition of a fine
 (C) conclusion of a term of imprisonment
 (D) conclusion of term of probation
 (iii) pardon granted under Criminal Records Act
- (3) A director who ceases to be qualified to act as a director of a company must
promptly resign
Post Incorporation Process – Getting Up and Running
Meeting: was it held in time? Did directors act w/in their powers?
o
104(1): First meeting of directors of corp – directors shall hold meeting after
35
o
issuance of certification of incorporation (give 5 days notice – 104(3))
 At which meeting the directors “may”
 (i) make by-laws
o “by-laws” described in s.103
 (ii) adopt forms of securities and corporate records
 (iii) authorize the issuance of shares
 (iv) appoint officers
 (v) appoint an auditor to hold office until the first meeting
of shareholders
 (vi) make banking arrangements
 (vii) transact any other business
 Influence of agency law – meeting is held after certification of
incorporation issued b/c A (directors) can’t do anything on behalf of Pr
(corp) until the Pr exists (Pr has to be in existence at the time the A
purported to act in order to later ratify the acts of the A)
133(1)(a): first meeting must be called w/in 18 months of corp coming into
existence
Directors: are there enough directors? Have they met residency requirements?
o
102  Director’s Power to Manage
 (1): Subject to any unanimous shareholder agreement, the directors
shall manage, or supervise the management of, the business and
affairs of a corporation
 (2): Every corporation must have at least one dir
 (3): Corps that have issued shares to the public must have at least 3
directors, at least 2 of whom are not officers or employees of the
corp or its affiliates
o
103  By-Laws
 (1) directors make/amend/repeal any by-laws (by-laws must have
shareholder approval)
 (2) by-laws will last to the next shareholder meeting, at which
shareholders adopt it by ordinary resolution
 (3) If the directors fail to take it to the shareholders at the next
shareholders meeting, then it is deemed not to be adopted
o
105(1): Qualifications of directors
 Corp cannot act as dir of another corp (105(1)(c))
 Dir not required to hold shares (105(2))
o
Restrictions on directors:
 Residency requirement: at least ¼ of directors must be resident Cads;
if there are less than 4 directors, at least one must be resident in Cad
(105(3)) – make sure you have enough Cad citizens on your board
(landed immigrants and perm res don’t qualify)
 “Res Cad” defined in Regulation 13 – people who, though they may
not reside in Cad, have otherwise close connections
 Definition of “resident Cad” will prevent someone from forming oneperson corporation (if you are perm res but not citizen, can’t
36
o
o
incorporation under CBCA, but could under BC BCA)
106(3): Term of directors: maximum term is 3 years
 Articles or by-laws may impose specified term (1-3yrs) (106)
 If no specified term, directors must be re-elected at next SH meeting
(106(5))
 Terms may be staggered – expire at diff times (106(4))
106(9): Director must acquiesce to being made a director, by:
a. being present at the meeting when election or appt took place and
didn’t refuse to hold office
b. was not present and,
i. consent to hold office in writing before the elect or appt, or
w/in 10 days
ii. acted as dir pursuant to the elect or appt
o
Annual meeting of SH must be held (133(1))
Subsidiaries and Affiliates
Section 2 of the CBCA
2  Affiliates
- For the purposes of this Act:
o
(a) one body corporate is affiliated with another body corporate if:
 one of them is the subsidiary of the other; or
 both are subsidiaries of the same body corporate; or
 each of them is controlled by the same person
o
(b) if two bodies corporate are affiliated with the same body corporate at
the same time, they are deemed to be affiliated with each other
3  “Control”
- A body corporate is controlled by a person or two or more bodies corporate if:
o
(1) you have more than 50% of the votes, AND
o
(2) that is more than enough to elect the majority of the directors
4  Holding Body Corporate
- A body corporate is the holding body corporate of another if that other body
corporate is its subsidiary
5  Subsidiary Body Corporate
- A body corporate is a subsidiary of another body corporate if:
o
(a) it is controlled by
 (i) that other body corporate
 (ii) that other body corporate and one or more bodies corporate
each of which is controlled by that other body corporate
 (iii) two or more bodies corporate each of which is controlled by
that other body corporate
o
(b) it is a subsidiary of a body corporate that is a subsidiary of that other
body corporate
37
Corporate Status
CBCA
15  Corporation has the capacity and (subject to this Act) the rights, powers, privileges
of a natural person
45(1)  (1) The shareholders of a corporation are not, as shareholders, liable for any
liability, act or default of the corporation except under subsection 38(4), 118(4) or (5),
146(5) or 226(4) or (5)
- Exceptions:
o
38(4): where a shareholder has received payment from the company on
reduction of capital (portion or all of the amount the shareholder paid for
shares) the shareholder may be required by a creditor for the company to
repay the amount
o
118(4)&(5): Directors who vote for/consent to resolutions that authorize
transactions which reduce the assets of a corporation that cannot pay its
liabilities may become personally liable to reimburse the corporation for
the amounts paid
o
146(5): a shareholder may be liable as a director when she or he acts in the
place of a director under a unanimous shareholder agreement.
o
226(4)&(5): where a corporation has been dissolved and a creditor has
taken action against the corporation either before it was dissolved, or
within two years of its dissolution
- Note that these exceptions only operate to make the shareholder pay back to the
corporation, and are limited to the original contribution and any additional amount
received as distribution of the corporation’s property
BCBCA
87  Liability of Shareholders
- (1) No shareholder of a company is personally liable for the debts, obligations,
defaults or acts of the company except as provided in Part 2.1.
- (2) A shareholder is not, in respect of the shares held by that shareholder,
personally liable for more than the lesser of
o
(a) the unpaid portion of the issue price for which those shares were issued
by the company, and
o
(b) the unpaid portion of the amount actually agreed to be paid for those
shares.
Salomon v. Salomon & Co. (UK)
(1) A corporation should properly be considered a separate legal entity from the
shareholders
(2) A Shareholder can also be a creditor of the corporation
Salomon had a boot manufacturing business that he ran as a sole proprietorship, he sold
the business to a company that he had formed. He sold the business to the corporation
partially on credit. Business did not go well, and Salomon and his wife left money to the
business, as well as Mr. B. The corporation eventually defaulted on loan from Mr. B.
38
The Courts Below:
- Trial  suggested the company could be viewed as a mere “alias” for Salomon,
making him personally liable
- Appeal  preferred to compare the situation to one of trust where the company
was a trustee for Mr. Salomon
Held:
- Properly constituted corporations are separate legal persons
o
To not consider this corporation a separate legal entity would jeopardize
existing businesses under the incorporation legislation
o
The creditors were not deceived, the corporation was legally constructed
Lee v. Lea’s Air Farming Ltd. (NEW ZEALAND)
A shareholder can also be a director of the corporation, an officer for the corporation
and an employee of the corporation
Lee was sole shareholder, sole director, president and the only employee of the
company. Lee died on the job, his wife filed under worker’s comp. Worker’s comp.
resisted, claiming he was not an employee under the legislation because he employed
himself (director to employee).
Held:
- Lee and Lee’s corporation were separate legal entities.
o
It did not matter that Lee gave orders to himself, because he did so as an
agent for the corporation, which had a separate legal existence.
- Note: this is a good example of a one-shareholder corporation
Macaura v. Northern Assurance Co
The corporation owns the assets, not the shareholder
M transferred his interest in a timber company and cost of timber felled for $42,000,
which was paid for in $1 par value shares. After he signed the 5th insurance contract the
timber was destroyed by fire. His claim on the insurance was denied because the
company owned the asset, even though he had signed for it.
Held:
- The company is the person that has an interest in the assets not the shareholders
- The shareholders, as shareholders, have a contractual claim against the company
with respect to the rights given in the shares they hold but they do not have an
ownership in the assets of the company
Westbank Property Management Ltd v. BC
A corporation, all shares of which are owned by a tax-exempt Aboriginal person (under
the Indian Act) is not tax-exempt – because the corporation is a separate legal entity.
The Corporate Veil
Kosmopolous v. Constitution Insurance
(1) The principle in Salomon should be respected, the corporate veil should not be
39
lifted (i.e. the separate legal personality of the corporation from its sole
shareholder should not be disregarded) for the benefit of the shareholder
(2) However, as a matter of insurance law, the sole shareholder of a company can
have an insurable interest in the assets of the company
Wilson  “ The law on when a court may disregard [the separate legal personality
principle] by “lifting the corporate veil” and regarding the company as a mere “agent” or
“puppet” of its controlling shareholder or parent corporation follows no consistent
principle. The best that can be said is that the “separate entities” principle is not enforced
when it would yield a result “too flagrantly opposed to justice, convenience or the
interests of the Revenue”
BG Preeco v. Bon Street
Court Examined cases on lifting the corporate veil  Strong Affirmation of the
Salomon principle (Cases lifting the corporate veil were not followed)
∏ agreed to sell property to Bon Street for ~4million, BS later repudiated and offered
3million. When ∏ took BS to court for repudiation, it turned out that the BS that had
entered into the contract was a shell company with no assets. The BS with which ∏ had
originally dealt had changed its name and was now Bon Street Holdings. The shareholder
and director of the two companies were the same. It was the original company that the
plaintiff dealt with at the beginning and thought it was dealing with throughout. It knew
of no other company. It was the original company through its officers that led the plaintiff
to that belief. It was the original company that paid the deposit of $100,000.
Held:
- Though π can claim damages for fraudulent misrepresentation against the
directors personally (the change of name was deliberately deceptive), the court
will not pierce the corporate veil
- Cases where corporate veil was pierced for “fraud or improper conduct”:
 Gilford Motor Co. v. Horne  court granted injunction against person
using a corporation to avoid a restrictive covenant
 Jones v. Lipman  Verdict against a former ∆ who tried to avoid a finding
of specific performance by selling the property involved to a shell company
 Lockharts Ltd. v. Excalibur Holdings  judgment against one company
was binding on another company owned by the same individual, as assets had
been conveyed to the second company in order to avoid the plaintiff's
judgment.
- Authorities on not lifting the corporate veil
 Professor Welling in Corporate Law in Canada  Little need be said
about this rationale, other than that it simply will not do. There are, so far as
we know, no such broadly enforceable standards of "fair play and good
conscience," at least in Canadian corporate law
 Wilson in Kosmopoulos  The most that can be said is that the courts'
policy is to lift the veil if they think that justice demands it and they are not
constrained by contrary binding authority. The results in individual cases
may be commendable, but it smacks of palm-tree justice rather than the
application of legal rules.
40
De Salaberry Realties
- Normally, where common intention of a group of companies (owned by the same
people) is proven, it will be imputed to a member of the group
- However  Corporate veil was not lifted to impose tax liability of one
corporation on members of the group
Steven G. Meredith v. The Queen
“Lifting the corporate veil is contrary to long-established principles of corporate law.
Absent an allegation that the corporation constitutes a "sham" or a vehicle for
wrongdoing on the part of putative shareholders, or statutory authorization to do so, a
court must respect the legal relationships created by a taxpayer”
Engineer incorporated, the corporation contracted with US companies and the engineer
performed the service in the US for 6 months. Engineer applied for overseas employment
tax credit for employees of a Canadian corporation. The CRA assessed him as an
independent contractor, saying there was no difference between him and the corporation.
Held:
- It was an error to pierce the corporate veil between the corporation and the
engineer simply because the engineer controlled the corporation and used it to
carry on business
-
Lifting the Corporate Veil
1) With Few Exceptions, courts have upheld the principle from Salomon (Separate
Entities)
2) Exceptions have been made to the Salomon principle where it would be “too
flagrantly opposed to justice” to apply the principle
- While the rhetoric is similar, the reasons given by courts for piercing the
corporate veil “follow no consistent principle”  Kosmopoulos
- “Equity will not allow a wrongdoer to use a company as a shield for improper
conduct or fraud” [Big Bend Hotel Ltd. v. Security Mutual Casualty Company
(1980, BC)]
Reasons Given for those Rare Exceptions:
- (1) Where the company was really the “mere agent”/alter
ego/instrument/puppet/sham/cloak of the shareholder
- (2) Disregard of the corporate entity by the shareholders themselves
o
court may refer to failure to keep separate books, make corporate records,
hold corporate meetings, make regular corporate filings
-
(3) Conduct akin to fraud
o
In a case where a company has been used as an instrument of fraud or to
effect a purpose the shareholder could not legally achieve personally 
Gilford Motors
41
-
(4) Affiliated Enterprises
o
The courts appear to be more willing to disregard the corporate entity
where the effect of doing so is to link a parent company with its subsidiary
or to link a subsidiary with one or more other subsidiaries through a
parent corporation
Smith, Stone and Knight Ltd. v. Birmingham Corporation
Example of the “affiliated enterprises” situation in which courts have been willing to
pierce the corporate veil  ALTER EGO PRINCIPLE
Smith, Stone, and Knight Ltd. owned all the shares in a subsidiary corporation which had
its land expropriated by the city. SS&K sought compensation - the city held that it needed
to pay considerably less than normal expropriation because the land was expropriated
from a subsidiary which was a separate legal entity
Held:
- SS&K were proper owners of the land, the separate corporate entity of the
subsidiary was discarded
- Exception to the Salomon principle arises where the corporation is simply an
agent of the shareholder
- Court will Consider:
o
Were profits treated as profits of the parent company
o
Were persons conducting business appointed by the parent company
o
Was the parent company “head and brain” of the trading venture
o
Did parent company govern the trading venture
o
Did the parent company make profits by its skill and direction
o
Was the parent company in effectual and constant control
Problem: the answers to these questions appear to always be yes in any parent-subsidiary
relationship: are no subsidiaries separate legal entities?
Alberta Gas Ethylene v. MNR
Reigning in Smith Stone and Knight
Alberta corporation (AGEC) sought financing from insurance companies in the US. To
get around the higher interest rates for non-domestic investments, the AGEC incorporated
a subsidiary in Delaware (ASCO) which took out the loan, and paid it to the AGEC.
MNR assessed AGEC for withholding taxes on interest payments made to ACSO as a
non-resident. AGEC argued that ACSO was merely a shell or the “borrowing arm” of the
parent corporation, and that the court should use the factors in Smith to pierce the
corporate veil
Held:
- Corporate veil was not pierced
- (1) It is NOT sufficient to consider the six criteria and when they are all met
to ignore the separate legal existence of the subsidiary company
o
One must consider further for what purpose and in what context the
subsidiary is being ignored
- (2) We do not ignore the existence of subsidiary corporate entities per se, we
simply say that consequences will be drawn in certain circumstances
DISPITE the legal existence of those subsidiaries
42
Gregorio v. Intrans-Corp
Further mitigation of Smith Stone and Knight
(1) “Generally, a subsidiary, even a wholly owned subsidiary, will not be found to be
the alter ego of its parent unless the subsidiary is under the complete control of
the parent and is nothing more than a conduit used by the parent to avoid
liability.”
(2) The alter ego principle is applied to prevent conduct akin to fraud that would
otherwise unjustly deprive claimants of their rights
Requirement to Display the Corporate Name
REMEMBER: failing to meet the requirement to display the corporate name can make
directors liable under the BCBCA (this is not lifting the corporate veil)
BUT when the controlling director/shareholder of a corporation fraudulently fails to
comply with the naming requirements for the purpose of deceiving a person or entity with
which they are contracting, the court may lift the corporate veil
CBCA Section 10:
- (1) The word or expression “Limited”, “Incorporated”, “Corporation” (or
their french versions) or “Société par actions de régime fédéral” or the
corresponding abbreviations shall be part, of the name of every corporation
- (2) A corporation shall set out its name in legible characters in all contracts,
invoices, negotiable instruments and orders for goods or services issued or made
by or on behalf of the corporation
- (3) Subject to subsections (5) and 12(1), a corporation may carry on business
under or identify itself by a name other than its corporate name if that other
name does not contain, other than in a figurative or descriptive sense, the
expressions of corporation set out in (1)
BCBCA:
- 27
o
o
-
(1) company or extraprovincial company must display its name (or
assumed name where allowed by this Act) in legible English or French
characters
(2) If a company has a seal, the company must have its name in legible
characters on that seal
158
o
o
(1) A director or officer of a company who knowingly permits the
company to contravene section 27 (1) (a), (b) or (c) or (2) is personally
liable to indemnify any of the following persons who suffer loss or
damage as a result of being misled by that contravention:
 purchaser of goods/services from the company
 supplier of goods/services from the company
 person holding security in the company
(2) A director or officer of a company who issues or authorizes the issue
of any instrument referred to in section 27 (1) (d) that does not display the
43
-
name of the company is personally liable to the person holding that
instrument for the amount of it, unless it is duly paid by the company
384  reproduces 158 for extraprovincial companies
H&D Hobby v. Svatos
Example of a director being held personally liable for debt where he had personally
signed some documents
∏ sues ∆ for the 24,000 owing in debt. ∏ believed he was dealing with the individual
Alex Svatos carrying on business as Edmonton Hobby, turned out to be 327401 Alberta
Ltd. carrying on business as Edmonton Hobby. ∏ argues that the director (Svatos) should
be personally liable (corporate veil should be pierced) even though the contract was made
with the corporation, because his failure to comply with corporate naming regulations
was a deliberate act of fraud.
Held:
- Svatos was personally liable (corporate veil was pierced)
- The passing reference to a corporation on few cheques in one year is not sufficient
to exempt Svatos from personal liability when the entire balance of his business
(including the most important piece of business done with the ∏) had no
reference to the corporation at all
o
Corporation shall set out its name legibly on all contracts, invoices,
instruments, and orders issued or made on the corporation’s behalf (10(2))
o
Evidence  a business proposal sent by Svatos to the Plaintiff which
Svatos signed personally, and the plaintiff understood as a personal
promise to pay
Reincorporation/Continuance
A corporation that has been incorporated under one jurisdiction may decide to become
incorporated under a different stature in another jurisdiction
- this is usually to facilitate amalgamation
- 181: two or more corps, including holding and subsidiary corps, may amalgamate
- likely to incorporate under CBCA if carrying on bus nationally or internationally
(priority to name)
Note: The Long Way to achieve this is to incorporate a new corporation in the desired
jurisdiction, sell shares in the new corp. for shares in the old corp. until the new corp
owns all the old corp. Wind down the old corp. Transfer credits and contracts.
Process:
- (1) Obtain a resolution from the shareholders (188(1), (5))
- (2) obtain approval from the Director (188(1))
- (3) register in the other jurisdiction making amendments to the incorporation
documents (by special resolution) to make them conform to the requirements of
the jurisdiction in which the company is being incorporated
- (4) On receipt of notice satisfactory to Director that the corporation has been
cont’d under the laws of another jurisdiction, the Dir SHALL file the notice and
issue a cert of discontinuance (188(7))
44
187:
-
(1): A corporation may apply to the Director for a certificate of
continuance (if authorized by laws of jurisdiction in which incorporated)
- (2): at the time of the move, the corporation can use its articles of continuance
to amend its Articles of Incorporation without specifying that it is doing so
 The articles of continuance are deemed to become the
articles of incorporation
- (3): The corporation must draft and send articles of continuance (Form 11),
notice of office (19) and notice of directors (106) to the Director
- (4): Director SHALL issue certificate of continuance (if all requirements
met and fees paid)
- (5): effect of certificate of continuance – foreign body corp becomes CBCA
corp
(a) articles of continuance are deemed to be articles of incorp,
(b) cert of continuance treated like cert of incorp
- (6): Director SHALL send copy of cert of continuance as notice of
continuance to official in original jurisdiction
- (7)(a)-(e): rights preserved – can’t change ownership of corp property, or
escape liability for any debts/causes of action, pending proceedings or
convictions to be enforced by moving to another juris
- (8): nothing about SH changes either – shares are deemed to have been
issued in compliance w/the Act; doesn’t relieve anyone of liabilities wrt
shares, nor does it deprive anyone of their rights wrt shares
*now a CBCA corp, so have to register in former prov of incorp to carry on bus,
and notify other juris of the change (BC BCA s.375-378)
188:
-
-
-
(1): Subject to subsection (10), a corporation may apply to the appropriate
official or public body of another jurisdiction requesting that the corporation
be continued as if it had been incorporated under the laws of that other
jurisdiction if the corporation
 (a) is authorized by the shareholders (special resolution –
Fundamental Change) in accordance with this section to
make the application; and
 (b) establishes to the satisfaction of the Director that its
proposed continuance in the other jurisdiction will not
adversely affect creditors or shareholders of the
corporation.
(3): notice of meeting must be provided to SH
- notice must be in compliance w/s.135(5) and (6) b/c this is spec bus,
special notice provisions apply (notice must provide sufficient info about
the proposed resolution that the SH can form an opinion; text of the res;
190 rights of dissenting SH must be in the notice – failure re: dissent
rights doesn’t invalidate the discontinuance)
(4): ALL SH are entitled to vote re: continuance
(5): application for continuance must be approved by special resolution
45
-
-
(2/3rds majority) of SH; by-laws or will set out quorum (or 139 –holders of
majority of shares), special majority has to be of SH who attend and vote
(6): can include a clause in the res allowing the directors to abandon the
application w/o further approval
(7): on receipt of notice satisfactory to Director that the corporation has
been cont’d under the laws of another jurisdiction, the Dir SHALL file
the notice and issue a cert of discontinuance
(8): notice in (7) deemed to be arts
(9): CBCA ceases to apply on date shown on cert of discontinuance
(10)(a) – (e): prohibits export unless rights are preserved
190  Shareholder Can Object (1) Subject to sections 191 and 241, a holder of shares
of any class of a corporation may dissent if the corporation is subject to an order under
paragraph 192(4)(d) that affects the holder or if the corporation resolves to:
- (d) be continued under section 188
Pre-Incorporation Contracts
In some cases, a promoter will seek to contract on behalf of a corporation that has yet to
be incorporated (seeking security of contract before incurring the cost of incorporation)
Summary of the Common Law:
(1) A corporation cannot ratify a contract that a promoter purported to enter into on
behalf of the corporation before the corporation came into existence (Kelner v.
Baxter).
(2) A promoter can be liable on a pre-incorporation contract but only if it can be said
that it was intended in the circumstances that the promoter be a party to the
contract (Kelner v. Baxter as interpreted by Newborne v. Sensolid Ltd., Black v.
Smallwood, and Wickberg v. Shatsky)
(3) Where the promoter purported to act on behalf of a corporation before it came
into existence the promoter can be liable for a breach of warranty of authority
(Black v. Smallwood and Wickberg v. Shatsky)
Kelner v. Baxter (UK)
A company cannot ratify a contract, or purported contract, entered into on its behalf if
the company was not in existence at the time a person purported to enter into a
contract on its behalf
∏ and ∆ were promoters of the Gravesend Royal Alexandra Hotel Company. ∏ offered
to sell wine to ∆ before the company was incorporated, which the ∆s accepted. The
directors ratified the agreement before incorporation, and then purported to do so again
immediately after incorporation.
Held:
- Neither ratification was valid, because the company did not exist at the time of
ratification and the principle thus did not have the power to authorize its agent at
the time of the contract
o This case also highlighted the potential for promoters to be liable on
46
contracts they purport to enter into on behalf of an as yet unincorporated
entity  however, the principle was not applied
o In this case, there may have been grounds for holding the promoter
personally liable, since the conduct of the parties implied that there was a
contract between the plaintiff and the persons who signed for the nonexistent corporation
Newborne v. Sensolid Ltd. (UK)
Promoters will only be liable if it was intended in the circumstances that they were
themselves to be parties to the contract
N contracted with S for tinned ham. Price of ham fell and S refused to complete contract.
Contract was made by promoter of N before N had been incorporated. N tried to hold S to
the contract.
Held:
- N the company could not hold S to the contract, because it could not ratify
contracts made on its behalf before incorporation
- In this case, N the person could not hold S to the contract because, given the
words of the contract, it did not appear that N the person had intended to enter the
contract himself
o Strict rule of construction  is the contract constructed in such a way that
it appears that the intent could be to bind the party to the individual
signing on behalf of the not-yet-extant corporation?
Black v. Smallwood & Cooper (Aus)
∏ seeks to hold ∆ to a contract signed on behalf of a corporation that did not yet exist. ∆s
signed thinking the corporation had been incorporated and that they were directors.
Held:
- Court followed Newbourne  strict rule of construction
 the circumstances suggested it was not a contract between the ∏ and the
person that signed on behalf of the non-existent corp
- Company did not yet exist, despite alleged directors believing it existed, and
therefore the contract could not be ratified
 It was nonetheless suggested that the defendants could be liable for a breach
of warranty of authority
Wickberg v. Shatsky (BCSC)
Affirmed Principles of Pre-Incorporation Contracts in BC
Wickberg was hired by Shatsky to manage a new corporation. His employment contract
was signed by Shatsky for a corporation that was never incorporated. W’s claim for
wrongful dismissal from the new corporation (which ran into the ground) was
complicated by his attempts to prove he had a valid employment contract
Held:
- (1) Personal Liability in Contract
 A person signing on behalf of a nonexistent company is not automatically
liable for that contract  there must be some indication that the promoter was
47
-
reasonably within the scope of the contract
(2) Breach of Warranty of Authority
 In this case, there was a breach of warranty of authority because S represented
the existence of the non-existent corporation while knowing it was not there
 (However, expectation damages were nominal, because he was
only getting the amount that he would have otherwise gotten from
the corporation, which was bankrupt)
Statutory Modification:
Issues with the common law approach:
- Creates Risk that there will be no enforceable K (third party reliance)
- Creates unnecessary costs (people have to take precautions to ensure corporations
exist)
CBCA s. 14
- (1) Unless the contract expressly provides otherwise a person who enters into,
“or purports to enter into”, a “written” contract in the name of or on behalf
of a corporation before the corporation comes into existence, is personally
bound by the contract and is entitled to benefits of the contract.
- (2) A corporation can “adopt” a WRITTEN contract within a reasonable
time after it comes into existence
 Either by action or by conduct
- (3) The court can apportion liability between a corporation and a person
purporting to act for the corporation
- (4) The parties can “expressly” agree in the written contract that the person who
enters into the contract on behalf of the corporation before it came into existence
is not bound by the contract
BC BCA s.20
- (2): person who purports to enter into a contract on behalf of a company is:
 (a) deemed to warrant to the parties:
o that the company will come into existence in a reasonable time,
o that the company will adopt the purported contract within a
reasonable time
 (b) The person is liable to the other parties to the purported contract for
damages from breach of that contract
 (c) The measure of damages will be the same as if:
o the company existed when the K was entered into
o the person who entered into the purported K had no right to do so
o the company refused to ratify
 This section does not make the promoter liable on the
contract itself but rather liable on a deemed warranty,
which can mean a different measure of damages than
liability for breach of contract.
- (3): permits the new company to validly adopt the pre-incorporation K (overrules
48
-
-
CL)
(4): if the company adopts and is bound, the facilitator ceases to be bound by the
warranty
(5): if the company doesn’t adopt the K, the facilitator can seek an order that any
benefit received by the co. can be recovered by the applicant (3rd party) (you can
seek any benefit you’ve conferred on the company on the assumption they would
adopt the K)
(6): whether or not pre-incorporation K adopted, either party may apply to Court
for order apportioning liability
(7): A court may make any order it deems appropriate
20(8): if there’s an express agreement to that effect in the written K, facilitator
won’t be liable
Landark Inns v. Horeak
Applying s.14 of the CBCA (or its equivalent)
H signed a lease for space in the ∏’s mall as chairman of a company that had not yet
incorporated. Before the company was incorporated, H decided to lease another space,
and terminated the lease. ∏ sued for damages, and H’s company, upon incorporation,
sought to adopt the contract (so that H could avoid personal liability)
Held:
- H was personally liable under CBCA 14(1)
- 14(1) codifies Kelner
 Having the name of the company on a contract is not sufficient for the
purposes of s. 14(4) to alter the liability of the promoter under s. 14(1) –
altering s. 14(1) requires an express provision
 The corporation did not adopt the contract under 14(2) during the time that the
contract existed
Bank of Nova Scotia v. Williams
Court Can apportion liability between promoter and corporation, BUT will not when
apportion when the party is not mislead as to the fact that they are contracting with the
corporation
Mrs. A put a second mortgage on her house and loaned the proceeds to Williams Co,
which was later incorporated. Once the company was incorporated, the directors of the
company (one being her husband) sent her a promissory note for the loan. There was no
directors’ resolution for the loan, but it was signed by the directors. The company went
bankrupt. Mrs. Atkins asked court to use its discretion to apportion liability between
promoters and corporation.
Held:
- Court refused to apportion liability
- There may be times when the company and the one who contracted on its behalf
should not be able to agree as to the assumption of liability to the detriment of the
person with whom the contract was made. However, in the situation before me,
Mrs. Aikins was not misled as to which party she was advancing moneys to, nor
did any action of Mr. Williams or the company mislead her as to who would be
assuming responsibility for repayment
49
Ultra Vires Acts of Certain Corporations
An act which was outside the company’s objects and powers was null and void, and could
not be given life by any act of ratification, even by unanimous resolution of shareholders
 Ashbury Ry. Carriage & Iron Co. v. Riche.
A corporation may be constricted by it articles, or statute in certain areas
Old Rule  Doctrine of Constructive Notice
- A person dealing with a corporation was deemed to be aware of the contents of
documents filed in a public office
CBCA s. 17  Effectively Abolishing the Old Rule
- No person is affected by or is deemed to have notice or knowledge of the contents
of a document concerning a corporation by reason only that the document has
been filed by the Director or is available for inspection at an office of the
corporation
Modern Rule  Indoor Management Rule
- A person dealing with good faith in a company can assume that their “indoor
management” has been properly carried out
 Note: this rule does not preclude a corporation from asserting that a 3rd party
had actual notice of restriction of authority
CBCA:




15 (1)  (BCBCA 30) corporation has the capacity and (subject to this Act)
the rights, powers and privileges of a natural person
16  a corporation may restrict its objects and powers in its articles
o (2) (BCBCA 33(1)) a corporation shall not carry on any bus or
exercise or any power that it is restricted by the articles from
carrying on or exercising, nor shall the corporation exercise any of its
powers in a manner contrary to the articles
o (3) (BCBCA 33(2)) no act of a corporation, including any transfer of
property to or by a corporation, is invalid by reason only that the act or
transfer is contrary to its articles or this Act. (WEIRD)
17  Abolishes constructive notice: no person is deemed to have constructive
notice by reason only that the proper documents have been filed
18  Persons may rely on authority of companies and their directors, officers
and agents
o (1) a corporation cannot assert against a person dealing with the
corporation that:
 (18(1)(a)); there has been non-compliance with its
constating documents
 (18(1)(b) and (c)); that its directors or registered office
are other than those stated in the most recent notices
sent to the Director
50


(18(1)(d)) that a person held out by the corporation as a
director, an officer or an agent of the corporation has
not been duly appointed or has no authority to exercise
the powers or perform the duties that are customary in
the business of the corporation or usual for such
director, officer or agent
o (2) Extremely important qualification  a person who has or ought
to have, by virtue of his position with or relationship to the
corporation, knowledge to the contrary, cannot have the benefit of
subsection 18(1).
116  provides that acts of directors and officers are valid notwithstanding
irregularities in their election or appointment, or in their qualification.
Communities Economic Development Fund v. Canadian Pickles Corp.
While the doctrine of ultra vires has been largely abolished by statute (16(3)), limited
aspects of the doctrine may be present with respect to corporations created by special
Act for public purposes
Canadian Pickles secured a loan from the appellant, and the majority shareholders signed
a guarantee. The CEDF’s articles stated that its objects were to encourage the economic
development of "remote and isolated communities" in the province of Manitoba. “remote
and isolated” was not defined. CP defaulted on the loan, CEDF took them to court. Trial
Judge found respondent liable, CoA overturned the decision.
Held:
- The appellant's loan to Canadian Pickles was contrary to the objects of the
appellant as stated in s. 3 of the Act.
 Stony Mountain, where Canadian Pickles' operation was located, is not a
remote and isolated community
- Distinction between CL and Chartered corporations:
 CL  all powers of a natural person, indoor management rule applies
 Statutory  created for a public purpose, corporations cannot act outside their
legal framework
- For Statutory Corporations: a company created for a specific purpose by an Act of
a legislature ought not to have the power to do things not in furtherance of that
purpose
Shares and Shareholders
Shares: A Bundle of Rights  Sparling v. Caisse de Depot et Placement
- Share is a bundle of interrelated rights and liabilities
- Owning a share is not owning a part of the assets of the corporation, it is only
a set of rights to the benefits from the corporation
Share is not defined in the CBCA, but is included in the definition of “security” under
2(1)
Three Main Rights (Must appear somewhere) 24(3)
- (1) The right to vote
51
-
(2) The right to receive dividends
(3) The right to receive residual property on dissolution (subject to the payment of
debts)
Presumption of Equality
- Shares are presumed equal unless otherwise indicated
- 24(3)  Where a corporation has only one class of shares, it is presumed that that
those shares include each of these rights
Classes of Shares
- 24(4)  indicates that the articles may provide for more than one class of shares
and that if they so provide the rights, privileges, restrictions and conditions
attaching to the shares of each class shall be set out in the articles
- The classes of shares must, cumulatively, have the three main rights
Series of Shares
- Issue: Directors can normally issue more of an existing class of shares (subject to
authorized limit), However if it is decided that some different share rights should
be offered to finance the particular venture then the directors need shareholder
approval (fundamental change)
- Solution: Series
o
directors can be allowed to issue the shares of one class of shares in
“series”
o
The authority to issue shares of a particular class in series has to be given
to the directors when the class is created
- Example:
o
You could have Class A with:
 Series 1 - $5/share with voting rights
 Series 2 - $8/share with voting rights
Par Value Shares
- Originally: “Par Value” of a share was simply a nominal value assigned which
had no relation to the worth of the share
o
This was seen as a way to provide creditors with assurance and a basis for
assessing the accessible capital of a corporation
- Issues:
o
Figure became meaningless
o
Contributed Surplus was deceiving
o
Deceiving to Creditors
- Solution:
o
24(1) of the CBCA provides only for shares without par value – the
directors assign a stated value of shares for the purposes of capital
accounts
Stated Capital Account
52
26(1)  a stated capital account is maintained for each class or series of shares that has
been issued
- total amount for which the shares of the class or series have been issued
- Not cash reserves, simply a bookkeeping entry which tracks number of shares
issued and their price
Mechanism:
- if 100 class A shares at $5 are issued on Monday and 100 class A shares at $10 on
Tuesday, the stated capital account will be $1500 with 200 shares outstanding.
- Each share will have a stated capital of $7.50 – the average of the class – so the
greater reward going to the earlier investors who took the greater risk  this has
tax implications
Redemption of Shares
34(1)  a corporation can repurchase its own shares, so long as when it does so:
- (i) the corporation is not, or would not be after payment, unable to pay its
liabilities
- (ii) the realizable value of the corporation’s assets would not, after the payment,
be less than the aggregate value of its liabilities and stated capital of all classes
Under the CBCA, a corporation cannot own shares in itself – repurchased shares must be
cancelled or restored to unissued shares (where the authorized limit has been reached)
Redemption v. Retraction:
- Redemption Right  corporation has the right to buy its shares back
(shareholders must tender an offer)
- Retraction Right  shareholder has the right to sell its shares back (corporation
must tender an offer)
Pre-Emptive Rights
28  A pre-emptive right gives existing shareholders of a class of shares the right to
purchase of any newly issued shares of that class
Mechanism:
- If a corporation had 100 shares and there were 10 shareholders with 10 shares
each (with pre-emptive rights), and the corporation issued 20 new shares, each
shareholder would have the right of first refusal to 2 (1/10th) of the new shares
Preferred Shares:
Usually, if there is distinction among share classes, there will be common shares and one
or more class of preferred shares
1) Distinct from “Common Shares”
2) Preferred Shares typically have a preference with respect to some right, usually a
preference with respect to receiving dividends and/or receiving a share of the
proceeds on liquidation  preferred shareholders get their money before other
shareholders
Participation: Differing Presumptions  International Power Co. v. McMaster
53
University
A preferred share is “participating” if the shareholder, after he has received his
preferred dividend or funds on windup, can share in the remaining money with the
common shareholders
 (1) Dividends Beyond Preferred Amount  Presumption is nonparticipating
 Usually shares are presumed to have equal rights, BUT with
preferred shares, unless it is expressly specified, their right to a
share is limited to the amount that is preferred
 I.E: if they receive $5 before common shareholders, and nothing
else is specified, they receive a maximum of $5
 (2) Proceeds from Dissolution Beyond the Preferred Amount 
Presumption is participating
 presumption of equality with respect to preference shares when it
comes to a share in the proceeds on dissolution
 I.E: if the preferred shares have a preferred right to receive $100
on dissolution before the common shares get anything they will get
the $100 and then share in anything left over with the common
shares on a pro rata basis unless the incorporating documents
specify otherwise.
Access to Information about Shares
-
-
49: Each SH has right to share certificate
o this is usually too cumbersome, inefficient for large corps to issue
50: Every corporation is required to keep “share register” – kept w/minute book
20(1) and (2): Corporations are required to keep records, including (1)(d) “share
register” - kept at registered office of the corp or at a place designated by the directors
21(1): who has right to examine records  SH, creditors, Dir
o
(1.1) anyone can review the share register of a distributing corporation and
take copies, for a fee
o (1.1): person seeking access to share register must sign an affidavit
swearing it will only be used in accordance w/(9)
 21(7) – what needs to be in affidavit  name, address, use
 21(9) – approved purposes for use of share register
(a) an effort to influence the voting of SHs of corp;
(b) an offer to acquire securities of the corp; or
(c) any other matter relating to the affairs of the corp
21(2): Shareholders of all corps are entitled to copy of articles, by-laws, Unanimous
Shareholder Agreements for free
241(3): SH can apply to have error in SH register rectified
Issuing and Paying for Shares:
-
25(1): Terms of the Issuing of Shares
o (1) directors have power to issue shares, but subject to articles, by-laws,
USA
o
(3) Shares cannot be issued until full consideration is paid in money,
54
-
-
-
property, or services
 This is to prohibit the Watered Stock Problem – issuing shares
which are stated to be more than their real value (which
misrepresents the amount of capital the corporation has)
o
(4) Determining whether property or services are fair equivalent of money
- directors may take into account reasonable charges and expenses of
organization and reorganization and payments for property and past
services reasonably expected to benefit the corporation
118: Remedies the “Watered Stock” Problem
o (1): Director Liability  If directors vote for or issue a share for
consideration other which is less than fair value, the directors will be
personally liable to make up the diff to the corporation
o (3): directors can recover against other directors
o (6) Defense of Due Diligence  A director who proves that the director
did not know and could not reasonably have known that the share was
issued for a consideration less than the fair equivalent of the money that
the corporation would have received if the share had been issued for
money is not liable under subsection (1)
115: Delegation  directors can create a managing dir or committee of directors and
delegate some of their powers
o
115(3)(c): Delegation Restriction  directors may not delegate the
power to issue securities
121(c): directors can create the officers and delegate auth to them, but can’t give them
general powers to do anything mentioned in 115(3)(c)
Share Rights and Restrictions:
-
-
6(1)(c): allows for different classes of shares with different rights and restrictions
o
rights generally deter value of shares (entitlements vis a vis the corp)
o
rights must be stated in the articles
24
o (3): If there is only one class of share, each share is equal to
every other share and carries all three of the basic rights

sets out what those rights are, but not limited to these three rights
 right to vote
 right to receive dividends
 right to share in property on dissolution
 Jacobsen v. United Canso, Bowater v. Craine
 Voting rights affirmed as matter of corp law in R. v. McClure
o (4): The articles may provide for more than one class, and if they do
they must:
 Set out all of the rights attached to each class and all of the
basic three rights must be accounted for
 THE CLASSES MUST DIFFER IN SOME RIGHT

each of the rights listed in (3) have to be attached to at least one
class of shares– if there is only one class of shares, that class must
55
-
have all these rights
 popular when small, closely held corps go public – family wants to
retain control (i.e. 3% of shares have 62% of voting rights), SH
seem willing to buy non-voting shares
 common for voting power to be concentrated in small group of
people  multiple voting shares
140(1): Voting Rights  1 share – 1 vote. unless varied by the articles,
presumption is one share = one vote
o
Reading 24(3) and 140 together – all shares of a class must have same
rights (Jacobsen, Bowater)
Bushell v. Faith
This was an English case – probably not good law anymore: seemed to say that voting
rights can vary in certain situations in one class, as long as they all have the same right
to the variable rights and it is done so in the articles (140(1)).
Articles of association of the company held that a director got three votes/share when
there was a resolution to remove that director. There were three directors with 100 shares
each. This effectively meant that no one could remove a director
Held:
- This was a valid granting of voting rights
o
The legislature must have known of special voting rights and if the
legislature had wanted to restrict special voting rights in these
circumstances it would have said so
Jacobson v. United Canso
Shares of the same class must have the same voting rights
United Canso incorporated in 1954 pre. CBCA. Jacobson was a member of a
shareholder’s committee unhappy with the mgmt. of UC. Shareholder’s committee
represented 6% of the shares, Buckley family (controlled UC) effectively continued to
control corporation even though they did not own more than 50% of the shares.
Shareholder’s committee began to acquire shares, encountered article that said no
shareholder could have more than 1000 votes, no matter how many shares you own.
Shares of the same voting class contained different voting rights depending on how many
shares you have – is such a provision contrary to CBCA?
Held:
- A corporation can only differentiate among classes of shareholders, not among
shareholders of a certain class
o
Thus, having shares with different voting rights depending on how many
you owned was contrary to the Act
- However, 16(3) holds that no act of a corporation, including any transfer of
property to or by a corporation, is invalid by reason only that the act or transfer is
contrary to its articles or this Act  So: Jacobsen was seeking a compliance order
under section 247
Note: before this judgment came down, the ruling family was successful in getting
enough votes to continue the company in Nova Scotia, likely because Nova Scotia law
was seen as more conducive to the 1000 vote rule, and the AB CoA ruling was rendered
56
moot
Bowater v. Crain Inc.
Reaffirms that you cannot have shares of the same class mean different things to
different shareholders
Appellant corporation challenged the voting provisions of special common shares in
Crain’s articles of incorporation. It argued that they offended the CBCA, since the special
common shares were worth 10 votes in the hands of the original owner (in this case
Craisec), but only one in the hands of other parties. Appellant argued that the “10 vote”
quality special common shares was severable with the result that those shares carry 10
votes, regardless of who owns them.
Held:
- the common shares and the special common shares with the step down provision
could not operate as shares of the same class
o
Following Jacobson
- The “step-down” provision was “severed” from the special common shares,
such that the right to 10 votes with the special common shares was became a
different class of shares which anyone could own for 10 votes
R v. McClurg
To create a validly separate class of shares there must be a distinction in some right
between that class and other classes. However, it appears that it may not take much of
a distinction for a validly created separate class to exist.
Husbands and wives formed Northland Trucks corporation. Husbands got class A shares
which were voting shares, wives got class B non-voting shares. Both shares carried a
discretionary right to receive dividends, but the husbands got preferred dividend rights.
CRA argued the shares were ineligible shares of the same class with different voting
rights, Appellant argued they were two different classes.
Held:
- These shares were sufficiently distinct to be called two classes of shares  some
had voting rights and some did not
- Rights do not need to be specific to a class, there simply needs to be some right
over which there is a distinction, while other rights can remain the same
o
Overlap in rights is allowed
Dividends
Directors have the power, but not an obligation, to declare dividends (102). To declare a
dividend The Assets of the Corporation must be greater than the Liabilities plus the
Stated Capital (which is tied up in the shares).
- A Director Should Consider:
o
How much profit the corporation has made
o
How much of a finance buffer the corporation has
o
How well the company is likely to do in the future
-
102 Directors have the power to declare dividends (under the residual
57
-
-
-
-
management power)
o Directors are not obligated to declare dividends
43  Allows for Three Forms of Dividends
o Cash
o Specie (other forms of property)
o Stocks
- 115(3)(d): Directors CANNOT delegate the authority to declare dividends to
managing directors or boards of directors
42  Dividends cannot be paid out if:
o
solvency test: the corporation is, or would become, unable to pay its
liabilities
 assets = cash, term deposits, assets receivable, land, IP
 liabilities = bank loans, trade creditors, EE wages and benefits,
shares
o
stated capital test: the realizable assets of the corporation would become
less than its assets
 stated capital: amt paid up on shares, doesn’t change if market
price changes
118(2)(c):  Directors’ Will be Personally Liable if they consent to or authorize
the payment of dividends contrary to s.42 :
o jointly and severally liable
o 118(3): A director is who has satisfied a judgment can recover against
other directors
o 118(4): directors can apply to court to compel a SH or other recipient to
pay or deliver any monies or property received contrary to s.42
o 118(5): order of court
123(4)  Defense of Reasonable Diligence: a director is not liable if he has
exercised care, due diligence and care that a reasonable person in the circumstances
would have – including reasonable reliance on
o (a) financial statements of the corporation presented by an officer of the
corporation to fairly reflect the corporation’s financial circumstances
o (b) a report by a person whose profession lends credibility to their report
In some RARE circumstances, directors have been found to have a duty to declare
dividends – basically as part of oppression remedies:
- Dodge v. Ford Motor Co  director used dividends to invest in plant expansion
“for the good of society” rather than the good of the company – he was forced to
declare dividends because it was assumed that profits were in the interests of the
corporation
- Fergusson v. Imax  falling out between husband and wife shareholders
(husband was preferred, wife was common). Husband used influence to prevent
dividends, which meant wife got no return on her investment. The court held that
this refusal was oppressive and the remedy was a declaration of dividends.
Repurchase and Redemption
30(1) – A corporation may not own shares in itself (so if shares are repurchased, they are
58
simply available to be sold again)
Repurchase
34
- (1)A corporation may repurchase shares (unless it violates the solvency test in (2))
- (2) Cannot repurchase shares if:
(a) unable to pay liabilities as they become due
(b) realizable assets of the corporation would become less than the total liabilities
118(2)(a)  Directors will be jointly and severally liable if they vote for or acquiesce
to a repurchase of shares
118(5)(b)  A court may order the corporation to return the shares to the shareholders
from which they were bought
Dissolution  Rights on Liquidation or
Winding Up:
dissolution is the end point/death of corporation – in advance of dissolution, process of
winding up takes place
Winding up  all assets of the corporation are collected and used to pay the creditors.
Once the creditors have been satisfied, the corporation can distribute the remaining assets
among the shareholders according to preference and value
Dissolution is a fundamental change: special rights of SH to participate (special
resolution)
211 describes VOLUNTARY DISSOLUTION
o
(1): director or SH w/voting rights may propose voluntary liquidation and
dissolution of a corporation
o
(2): Notice  at any meeting where liquidation or dissolution is to be
proposed there will be notice thereof
o
(3): A corporation may liquidate and dissolve by special resolution of
the SH, or by special resolution of each class of shares whether or not
they are otherwise entitled to vote (must be approved by each class)
o
(4): Statement of Intent  corporation must file statement of intent to
dissolve (send to Dir)
o
(5): Certificate of Intent  on receipt of statement of intent to dissolve,
Dir shall issue a certificate of intent to dissolve in accordance w/262
o
(6): on issue of certificate of intent to dissolve, the corp shall cease to
carry on bus, except to extent necessary for liquidation (corp existence
continues until the Director issues a cert of dissolution)
o
(7): after issue of cert of intent to dissolve, corp shall:
(a) notify creditors
(b) notify Director in jurisdiction in which it is registered to carry
on bus
59
(c) dispose of property
(d) distribute remaining property among SH (“corp surplus”)
INVOLUNTARY DISSOLUTION
- 212: involuntary dissolution by the Director –for failure to comply (e.g. failure to
file annual reports)
- 213: Court ordered INVOLUNTARY DISSOLUTION
- 214: Court ordered dissolution on application of SH (extreme remedy)
o The wording similar to oppression remedy
o Can be dissolved for “oppressive conduct”
Westfair Foods v. Watt
A court can wind up a company by order, but will be reluctant to do so where the
company is successful, there is no severe oppressive conduct, and there are other
remedies available
Appellant corporation (grocery company) and some of its shareholders had dispute. Class
A shares receive $2/share maximum preferred dividend and share of wind up, Class B
shares have an unlimited share in surplus and share of the wind up. Corporation decided
to give its entire annual profit in dividends, which capped the retained surplus at its level
at the time of the decision (1984). This policy favored common shareholders, who
received more immediate benefit, and left less for the preferred shareholders who had a
greater stake in the liquidated assets of the corporation. Class A shareholders brought
action, alleging that the change in policy was unfairly prejudicial. Trial judge found
oppressive behavior on the part of the corporation, and ordered winding up.
Held:
- There had been some oppressive conduct, but the court was reluctant to wind up a
successful company
o Court then looked to the articles to determine what the Class A
shareholders had a reasonable right to assume:
 No reasonable expectation that the directors will never shift to
profits distribution
 Shifting to profit distribution was well within the direction of the
directors
- Instead – ordered that the Class A shares be valued at their fair market value and
repurchased by the company
60
Corporate Governance: Directors
and Officers
2(1) a director or officer is a person occupying the role of director or officer, by whatever
name it is called
Appointment and Removal of Directors
Who can be Elected Director:
-
-
-
102(2): REQUIRED NUMBERS
o
Private corporation must have at least 1 director
o
Distributing Companies must have at least 3 directors at least 2 of which
can’t be officers or EEs of company or its affiliates (“outside” directors)
105
 (1): QUALIFICATIONS OF DIRECTORS
 18yrs
 of sound mind
 individual (not corporation)
 not bankrupt
 (2): Subject to articles, directors are not required to hold shares
 (3): at least 25% of directors must be resident Canadians; if corp has less than
4 directors, at least one must be a resident Cadadian
 2(1) a “resident Canadian is a citizen of Canada or ordinarily
resident in Canada as prescribed by Reg 13 (full time
government or Canadian employees, employees living outside
Canada and working for Canadian companies, students)
 (4): not more than 1/3 of directors of holding corp need to be resident Cads if
the holding corp earns in Cad directly or through its subsidiaries less than 5%
of gross revenues
106(9): Person has to consent or acquiesce to be a director
145: a corporation, shareholder, or director may apply to a court for an order to
resolve any controversy concerning election or appointment of a director
o
court may make “any order it sees fit”
Who can be Appointed Officer:
-
121:
o
(1) Directors normally have the power to appoint officers, who conduct
day-to-day management, subject to articles, by-laws, or unanimous
shareholder agreement:
61



(a) the directors may designate the offices of the corporation,
appoint as officers persons of full capacity, specify their duties and
delegate to them powers to manage the business and affairs of the
corporation (except powers to do anything referred to in subsection
115(3))
(b) a director may be appointed to any office of the corporation
(c) two or more offices of the corporation may be held by the same
person
Term of office:
-
106
o
o
o
o
o
o
o
o
(1): A corporation’s first directors are named at time of sending
articles of incorporation to the Director
(2): Term of office – if named in notice of directors, until first annual SH
meeting
 133(1)(a) & (b) first annual meeting must be held within 18
months of incorporation and thereafter within 15 months
(3): Directors are elected by Ordinary resolution and the Maximum
term of office is three years
 The articles can raise the majority needed to elect a director (6(3))
but not the majority needed to remove a director (6(4))
(4): Terms of office can be staggered
(5): Presumption that a director is elected for one year (until next
annual SH meeting), unless otherwise stated
(6): Incumbent directors hold office until successors are elected
(7): if SHs fail to elect the minimum number of directors required by
articles, elected directors can exercise all powers of directors if the #
elected constitutes quorum
 Directors quorum = 114(2): a majority of the number of directors
required by the articles
(8): Directors may, if articles provide, appt one or more directors who
shall hold office until next annual SH meeting, but the total # of appointed
directors may not exceed 1/3 of the directors elected at previous SH
meeting (Repap)
Removal:
-
108
o
o
-
(1): Ceasing to hold office  can happen through:
 resignation
 removal by ordinary SH resolution
 disqualification under 105(1)
 death
(2): Resignation takes effect at time written resignation is sent to
corporation, or at specified time
109
62
o
o
o
(1): Removal of directors by ordinary SH resolution (6(4) – articles may
NOT require a greater # of votes of SH to remove a dir than simple
majority)
(2): Exception – where specific class or series of shares has exclusive right
to elect one or more directors, that director can only be removed by an
ordinary resolution of that class of SH
(4) If all directors resigned or are removed: The senior management
persons are deemed to be directors
 (5) BUT: lawyers or other professionals who participate in
management do not become directors
Re: Paramount Publix Corp
Directors can remove officers but damages must be paid for broken employment
contracts
Katz was employed as an executive for 3 year period, he was dismissed less than a year
later, and the corporation went into receivership. Company argued that directors had the
power to remove officers
Held:
- Directors had the authority to dismiss Katz, but the corporation was liable for
breach of his employment contract
- A strict interpretation of s.60 would mean that an employee could be dismissed
for any reason without warning or consequence to the company  employment
contracts would be effectively non-binding
o
The provision should be interpreted to mean that directors can remove a
person from a particular office or agency but if they dismissed the person
from employment entirely there would be the usual consequences of
breach of an employment contract
Shindler v. Nothern Raincoat Co.
Shareholders can dismiss a director, but if that director has a contract of employment
then the shareholders will likely be in breach of contract
Shindler was managing director on a 10 year contract. Company was sold to another
public company, which did not want to retain Shindler as managing director. Comparable
alternative employment was untenable, so Shindler was removed as director by an
extraordinary resolution.
Held:
- Shindler entitled to damages for wrongful dismissal
o
Court rejected the company’s claim that the contract of employment
would be ultra vires if interpreted to exclude a power in the company’s
general meeting to terminate it for whatever reasons seemed sufficient to
the shareholders
Vacancies:
-
109
o
o
(3): Filling a vacancy – at meeting of SH or under 111
(4): If all directors have resigned or been removed, a person who manages
63
-
or supervises the mgmt of the bus and affairs of the corporation is deemed
to be a dir for the purposes of this Act (imposition of liability)
 officer managing under control of SH
 lawyer, notary, etc. providing professional services
 trustee in bankruptcy, receiver, secured creditor
o
(5): exceptions to (4)
What resulted in vacancy? – deters whether directors can fill it or not
111(1): A quorum of directors may fill vacancies on the board, except those resulting
from an increase in the #, or min or max # of directors, or a failure to elect the #, or
min # of directors provided for in the articles
Is there quorum of directors?
111(2): if there is no quorum of directors, or failure to elect the # or min # of directors
provided for in the articles, directors shall call special meeting of SH (or, if there are
no directors, SH shall call meeting) to fill the vacancy
Who was dir elected by – all SH, or class of SH?
111(3): filling vacancy in situation where holders of class or series of shares have an
exclusive right to elect one or more directors
What do arts provide?
111(4): articles may provide that a vacancy among directors shall only be filled by a
vote of SH, or class of SH
111(5): director who fills vacancy holds officer for unexpired term of predecessor
-
Notice to Dir
113(1): Notice of change of dir or director’s address must be set to Dir w/in 15 days
-
-
-
-
Meetings of Directors
Largely left up to the by-laws, the meetings can take many forms
-
102(1):  Enabling: subject to USA, directors shall manage, or supervise the mgmt
of the business and affairs of the corporation
110(1):  Entitling: director is entitled to receive notice of and to attend and be
heard at every meeting of SH
114(1):  Empowering: Subject to articles or by-laws, directors can meet anywhere,
anytime, w/notice as required by by-laws
Quorum
-
114
o
(2): Subject to articles or by-laws, quorum = a majority of the board or
a majority of the minimum number of directors in the articles
(quorum may exercise all the powers of the directors)
 if arts specify # of directors, quorum = majority of directors elected
 if arts specify range of min-max # of directors, quorum = majority
of min # of directors
 if by-law is silent as to quorum, the min of the range of directors
will be held to be quorum
64

o
o
o
o
by-law could say corp is required to have 5-10 directors, but
quorum is 3
 by-law could say corp is required to have 5-10 directors, but
quorum is majority of elected directors, and 7 are elected, so
quorum is 4
(3)(a): directors shall not transact bus at a meeting unless at least 25% of
directors present are resident Canadians
(4): exceptions if (3) not met – (a) res Cad dir approves bus in writing,
AND (b) req’d # of res Cad directors would have been present had that dir
been present
(8): where a corporation has only one director, that director “may
constitute a meeting”
(9): permits conference calls or any other electronic media that allows
directors to communicate adequately with each other
Notice
-
114
o
o
(5): Notice of meeting is only required to specify any matter in 115(3)
that is to be dealt with, unless by-laws provide otherwise
 (in general, need not specify purpose or bus to be transacted)
(6): if they don’t waive notice, dir can argue the meeting wasn’t properly
called and challenge the validity of the bus transacted (attendance at
meeting is waiver of notice unless purpose of attendance is to obj to the
transaction of any bus on grounds that the meeting is not lawfully called)
Validity of Acts:
-
116: An act of a director is valid, notwithstanding an irregularity in their election or
appt, or defect in their qualification
o
irregularities won’t undue everything done by directors
Resolution in Lieu of Meeting:
-
-
117(1): A resolution in writing signed by all the directors entitled to vote on that
resolution is as valid as if it had been passed at the meeting (quorum isn’t enough –
has to be unanimous)
o
all directors are entitled to vote on resolution at directors meeting
o
only directors designated members of a committee are entitled to vote on a
resolution of that committee
117(2): keep a copy of the resolution with minute book
117(3): minutes are evidence of whether resolution was carried or defeated, unless a
ballot is demanded
Dissent:
-
123
o
(1): Any director present at a meeting is deemed to have consented to any
65
o
o
o
o
-
resolution passed or action taken, unless:
 (a) the director requests a dissent added to the minutes
 (b) director sends a written dissent to the secretary before the
meeting is adjourned
 (c) director sends dissent by mail or delivers it to corporate office
immediately after the meeting is adjourned
 no process for abstaining, therefore. important to have
clear process for dissenting
 relevant b/c of potential for personal liability - 118
(2): director who votes for or consents to a resolution is not entitled to
dissent
 you can’t change your mind
(3): A director who was not present at the meeting will be deemed to have
consented unless that director within 7 days:
 places a dissent in the minutes
 sends a dissent in the mail or delivers it to the corp offices
(4) Defense of Due Diligence
 A director is not liable if he exercised the care, diligence, and skill
of a reasonably prudent person in the circumstances, including
good faith in:
 (a) financial statement represented by director or officer
 (b) report by a person whose profession gives them
credibility
(5) Defense of Good Faith
 A director has complied with her duties if the director relied on:
 (a) financial statement represented by director or officer
 (b) report by a person whose profession gives them
credibility
20
o
o
o
(1)(b): Corporation must retain records of minutes of meetings and
resolutions of SH
(2): required to keep directors records
(4): records in (2) shall be kept at registered office of corp or elsewhere,
and must be open to inspection by directors (access ltd to directors –
security, confidentiality)
Power of Directors
-
-
102: Management Power
o
(1): Directors have the power to manage, or supervise management of
business and affairs of corporation
o
(2) can have one or more directors, but if it’s a distributing corporation
with more than one shareholder or shares outstanding, there must be at
least 3 directors – at least two of whom may not be officers or senior
employees
103: By-Laws
66
(1) Directors may make, amend, or repeal by-laws, unless the
articles/by-laws/shareholder agreement provide otherwise
o
(2) Directors must submit by-laws or amendments to shareholders at the
next meeting of shareholders
 SH can confirm or reject it by ordinary resolution
o
(3) A by-law/amendment/repeal is effective from the date of the resolution
by the Director until:
 it is confirmed/rejected by shareholders; or
 until it ceases to be effective
o
(4) If a by-law is rejected by shareholders it ceases to be effective and no
by-law/amendment/repeal substantially the same can be made effective
until it is confirmed by the shareholders
104: Organization Meting
o
(1) After issuing a certificate of incorporation, the directors will have
a meeting at which they may:
 (a) make by-laws
 (b) adopt forms of security certificates and corporate records
 (c) authorize the issue of securities
 (d) appoint officers
 (e) appoint an auditor until first shareholder meeting
 (f) make banking arrangements
 (g) other business
o
(2) Exception  the above does not apply to corporations that have been
continued or amalgamated
o
(3) Director can call a director’s meeting by giving no less than 5 days
notice by mail to each director
115: Delegation to Managing Directors or Committee of Directors
o
(1): Directors may appoint from their number a managing director who is
a resident Canadian or a committee of directors
o
(3): Directors cannot delegate to managing directors or board of
directors the power to:
 (a) submit to shareholders any matter requiring the approval of
shareholders
 (b) fill a vacancy among the office of auditor or appoint additional
directors
 (c) issue securities (except as approved by directors)
 (c.1) issue shares of a series under 27 (except as authorized by the
directors)
 (d) declare dividends
 (e) purchase, redeem, or otherwise acquire shares issued by the
corporation
 (j) adopt, amend, or repeal by-laws
121: Delegation to Officers and Creation of Offices
o
Subject to articles/by-laws/unanimous shareholder agreement:
 (a) directors my designate officers, appoint them, specify their
duties, delegate to them powers to manage the business affairs of
o
-
-
-
67
-
-
-
the corporation (except powers outlined in 115(3)
 (b) a director may be appointed to any office
 (c) a person may hold two or more offices
123: Dissent (see above)
125: directors set their own remuneration (as well as that of officers and EEs),
unless articles, by-laws or USA fix remuneration
o
usually set their own remuneration, but delegate deter of remuneration of
officers, EEs to HR dept
133: Calling Annual Meetings
o
(1): Requires directors to call annual meeting 18 months after coming
into existence, and 15 months after last meeting
o
(2): Allows directors to call special meeting at any time
o
(3): A corporation may apply to court for an order extending the time for
calling an annual meeting
189: Borrowing Powers
o
(1) subject to articles, by-laws, USA directors may
 (a) borrow money on credit
 (b) issue, reissue, sell, pledge, debt obligations
 (c) give a guarantee on behalf of the corporation to secure
performance of an obligation
 (d) create a security interest in all or any property of the
corporation (mortgage) to secure an obligation
 directors have extremely broad borrowing powers
o
(2): Subject to articles, by-laws or USA, directors may delegate
borrowing powers by resolution to a director, committee of directors
or an officer
Common Law on Delegation
The courts are balancing (1) directors to delegate to accommodate business flexibility,
and (2) shareholders’ legitimate expectation of corporate management that they elected.
Hayes v. Canada-Atlantic & Plant
Directors cannot delegate ALL their powers to the extent that they create management
not elected by the shareholders.
articles of the company permitted the directors to annually appoint an executive
committee with powers and duties as the by-laws determined. The by-laws required the
directors to appoint two directors who, along with the president, would have the full
powers of the board of directors. Hayes and Gale, acting at the committee, removed Perry
as treasurer, directed the payment of Hayes salary, amended the by-laws such that only
presidents could call special meetings, amended the committee to two people, made it so
that directors meetings could only be called by the president. Effectively froze out Perry,
the majority shareholder.
Held:
- This delegation of power to a managing director was illegal
- Powers that cannot be removed from directors in this case:
o
Call shareholder meetings
68
Set compensation of officers
This case is an example of the courts restricting the delegation power of directors
even before 115(3) was added  excessive delegation is against public policy
o
-
Sherman & Ellis v. Indiana Mutual Casualty
Corporations can delegate managerial authorities to strangers for a limited period,
BUT not for so long (20 years) and not that much authority (all managerial authority)
Company contracted for Sherman&Ellis Inc. to be executive managers for a period of 20
years. Company later cancelled that contract, and S&E sued for specific performance.
Company defended saying the contract was void as against public policy.
Held:
- Contract Invalid:
o
(a) time frame was too long
o
(b) delegation of managerial duties was too complete
- Policy concern: that there was an expectation that the corporation be managed (or
that management be supervised by) the persons elected by the shareholders
Kennerson v. Burank Amusement
Another example of invalid delegation  the corporation must ultimately be run by
duly elected officials
BA contracted for Kennerson to manage all matters including bookings, personnel,
admission prices, salaries, contracts, expenses and “the exclusive right to fix and
establish all policies to be followed in the operation of the Manor Theatre” for a period of
five years.
Held:
- Contract invalid
- “by this contract ... the board has attempted to confer upon the manager the
practical control and management of substantially all corporate powers.”
Operation of the Boards of Public
Corporations
-
-
Often the chief officers of a corporation will also be directors.
Directors: Myth and Reality  Miles Mace
 Directors do not usually have a significant role in the management of a
corporation or monitoring management performance
 Directors tend to just vote in new presidents based on the recommendation of
the outgoing president
 However  the function of the board as an ultimate control mechanism on the
president is important
Canadian Directorship Practices: A Critical Self-Examination  Conference
Board of Canada
 (1) management often controls the board rather than the other way around and
the board’s effectiveness is often a function of the president’s desire for or
tolerance of its informed input;
69
-
 (2) boards are excessively hesitant to fire top management;
 (3) a person with a full-time job cannot adequately attend to directorship
duties if he holds more than two to six outside directorships.
The Structure of the Corporation  Eisenberg
 instead of trying to make sure boards of directors were in a position to actually
“manage” or even “supervise the management” of the corporation, it would
better to focus on what boards might reasonably be expected to do and then
adjust the law and the structure of boards to meet such expectations
 Suit the law to the practice
 The board should be controlled by non-management outsiders and the board’s
audit committee (the committee of the board that reviews financial disclosure)
needed to be made up exclusively of outside directors.
 Note: the American Law Institute later published a report, based heavily on
Eisenberg’s principles, that recommended that a majority of directors of
public corporations be independent of management
Duties of Directors and Officers
These duties are concerned with controlling the actions of directors and managers, such
that they work for the best interests of the corporation as a whole. The classical theory
holds that these duties are owed to the corporation in its entirety, not just the
shareholders or a specific group of shareholders.
Cases will almost always involve both fiduciary duty and duty of care, as well as
oppression claims – the categories, though provided for separately in the Act, are very
intertwined.
Statutory Core:
122:
- (1) Every director and officer of a corporation in exercising their powers and
discharging their duties shall:
 (a) act honestly and in good faith with a view to the best interests of the
corporation
 fiduciary duty  duty to act for the corporation and not for
yourself
 subjective/objective test: Peoples
 (b) exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances
 duty of care  duty to bring diligence, skill, consideration to your
acts
 Pure objective test: Peoples
- (2) Duty to Comply With The Law  Every director and officer of a corporation
shall comply with this Act, the regulations, articles, by-laws and any unanimous
shareholder agreement.
- (3) You Can’t Opt Out  Subject to subsection 146(5), no provision in a contract,
the articles, the by-laws or a resolution relieves a director or officer from the duty
70
to act in accordance with this Act or the regulations or relieves them from liability
for a breach thereof
(BCBCA 142  essentially the same as 122)
Fiduciary Duty
**broad and equitable duty that directors/officers owe to the Corp (Canaero)**
Arises in 3 circumstances
- transacting with the corporation
- taking corporate opportunities
- competing with the corporation
Transacting With the Corporation
Self-dealing: Ks or transactions concluded between the directors and officers of a corp, either directly or
through their interaction in another entity, and the corp itself
Common Law Rule  Aberdeen Railway
- Strict rule against transacting with a corporation  No actual or potential conflict
of interest can be tolerated
Statutory Modification  CBCA 120
- Limited statutory window for a director to contract with the corporation
- 120
 (1) Requirement to Disclose: nature and extent of any interest, if the
director:
 Remember: the Duty to disclose is absolute  Repap (must be total
disclosure)
 (a) is a party to the K/ transaction
 (b) is a director or officer or similar of a party to the K/ transaction
 (c) has a material interest in a party to the K/ transaction
 (2) Disclosure for Directors Must Happen ASAP
 (a) when the proposed K/ transaction is first considered
 (b) if the director was not first interested, whenever that director
becomes interested
 (c) if the director was not interested when the K/transaction was
first made, when he becomes so interested
 (d) if the individual who was interested later becomes a director
 (3) Disclosure by Officers Must Happen:
 Officers are given slightly more leeway, as they may not be as
aware of the transaction
 (a) immediately after he becomes aware of a K/ transaction in
which he is interested
 (b) If he becomes interested after a K/transaction is made,
immediately after he becomes interested in that K/ transaction
 (c) if an individual who is interested in a contract later becomes an
71






officer, immediately after he or she becomes an officer
(4) Minor Transactions:
 if it is a transaction which in the ordinary course of the
corporations bus, would not require approval by SH or Board, a
director or officer shall disclose interest in writing immediately
after he becomes aware of the transaction
(5) Director Must Abstain from Voting where they have an Interest:
 Unless the contract:
 Relates primarily to their remuneration
This is weird, seems like the biggest conflict of all
 Is for indemnity or insurance under 124
 Is with an affiliate
(6) Continuing Disclosure:
 general notice to directors declaring that a dir is to be regarded as
interested, for any of the reasons set out in (a) to (c) is sufficient
declaration of interest in K or transaction
(6.1) Access to Disclosures:
 Shareholders have access to the disclosures of material interests by
directors and officers
(7) Director’s Ratification:
 A meeting of directors (in which the interested director cannot
vote) can ratify a K/ transaction made by an interested director, as
long as:
 (a) disclosure was made in accordance with (1) – (6)
 (b) directors approved the contract or transaction
 (c) the contract or transaction was reasonable and fair to the
corporation when it was approved
 procedural fairness (procedure of the contract
formation)
 substantive fairness (substance of the contract)
 Cree Lake – would an independent board acting in
good faith in the best interests of the corporation
have approved the transaction
(7.1) Shareholder’s Ratification
 even if you don’t manage to save the transaction through
compliance with (7), shareholders can ratify the transaction, as
long as:
 (a) K/transaction is approved by special majority
 (b) disclosure was made sufficiently to indicate its nature
before K/trans was approved
 (c) the contract or transaction was reasonable and fair to the
corporation when it was approved
 procedural fairness (procedure of the contract
formation)
 substantive fairness (substance of the contract)
 Cree Lake – would an independent board acting in
72
good faith in the best interests of the corporation
have approved the transaction
 (8) Court Orders:
 A corporation or SH may apply to a court for an order if dir or
officer fails to comply with this section  the court may set aside
K or transaction, order director or officer to account for
profits, or both
Aberdeen Railway v. Blakie Brothers
Court set out the strict common law rule for transacting with your own corporation
(later replaced by CBCA 120)
BB was a partnership that manufactured chairs, contracted to sell chairs to AR. One of
the Blakie Brothers was also a director in the AR corporation. Company later repudiated
the contract for sale.
Held:
- Partnership could not enforce the contract  invalid due to director transacting
with his corporation
- Common Law Rule
 Corporations can only act through agents
 Agents are bound by fiduciary duty to act for their principles
 No director (being an agent) can contract with their own corporation  it
creates a conflict or a potential conflict of interest
Transvaal Lands v. New Belgium Development
Director cannot, without proper disclosure and ratification, buy shares from another of
his companies or from an organization of which he is a trustee  “material interest”
in 120(1)
3 directors of Transvale, Mr. Young (chairman), Harvey, and Samuel who was a director
of both corporations. Both Samuel and Harvey have a conflict of interest. At a meeting of
Transvale board, Samuel said they should buy shares of a 3rd company from New
Belgium. Samuel abstained from voting on the resolution, because he was director of
both corporations. He argued in favour of it, but abstained from voting. Harvey voted on
the resolution, despite owning significant shares of New Belgium as a trustee
(shareholder in the seller and director in the buyer).
Held:
- Contract was voidable  Transvale could recover its purchase price on return of
the shares
- Even though Harvey held shares in New Belgium as a trustee, his fiduciary duty
as a trustee shareholder (to get the highest price) was in conflict with his fiduciary
duty to Transvale (to pay the lowest amount)
Taking Corporate Opportunities/Competition
The problem arises when directors or officers independently invest in a project that could
have been acquired by the corporation, abuse corporate assets, or loot a corporation.
73
Policy:
- presumption is that if the opportunity is a good one, and it arose out of the
business of the corporation, then it is presumably in the best interests of the
corporation
- Shareholders may have reasonably expected that any business opportunities that
arose out of the use of the funds they contributed would be taken advantage of for
their benefit
Breach of FD in taking a corporate opportunity or competing with the corporation
cannot be ratified unlike transacting with the corporation  Cook v. Deeks
Historical Rule  Cook/Regal
- Can’t take personal advantage of an opportunity that arose in the course of, or in
the execution of, the duties of a director or officer, regardless of whether the
directors or officers had rejected the opportunity in good faith on the basis that the
corporation could not or should not take the opportunity
Cook v. Deeks
Example of a classic breach of fiduciary duty  misappropriation of a corporate
opportunity
C was director and shareholder of railway company (CCC). Deeks were the other
directors. They wanted to exclude C from the business, and thus they contracted with
CPR, and acted as if they were still acting for CCC (though at the end they signed in their
personal capacity). D then used their votes to pass a shareholder resolution declaring the
company had no interest in the contract, and started a new company to deal with the CPR
contracts. C left with inactive corp, brought action that the CPR contract should have
been with the CCC.
Held:
- Breach of Fiduciary Duty
 They deliberately designed to exclude, and used their influence and position to
exclude, the corporation whose interest it was their first duty to protect
 They used their position of agency with regard to the corporation to benefit
themselves
 Negotiated K w/CPR in same manner they always had for TTC,
but for their own benefit
- Majority of shareholders could not ratify this taking of corporate opportunity
 Taking a corporation opportunity cannot be ratified – is essentially
stealing from the corporation (can’t vote your shares in favour of you stealing
from corporation)
Regal (Hastings) v. Gulliver
Applied the strict rule from Cook v. Deeks, even in a situation where the directors
appeared to be acting in the best interests of the corporation
Regal (cinema company) offered a lease on two prospective cinemas. Regal incorporated
a subsidiary (A) and gave it $2000, and tried to negotiate a lease with the landlord. The
landlord wanted a personal security or $5000 of capital payment. The corporation did not
have $5000, so Gulliver and the other directors (plus some outside investors) each put up
74
$500. The investment made a huge profit when the corporation was sold (purchasing
company paid more than the $1/share originally put in, in order to get all the shares and
assets of Regal and A). The directors were changed, and the new board sued Gulliver et
al. for taking a corporate opportunity
Held:
- Strict rule applied
 Regal’s former directors were liable because they had acquired their shares in
A only due to their relationship w/Regal and, despite acting in good faith,
must account for personal profit
- Under the strict rule, it was irrelevant that Regal suffered no loss, and that the
opportunity would have otherwise been lost
 The test was whether the director’s profited
Note: arguable, the relaxed rule from Peso would still apply here, since the corporation
did not bona fide abandon the opportunity
Current Slightly Relaxed Rule  Peso
- If the directors/officers of a corporation reject an opportunity on the basis of a
bona fide decision that it is not in the best interest of the corporation, then
directors or officers can take the opportunity
- Still can’t take the opportunity FROM the corporation
Peso v. Cropper
Relaxed the strict rule from Regal  If you have a bona fide decline of the offer, based
on full disclosure and good and reasoned basis to refuse an opportunity, then a
director is not liable to account for profits s/he makes on their own
Peso had silver mine claims. Cropper was promoter and director, and had significant
influence over the board. Peso was offered 3 groups of mining claims through Cropper.
Peso’s board (including Cropper) concluded that Peso could not afford to make the
investment. 6 weeks later Cropper et al. were approached and decided to create a private
company to take over the claims. Peso taken over by another corporation, which brought
action against Cropper for the proceeds from the corporate opportunity. Cropper testified
that he had forgotten about the offer to Peso, as he dealt with 200-300 such offers.
Held:
- Relaxed the strict rule from Regal
- Croper not liable to account for profits
 Cropper owed FD to Peso, but did not take advantage of the opportunity when
it belonged to the corporation  during the time before the offer was rejected
by the corporation
- The board of Peso had made a bona fide decision not to take the claims  After
which, the offer no longer “belonged” to the corporation
Widening the Scope of Fiduciary Duties
Canaero v. O’Malley
Court widened the scope of fiduciary duties:
(1) Officers (as well as directors) owe fiduciary duties to their corporations
75
(2) Fiduciary duty to account for corporate profits can extend beyond the director
or officer’s term of office
C wanted to secure a topographical mapping contract. O and Z were company president
and VP. They did research and visited the site numerous times, building a relationship
with bid company. They were concerned about limitations imposed by the parent
company on the bids they were allowed to submit (concerned for their jobs if they failed
to secure a bid). They left C and formed their own company, which later bid on the same
mapping contract and won. C sued them for the profits made from the bid, on the grounds
that they took advantage of a corporate opportunity
Held:
- Officers were liable to account for profits  they owed a FD to the corporation,
and they breached it by taking advantage of the opportunity before Canaero had
passed on it
- Test is NOT whether the principle lost profit, but whether the agent gained profit
- FD Extended of Officers
 If you have managerial duties to a corporation, and effectively occupy a
management role, you will owe fiduciary duties to that corporation regardless
of whether you have been properly legally elected/appointed
 Fiduciary duties have since been extended to other employees within a
company
- Whether there is a FD in each case must be assessed on the facts:
 Position or office held
 Nature of corporate opportunity
 Ripeness of the opportunity
 Specificity of the opportunity
 Director/Officer’s relationship to the opportunity
Note: The court says that the reason fiduciary duties are extended and imposed strongly
on directors/officers of corporations flows from the need to have someone in socially and
economically powerful corporations held personally accountable for their actions  the
duty is not only to the shareholders, but to society in general
Duty of Care
Prior to s. 122 CBCA: the common law standard was very lenient, it was very difficult
to find liability for a breach of duty of care  Re: Equitable Fire Insurance Co.
- Reasonable Care: measured by the care of an ordinary person in the circumstances
- Degree of Skill: degree of skill which can be expected of a person of his/her
knowledge and experience
- Degree of Attention: director not bound to give continuous attention
- Trust of Officials: directors can trust officials in the absence of grounds for
suspicion
122(1)(b)  a director/officer must exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances
- much stricter standard than the common law standard
76
-
Standard of Care: objective test of the reasonably prudent person in comparable
circumstances  Peoples
 directors have a duty to adequately inform themselves to make reasonable
business decisions  Repap
 The standard does not take into account subjective characteristics of
individual directors – or their lack of ability  Peoples
 if you want to avoid liability under 122(1)(b), make sure you get the right
advice, read the documentation, properly inform yourself
-
Owed To: the corporation
 Note: In Peoples, the court also held that the duty was owed to “another”
 it is unclear whether this would apply elsewhere than Quebec
 Peoples would have been the first time a directors would be liable
for breaching a duty of care to someone other than the corporation
or shareholders
Note: In cases where it is not the government bringing suit against corporate
directors/officers for failure to exercise proper care in withholding/remitting taxes, it may
be less useful for shareholders to cause the directors to pay damages, because:
- Directors are usually insured by the corporation, so the damages they were liable
for would be paid and then indemnified by the corporation
- Shareholders have other remedies (voting out directors, selling their shares)
Peoples Drug Mart v. Wise
Court considers director/officer fiduciary duty and duty of care, but find there has not
been a breach
Wise family owned 75% of shares of Wise corporation, then purchased all the shares of
Peoples for 27mil (fully leveraged, borrowed from TD). The deal prohibited Wise and
Peoples from amalgamating for 8 years, but they could combine management and
operations. So, Wise owned 100% of peoples and 75% of Wise corp. Inventory and
warehousing fell apart because of incompatible systems. VP of finance advised
purchasing be divided between Wise and Peoples. End result was Wise deeply indebted
to Peoples, both companies go bankrupt. Trustee in bankruptcy for Peoples sues Wise
family for breach of duty of care and fiduciary duty. Trustee argues that the duties of
officers/directors extend from shareholders to creditors “in the vicinity of insolvency”
Held:
- To Whom is the Duty Owed:
 Fiduciary duty is owed to the corporation
 However, in determining the best interests of the corporation, it
may be legitimate, given all the circumstances, for the directors to
consider the interests of SH, employees, creditors, consumers,
govt, etc (adopts Teck)
 Duty to act in best interests of corporation doesn’t shift in vicinity
of insolvency to the creditors in the vicinity of bankruptcy per se
 though you can take their interests into account
77
 The standard of care must be met in general
- Fiduciary Duty
 No Breach
 Standard: is subjective/objective (unlike DoC standard)
 Takes into account the intentions and good faith of the director
 Fiduciary duty was satisfied by the director’s use of reasonable skill and
judgment in a good faith attempt to further the interests of the corporation
 Wise family relied upon advice/information from informed parties
and professionals in making their decision
- Duty of Care
 No Breach
 Standard: Reasonably Prudent Person in Comparable Circumstances
 This is a purely objective test  “comparable circumstances”
does not go to the knowledge/skill of the director, just the
circumstances in which the director finds himself
 Director must be know what is going on, and act appropriately
 In this case, the directors met the standard
 Their decisions were reasonable, made in reasonable reliance on
documents prepared by professionals
 Business judgment rule – perfection was not demanded, these were
bona fide business decisions
Note: Oppression would have been a good remedy here – this is why oppression happens
more and more recently
Defenses to Breaches of Duty
First: Important to identify whether the person is a director or an officer. If the person is
both, must determine whether the alleged wrongful action was taken while the person
was acting as a director or an officer
STATUTORY DEFENCES:
123(4): Defence of Reasonable Diligence
- It is a defence to DIRECTOR’S liability under 118 or 119, if the director
complied w/122(2) and met the standard of care, including relying on:
o
(a) financial statements prepared by officer, auditor, or professional
o
(b) report of professional whose profession lends credibility to the report
123(5): Defense of Good Faith
- It is a defense to DIRECTOR’S liability in an action for breach of FD under
122(1)(a) or (b) if the director acted in good faith, i.e. relied on:
o
(a) financial statements prepared by officer, auditor, or professional
o
(b) report of professional whose profession lends credibility to the report
Only a defence to directors (e.g. wouldn’t have applied in Canaero)
BUSINESS JUDGMENT RULE: (Maple Leaf Foods – the court looks to see that the
78
directors made a reasonable management decision, not a perfect decision)
Directors and officers will only avoid liability under 122(1)(a) and(b) of the CBCA
for business judgment decisions if they act prudently and on a reasonably informed
basis
- this is only an element of a defense
- directors/officers must also show that their decisions were well informed and
undertaken with a reasonable degree of prudence and diligence
Courts are hesitant to second-guess bona fide management decisions
- Perfection is not demanded, it must only be shown that an appropriate degree of
prudence and diligence was brought to bear in reaching what is claimed to be a
reasonable business decision at the time it was made
Decisions must be:
- (a) reasonable business decisions
- (b) in light of all the circumstances about which the directors or officers knew or
ought to have known
Presumption of Good Faith  Consolidated Enfield
- court held that
Oppression Remedy
Usually, a complainant will bring action for breach of Fiduciary Duties, breach of Duty
of Care, and Oppression  usually arguing that the breaches of FD and DoC lead to an
“oppressive environment” (See Repap)
What is Oppression?
- First used in older English cases to describe conduct by a more powerful
corporate player against a weaker
o
Elder v. Elder & Watson (1952)  the conduct complained of should at
the lowest involve a visible departure from the standards of fair
dealing and a violation of the conditions of fair play on which every
shareholder who entrusts his money to a company is entitled to rely
o
Scottish Co-operative Wholesale Society v. Meyer (1959)  “actions that
are burdensome, harsh and wrongful’” conduct, which may fall short
of actual illegality or invasion of legal rights but can be described as
“reprehensible”
- CBCA expands the remedy to respond to acts or omissions which are “unfairly
prejudicial to” or that “unfairly disregard the interests” of a security holder,
creditor, director or officer
o
An application under section 241 is a means by which shareholders and
others may seek to have their reasonable expectations, and not merely
their legal rights, recognized and respected
1. 238  Who can bring an oppression action:  broad definition of “complainant”
a. Security holder or former security holder (e.g. SH, debenture holder, bond
79
holder)
i. SH who has dissented still has access to oppression remedy b/c
“complainant” includes “former SH”
b. director or officer, or former director or officer of corporation or its affiliates
c. The Director
d. Any other person who is a proper person at court’s discretion
i. If the court believes that this person stands in a relationship with the
corporation such that they should be allowed to complain as to the
management and operation of that corporation, they will be allowed
to complain
ii. Peoples – SCC noted trade creditor should have brought oppression
action
iii. Downtown Eatery – employee entitled money for wrongful dismissal
found that the corporation that had paid him was asset-less, he
successfully brought an oppression action against the parent
corporation, despite only being a creditor
241  OPPRESSION REMEDY
(1) Apply to court for an oppression order (BC – petition to BCSC, proceed on
affidavit)
e. Summary application to court, expedites process as confirmed by s.248
f. Court may order trial on specific issues (e.g. credibility)
(2) Establish Grounds that act or omission of corporation, business or affairs of the
corporation have been carried on or conducted in manner, or powers of directors have
been exercised in a manner that is oppressive or unfairly prejudicial or that
unfairly disregards the interests of any SH, Creditor, Director or Officer
Conduct by the following can constitute oppression:
g. act or omission by corporation or its affiliates effects a result
h. carrying on or conducting bus and affairs of corporation in a manner
i. powers of directors of corporation or affiliate are or have been exercised in a
manner
-
-
(a) Does the evidence show a breach of reasonable expectations? (BCE)
o
1) show that you have reasonable expectations
o
2) show that they have not been met
o
3) THEN look to whether the stakeholder has suffered some kind of
oppression
OBJECTIVE TEST: are the expectations reasonable, having regard to the entire
context?
o
Factors to Consider:
 Relationship at issue
 Sophistication of the parties
 Past practice
 Steps that could have been taken
80
o
What has not been reasonable expectation:
 Brant v. KeepRite  minority shareholders (sophisticated
commercial parties) did not have a reasonable expectation that the
corporation would not be merged
 BCE Inc.  sophisticated debentureholders did not have a
reasonable expectation that the corporation would not be a target
for takeover
Remember: Directors owe a duty to the entire corporation, not to any one group in
particular
(3) Court may make any order it sees fit, including: (non-exhaustive)
**broad discretion to deter what is fair
- Court will not impose punitive remedies (Naneff)
- Court will not harm an innocent 3rd party (Cinoplex)
- Remedy will not exceed the reasonable expectations (Naneff)
o
In that case, the TJ awarded the son with all the shares in the corporation,
which was way beyond his reasonable expectations
(a) Order restraining the conduct complained of (247) (Ferguson)
(b) Order appointing receiver/receiver manager
(c) Order to amend articles, by-laws, or USA (subject to 241(4), (5))
(d) Order directing an issue or exchange of securities
(e) Order appointing dirs to replace or in addition to dirs
(f) Order directing corp or other person to purchase shares of SH (241(6)) (Westfair,
Naneff)
(g) Order directing corp or other person to pay SH what they paid for their shares
(241(6))
(h) Order varying or setting aside a transaction or K to which a corp is a party and
compensating the corp or any other party to the transaction or K (Repap)
(i) Order requiring corp to produce financial records pursuant to s.155
(j) Order compensating aggrieved person
(k) Order directing rectification of registers or other corp records (243)
(l) Order liquidating or dissolving corp (214)
1. Remedy of last resort  reluctance where another remedy would provide
adequate or effective relief
2. Not ordered where no evididence of mismanagement or corp is
successful/profitable
(m) an order directing an investigation under Part XIX to be made
(n) Order requiring the trial of any issue
(4) Directors must comply and implement and order to amend articles or by-laws
a. must send notice of amendment to Dir
b. directors can’t then amend articles without courts approval (can’t just amend
back)
(5) SH cannot dissent under s.190 if order is made under this section to (c) amend
81
articles
(6) Corporation can’t make payment under 3(f) or (g) to SH if doing so would
render the corporation insolvent
Repap
Example of breach of Fiduciary Duty, Duty of Care, and Oppression Remedy
Corporation is struggling, Berg is major SH and brings in 3rd Ave Investments who
becomes a major shareholder, recommends Berg be made chairman of the board, and
together they appoint several directors. Berg retained independent counsel without
consulting Repap’s in-house counsel, and had ridiculous employment contract drafted
(including extravagant bonus clause linked to market fluctuations). It was presented to
the board over concerns. Chair of compensation committee resigns, board is filled with
cronies. Berg gets memos expressing concern, does not disclose them to the board. Berg
also does not inform board of last-minute changes to K. Board passes K without
consulting compensation committee’s report, dissenting director resigns, Berg did not
vote on K. Berg deposed at next shareholder meeting, sues for 27mil. TD asset mgmt (on
behalf of dissenting shareholders) bring actions.
Held:
- The Ultimate Question: what is reasonable and fair to the corporation?
- Claim Against Berg
o
Breached FD of honesty and good faith (122(1)(a))
o
Contracted with the corporation
o
Did not disclose information relevant to the judgment of the directors:
 Concerns expressed to him
 Dispute between in-house and outside counsel
 Duty to disclose is a Fiduciary duty owed by all agents to their
principals
o
Duty to Disclose is Absolute:
 No defense that directors could have learned of it themselves
 Porcupine Mines  must disclose enough so that the
directors/shareholders know the “Real details”
- Claim Against Directors
o
Breached Standard of Care (122(1)(b))
o
Could not be saved by Business Judgment Rule
 Court looks to see that the directors made a reasonable decision,
not a perfect decision
o
In this case:
 Didn’t take steps to properly inform themselves
 Didn’t read the consultant’s report
 Could have discovered with minimal effort that Repap didn’t need
and couldn’t afford Berg
 Directors who disagreed had an obligation to dissent, and failed to
do so
- Oppression Remedy
o
241: court can act where conduct is oppressive, unfairly prejudicial or
82
o
unfairly disregards the interests of SH, even if the conduct is lawful
In this case:
 241(3)(h) – set aside the compensation K
BCE Inc. v. 1976 Debentureholders
Leading Case on the court looking to the REASONABLE EXPECTATIONS of the
parties in determining whether there has been oppression
Offer by ON teachers pension plan for takeover of BCE (debentureholders are part of
BCE). Competing takeover bids coming in. Independent Strategic oversight committee
set up to supervise the process and determine which bid should be recommended to the
shareholders as the best bid for the company. Committee recommends that the teachers
bid be taken. Directors don’t own the shares, but recommend to shareholders which is
best for corp and best deal for shareholders → they said to take Teachers’ bid.
Shareholders were getting a big premium and thus voted in favour. Debentureholders are
not happy, b/c more debt will be issued, thus diluting the value of the current debt they
hold. They seek oppression remedy.
Held:
In this case, there was no oppression
 Court looks to the reasonable expectations of the debentureholders  they
were sophisticated commercial players and powerful financial institutions who
should have known that BCE was a takeover target, which could affect their
debt value
 COurt suggests that the debentureholders should have looked out for their
own interests (if you don’t like the terms of the debentures, don’t but them)
 Directors owe their duty to the entire corporation, not specially to one groups
best interests
 Debentureholders had a reasonable expectation that the directors would
consider their interests as well as the shareholders interests  this expectation
was met
Shareholder Ratification
Common Law
- SH can ratify transaction where there is conflict of interest (Aberdeen Railway,
Northwest)
- SH can’t ratify taking of a corporation opportunity (Cook v. Deeks)
CBCA:
- 122(3): Generally, there is No Ratification of Breaches of Duties  resolution
of SH or directors cannot approve any other breach of duty, other than one
specifically allowed under 120(7.1)
-
120(7.1): SH can ratify a transaction or contract for which disclosure is required
under (1) if director or officer was acting honestly and in good faith:
(a) the K or transaction is approved or confirmed by special resolution at a
meeting of the SH,
(b) sufficient disclosure was made, AND
83
(c) the K or transaction was reasonable and fair to the corporation
i. procedural fairness (procedure of the contract formation)
ii. substantive fairness (substance of the contract)
1. Cree Lake – would an independent board acting in good faith in
the best interests of the corporation have approved the
transaction
-
Remember: 120(8): disgruntled person (e.g. min SH) can apply to court to have K
or transaction set aside
o
Would likely have to show one of (7.1)(a) through (c) was violated
-
242(1): SH ratification is not conclusive, court can still find oppression  court’s
jurisdiction not ousted by ratification
o
SH ratification will be evidence that there was no oppression
Other CBCA Duties of Directors
3. 122(2): DUTY TO COMPLY W/ACT, REGS, ARTICLES, BY-LAWS, USA
- 251: failure to comply is an offence
- 123(4): defence of reasonable diligence (BJR, reliance on financial statements or
professional advice)
Joint and Several Liability for things that will make a
corporation insolvent
118:
1. If Directors vote for or consent to a the issuance of shares for
consideration other than money, they are jointly and severally liable to the
corporation for the amount by which the consideration is less than the money
value of the share
2. Directors are Jointly and Severally Liable if they vote/consent to:
a. Purchase/redemption/acquisition of shares contrary to 34/35/36
b. Commission contrary to 41
c. Payment of dividend contrary to s.42
d. Payment of an indemnity contrary to 124
e. Payment of a SH contrary to 190 or 241
These are all situations in which the actions would make the
corporation insolvent
3. Directors can recover against other directors who voted/consented to the
unlawful act
4. Directors can apply to court to recover money paid to SH contrary to s.42
84
5. Court may :
a. order SH to repay director
b. order corporation to return or issue shares to person from whom it has
purchased/redeemed, or
c. make any further order it thinks fit.
6. Defense  A director not liable under (1) if he proves that he didn’t know
and could not reasonably have known that the share was issued for
consideration less than the fair equivalent in money
7. Limitation  Action must be brought against dir w/in 2yrs of the res being
authorized
Who can bring action:
- corporation
- trustee in bankruptcy or receiver  step into shoes of corporation to recover
debts owed to corporation
- new control SH  recover amts improperly paid by directors
123(4): defense if you exercised the care, diligence and skill that a reasonably
prudent person would have in comparable circs, including reliance in good faith
on (a) financial statements or (b) professional advice
**directors at risk if they don’t meet standard of care
Joint and Several Liability for Wages
119:
(1) Directors have joint and several liability to employees of corporation for all
debts not exceeding 6 months wages, payable to each employees for services
performed for the corporation while they were directors (Barrett, Proulx)
(2) Directors Not Liable Unless
a. EE has sued corporation and corporation is unable to pay
b. Corporation has gone into liquidation and dissolution, and action for
wages was commenced w/in 6 months of earlier of date of
commencement and dissolution
c. Claim made w/in 6 months of assignment or bankruptcy
(3) Limitation  Have to sue while they are a dir or w/in 2yrs of ceasing to be a
directors
(4) The Amount Recoverable from director is amount of wages left outstanding
by corporation
(5) Subrogation – director can step into shoes of employee and recover whatever
is left after bankruptcy
(6) Recovery  Director who has satisfied a judgment is entitled to recover
against other directors who were liable
Policy: (Barrette)
85
-
-
employees are in most vulnerable position – wages are usually sole source of
income
employees don’t have good access to mgmt info – unlikely to be aware of
financial state of company
employees usually paid bi-weekly or once a month, so unlikely dir would ever be
liable for full six months
If company can’t make payroll  good sign it is going down and smart dir will
resign
Statutory liability forces dir, when exercising their duties, to take into account the
interests of employees (as Teck said they should)  specific statutory protection
for at least one stakeholder
Other small creditors of corporation don’t have this protection
Barrette v. Crabtree Estate
To be entitled to recover, employees must establish that the wages were for “services
performed for the corporation”
Wabasso Inc. goes bankrupt, plant closes and all employees laid off; former employees
bring successful action for wrongful dismissal and are awarded damages in lieu of notice
of $300k. The employees are also trying to recover damages against directors personally
under 119.
Held:
- The corporation was liable for wrongful dismissal, BUT to be entitled to recover
under 119, employees must establish that the debt is “for services performed for
the corporation”
1. In this case, the damages that the corporation was unable to pay were for
wrongful dismissal, not for services performed
2. Directors are not liable for every debt of the corporation
- Liability for wages is, essentially, If directors know that the corporation is in
financial difficulty and continue to utilize the services of employees who they
know won’t be paid, as a matter of fairness the directors should be liable w/in
reasonable limits
Proulx v. Sahelian Goldfields
Directors can be liable for expenses incurred for services performed for the
corporation – even if they are not wages
Employees working in Africa for corporation; employer K provides for salaries, vacation
pay and reimbursement of expenses. Corporation goes under, and employees bring action
against corporation and its directors for back wages, vacation pay and reimbursement.
Held:
- directors were liable for the wages, vacation pay, and reimbursements
- Not wages, but is a debt in relation to services performed in the duties of their
employment to the corporation
1. The maximum is the equivalent of 6 month’s wages
86
Obligations Under Other Legislation
Directors can be personally liable for failing to reasonably prevent the corporation from
illegal activities
BC Employment Standards Act
“Corporation” under the BCBCA is not restricted to BC corporations
- Most CBCA corporations, if they are carrying on business in BC, would be liable
under the CBCA and the Employment Standards Act
- Discrepancy: Directors of a bankrupt corporation would not be liable under the
Employment Standards Act, but would be under the CBCA
Section 96  Corporate Officer’s Liability for Unpaid Wages
-
(1) Directors/Officers can be liable for up to 2 months unpaid Wages
(2) Despite subsection (1), directors/officers are not personally liable for:
 (a) Wrongful dismissal payments or payment in lieu of notice if the
corporation is in receivership.
 (b) Any liability to an employee for wages, if the corporation is bankrupt
 This is Weird – normally it is when corporations are bankrupt that
employees look to sue directors
 Rationale:
 This protects directors in bankruptcy
 This encourages directors to stay on board even as their
company nears bankruptcy
 (c) vacation pay that becomes payable after the director or officer ceases to
hold office, or
 (d) money that remains in an employee's time bank after the director or officer
ceases to hold office.
Section 95  Amalgamating Parents and Subsidiaries
- Basically: allows directors of ESA to impose liability on any corporation and the
directors of that corporation
- if the director considers that businesses, trades or undertakings are carried on by or
through more than one corporation, individual, firm, syndicate or association, or
any combination of them under common control or direction,
 (a) the director may treat the corporations, individuals, firms, syndicates or
associations, or any combination of them, as one employer for the purposes of
this Act, and
 (b) if so, they are jointly and separately liable for payment of the amount
stated in a determination, a settlement agreement or an order of the tribunal,
and this Act applies to the recovery of that amount from any or all of them.
 go after the directors personally is when the corporation is bankrupt
Piercing the Corporate Veil?
- 95 – courts can pierce the veil to consider parent companies “employers” where
87
-
their subsidiary companies are employers, and thus hold parent companies liable
96(4) – employees can target a director or officer in a “syndicate” that a director
or officer treats as one employer (an affiliated company, or parent company, that
the director or officer treats as part of the employee’s employer)
R v. Bata Industries Ltd.
Example of director liability under other provincial standards acts  Corporate
Charges brought against corporation and 3 directors for causing chemical waste spill into
river. Directors charged with not taking reasonable care in the storage of chemical waste
from shoe factories (directors had consulted with removal company, but removal did not
happen for 6 years, despite concerns). Directors argued they had met the prescribed due
diligence standard.
Held:
- BATA is convicted of environmental standards offence, and then the court looks
to the liability of individual directors
 Remember, directors owe a duty of care to the world at large
- Once the offence by the corporation has been established, the burden is on
the directors to show due diligence in preventing the issue from arising:
 Factors to Consider:
 Director responsibility to review environmental reports
 Director awareness of the industry standards
 Directors should ensure that appropriate systems are in place
 Directors should immediately and personally react when they
know that things have gone wrong
- Bata
 Established due diligence
 He had done what was appropriate at his level of delegation – appointed a
responsible president and stated that environmental concerns should be a
company priority
- Marchant
 Liable
 Problem was brought to his personal attention – had knowledge for 6 months,
but took no steps to address it
- Weston
 Liable
 Responsibilities as “on-site dir” make him more vulnerable to prosecution
 Was aware of chemicals used and environ hazard; dismissed quote out of
hand w/o further investigating it
 Accepted second quote solely on basis of price – can’t rely on bus judgement
rule b/c decision was not informed and therefore was not reasonable
Tort Liability of Directors and Officers
Tension:
88
-
-
If every time a corporation was liable for breach of contract that liability could be
shifted to the corporate directors, it would have an unreasonably chilling effect on
the actions of directors
On the other hand – you shouldn’t be able to hide behind a corporation if you
personally have committed a tort
Said v. Butt
Bona Fide actions of a director within his authority and on behalf of a corporation will
not expose the director personally to tort liability FOR BREACH OF CONTRACT
S had friend (Agent) buy a ticket to a theatre which he had maligned, and was denied
entry on night of performance. Theatre was successful in barring him because they
reasonably expected the Agent to be performing the contract, and could prove that they
would never willingly have made the contract with Said. Court also considered a claim in
tort against Mr. Butt personally, director of the palace theatre corporation (Said argued
that he had induced the corporation to breach the contract)
Held:
- Allowing this action would make directors personally liable for every breach of
contract of their corporation  essentially transferring liability from corporation
to directors
- Directors that act within his bona fide powers on behalf of a corporation is in a
different position than a stranger that wrongfully induces the breach of contract
ADGA Systems v. Valcom Ltd.
Upheld Said v. Butt, but noted that THE GENERAL RULE is that directors can be
personally tortuously liable when they are not acting bona fide in their authority as
directors
Appeal from an order granting summary judgment to dismiss the action against Valcom –
CoA essentially saying that the case should be heard. Both corporations were bidding on
a contract – conditions of the bid were to list names and qualifications of 25 senior
technicians. ADGA had 45 technicians, alleged that Valcom had none. Valcom had
allegedly been attempting to poach technicians from ADGA, and had persuaded all but
one technician to sign on. Allegation is that Valcom and its senior directors personally,
induced ADGA employees to breach their contracts and fiduciary duties.
Held:
- Upheld Said v. Butt  If an individual acting bona fide within his powers as
director of a corporation causes that corporation to breach a contract, that
individual will not be held personally liable
- However  If the directors/officers have independently committed tortuous
conduct, then they can be held liable as well as the corporation
 In this case:
 Said v. Butt does not apply  The directors were not causing
employees of their corporation (Valcom) to breach a contract, they
were inducing employees of ADGA to breach
Indemnification and Insurance
89
Always subject to by-laws
Policy:
- indemnification is to encourage reasonable, good faith behavior  the cost of
mistakes made while acting in good faith w/view to best interests of the corporation
shouldn’t be visited upon the individual)
- Most corps have by-laws making indemnity a right – most directors and officers
would ask for a contractual commitment to indemnify
- The other option is insurance under 124(6) – an individual would particularly want to
make sure there is insurance in place in situations not just where there is conflict, but
where there is the possibility that the corporation will fail (if corporation can’t pay,
indemnity is useless)
124
- (1): A Corporation MAY indemnify a directors or officer, etc. against all costs,
charges, expenses or judgment REASONABLY INCURRED by reason of
association with the corporation (e.g. position as dir, officer)  discretionary and
must meet (3) (Consolidated Enfield)
o This is probably for situations where a corporation voluntarily indemnifies a
director/officer
- (2): A Corporation MAY advance money to officer of dir for costs of proceeding,
but must repay if doesn’t meet conditions of (3).
- (3): Corp MAY NOT indemnify UNLESS the person:
(a) acted honestly and in good faith w/a view to best interests of corporation
(b) In the context of a criminal proceeding had reasonable grounds for believing
conduct was lawful
- (5): A Director or officer has RIGHT to be indemnified with regard to all
reasonable costs incurred by reason of association with the corporation, IF:
1. The expenses must be reasonable incurred while the individual was a
director or officer, per 124(1)
(b) individual was acquitted or not liable, AND
(c) acted honestly and in good faith, w/reasonable grounds for believing
conduct was lawful
- Presumption of Good Faith: (Consolidated Enfield)
1. until there is demonstrated evidence of bad faith, a director
must be considered to have acted in good faith
2. Onus of proving bad faith is on the party seeking to resist
indemnification
- Was there reasonable reliance on counsel?
1. Doesn’t guarantee indemnification but weighs against a
finding of bad faith (Refuse)
- (6): A corporation may purchase INSURANCE for benefit of director or officer
against any liability incurred by the individual
- most directors won’t take the job unless they have liability insurance
- (7): corporation, individual or entity may apply to a court for an order approving an
90
indemnity
-
directors may choose this route because if they vote for/consent to pay an
indemnity that is unlawful they become liable (118(2)(d))
court will review circs and deter whether indemnity should be paid
- (8): must notify the Director of application under (7)
- (9): may have to give notice to other interested persons and the person is entitled to
appear and be heard in person or by counsel
-
118(2)(d)  Director Liability: If directors vote for/consent to an indemnity that
is unlawful (under 124(3)) they will be liable
Consolidated Enfield Corp. v. Blair
Example of a director successfully claiming indemnification, having acted in good
faith and for the corporation – even though in this case it was legal action against
majority shareholder
By-law of corporation said directors “shall be entitled to indemnification”. Blair was
director, CEO and substantial shareholder. Cad Exp was the largest shareholder. Blair
would only be chair and president with the support of the board. There were originally 5
nominees from Cad Ex, and 6 from Blair. Cad Ex elects surprise 6th nominee (Price) with
proxy votes, and Blair is defeated. Blair declared Cad Exp proxy votes invalid, and
sought a new nomination slate with the proxy votes cast validly. Cad Ex sued, Blair
defended at a cost of $165k, and Cad Ex was successful (Blair had made a mistake, the
proxy votes should have counted). Cad Ex sought compensation from Blair, and Blair
sought indemnity because he had acted in good faith as director and CEO and the
corporate by-laws entitle him to indemnity.
Held:
- Having acted in accordance with his duty to the corp, he was entitled to
indemnification under the by-law
- Presumption of Good Faith:
 until there is demonstrated evidence of bad faith, a director must be
considered to have acted in good faith
 Onus of proving bad faith is on the party seeking to resist indemnification
- Director established 3 conditions required (in this case by by-laws) for
indemnification:
 He was made party to the litigation by reason of being a director
 The costs were reasonably incurred
 He acted honestly and in good faith with a view to promoting the best interests
of the corporation
 Ensuring the integrity of the voting system
 Sought and reasonably relied upon legal counsel
Note: this case may have been decided differently under the CBCA, since 124(5) holds
that directors have a right to indemnification unless they are found by a court to be
liable.
91
Corporate Governance:
Shareholders
General Powers
No unusual management power:
Shareholders do not have managerial power, they have the power to vote, receive
dividends, and share of the assets on wind-up. Most shareholders in large companies
employ “rational apathy” – if they don’t like what is happening with the company, they
simply sell their shares.
-
102: directors shall manage and supervise mgmt of business and affairs of the
corporation
189: special resolutions are required to sell assets of company (if directors
don’t put offer to SH, SH can requisition a meeting and dump the directors)
Automatic Self-Cleaning Filter Syndicate v. Cuninghame
Shareholders to not have a residual or overriding power to dictate to the board of
directors
Company had been incorporated with articles that held that the directors had the power to
manage, including power to sell corporate property and enter into contracts for the
corporation. One of the shareholders wanted to sell some assets. He called a shareholder
meeting, and the sale was approved with 55%. The directors refused to authorize the sale.
The shareholder sought an order from the court such that the assets had to be sold.
Held:
- director not obliged to sell
- Shareholders to not have residual or overriding authority over directors – they
must abide by what they have agreed to in the articles
 Shareholders are NOT the principals of which the directors are agents. The
directors are agents of the corporation.
- Shareholders who want to change the contract which dictates the terms of their
relationship with directors or the directors authority can alter the articles with an
extraordinary vote (75%)
Though most of the day to day operation of the corporation is taken care of by the
directors (and their officers), the shareholders do have some ordinary powers in the
running of the corporation  discussed below
Access to Corporate Information:
-
20
 (1) Share Register must be Available
 corporation shall maintain (at its home officer or in a designated
92
-
place) articles, by-laws, amendments, and unanimous
shareholder’s agreements, minutes, resolutions of shareholders
 (2) Shareholder DOES NOT have access to the Director’s Minutes
21
 (1) Shareholders may examine business records and may take extracts from
the records, free of charge, and, if the corporation is a distributing corporation,
any other person may do so on payment of a reasonable fee
 (1.1) Access to securities register is slightly more complicated
 must undertake not to use them for improper purposes
 (2) Shareholder is entitled to a copy of the by-laws
 on request and without charge
Resolutions:
A resolution can never be passed with less than quorum  more than 50% of the
shares entitled to vote
2(1)
- “Ordinary Resolution”
 resolution passed by a majority of the votes cast by the SH who voted in
respect of that resolution
- “Special Resolution”
 resolution passed by a majority of not less than 2/3rds of the votes cast by SH
who voted in respect of that resolution OR signed by all the SH entitled to
vote on that resolution
-
142
 (1) Resolution in Lieu of Meeting  (a) resolution signed by ALL SH
entitled to vote is valid as if passed at a meeting, and (b) may substitute a SH
meeting w/a resolution signed by ALL SH entitled that deals w/all matters
required by the Act to be dealt with at a meeting
 if SH wants a meeting – simply has to refuse to sign the resolution
 (2): Copy of every resolution shall be kept with the minutes
 (3): Note in minutes that chairperson declared resolution to be carried or
defeated is sufficient evidence of that (prima facie chairperson’s decision
governs)
Election and Removal of Directors:
-
106(3): directors elected by ordinary resolution
109(1): directors removed by ordinary resolution
1. remember, the articles cannot require anything more
than an ordinary resolution for removal of directors
Amendment of By-Laws:
-
103
 (1) and (2): Directors can amend by-laws, subject to articles, by-laws or
93
USA, BUT this must be put to SH for approval by ordinary resolution at
next SH meeting (confirm, amend, reject, repeal)
 (3): by-law is effective during the interim after passed by directors and before
approved by SH
 (4): if rejected by SH, amendment ceases to be effective; directors can try
again but a by-law with substantially the same purpose will not be effective in
the interim
 (5): SH entitled to vote may, in accordance with 137, make a proposal to
make, amend, or repeal a by-law
Review of Financial Statements:
Ability to review financial statements is the foundation of SH’s ability to participate in
the control and mgmt of the corporation.
There is a strict obligation on directors to provide info about the financial situation of the
corporation (disclose assets, liabilities, capital, shares issued, profit/loss, cash flow, etc.)
- 155
 (1): directors shall provide SH at every annual meeting:
 (a) comparative financial statements,
 (b) report of the auditor, if any, and
 (c) any further info (e.g. if req’d by articles, by-laws or USA)
 (2): docs required by (1) must be delivered to SH at least 21 days before the
annual meeting or before the signing of a resolution (142)
 (chance to review, get professional advice, prepare questions)
 (3): OFFENCE: failure to comply w/(1) w/o reason is an offence punishable
on summary conviction to a fine of $5000
Appoint an Auditor
-
-
161
 (1): An auditor must be independent from the corporation – i.e. in a
position to make an objective review of corporation’s financials, protection
for SH (“do the statements fairly and accurately rep the financial situation of
the corporation?”)
 (2): Disqualified if person is
 (a) bus partner, dir, officer or EE of the corp or its affiliate, or bus
partner of a persons who is;
 (b) a significant SH;
 (c) has been a receiver, liquidator, or trustee in bankruptcy for the
corp or its affiliate w/in 2yrs
162
 (1): auditor appointed by ordinary resolution of SH at first and each annual
meeting
 (2):auditor appointed by directors until first SH meeting (104) is eligible to be
appointed by SH
 (3): incumbent auditor continues in office until a successor is appointed
94
-
 (4): auditor’s remuneration may be fixed by ordinary resolution of SH, or by
resolution of directors
163
 (1): SH in a CLOSELY HELD CORPORATION may resolve NOT to appt
auditor
 shareholders in a distributing corporation must appoint an auditor
 (2): res under (1) is only valid until next annual meeting
 (3): res under (1) not valid unless has unanimous consent of all SH
Shareholder Meetings
When
-
133
 (1): Directors Shall call annual meetings
 (a) first w/in 18 months
 (b) every subsequent w/in 15 months
 (2): Special meetings can be called by directors anytime
 (3): Corporation may apply to a court for an order extending the time for
calling a meeting
Where:
-
132
 (1): Must be in Canada
 (2): Can be outside Canada IF all SH entitled to vote at that meeting agree
to hold meeting outside Canada
 (3): Attendance at meeting outside Cad is deemed to be agreement to such
meeting unless attended w/express purpose of protesting it
 (4): participation by electronic means is permitted, but all participants must
be able to communicate adequately with each other
 (5): Directors or SH who call meeting may determine that it will be held
entirely by electronic means
Notice:
special business v. ordinary business determines type of notice required
- 135
 (1): Notice of the time and place of meeting shall be sent to
 (a) each SH entitled to vote;
 (b) each dir;
 (c) auditor
 AT LEAST 21 days in advance (Regulation 44)
 (1.1): Notice may be sent less than 21 days in advance in closely held
corporation
 (5): Special Business  all business transacted at special meeting, and all
business transacted at an annual meeting, subject to 4 exceptions, is deemed
95
-
special business
 Exceptions  Ordinary Business: consideration of financial
statements, auditor’s report, election of directors and re-appt of
incumbent director
 (6): Special Notice  notice of meeting at which special business is to be
transacted shall state:
 (a) the nature of the bus in sufficient detail
 (b) the text of any specific resolution to be submitted at the
meeting
 Must be specific enough for SH to decide whether to attend, give their proxy
to someone or just stay home
136: Waiver of notice is implied by attendance at the meeting, unless attending
with express purpose of protesting the meeting
Quorum:
-
-
139(1): Subject to by-laws, Quorum is met if: a majority of the shareholders entitled
to vote at the meeting are present in person or represented by proxy
- must have quorum to have valid meeting that conducts valid business
- one person w/51% of voting shares is sufficient
- by-laws may impose special rules re: quorum (e.g. certain # of people, certain
class of SH present)
139(2): Quorum at the opening of the meeting is sufficient – proceed w/bus
notwithstanding that quorum isn’t present throughout
139(4): Single Shareholder Meeting: if a corporation only has one SH – can have a
one SH meeting
- Wouldn’t do this – 142 resolution instead
Right to vote:
-
140(1): subject to articles, Presumption of One share/One vote
140(2): Corporate Representative: the board of directors of any corporate
shareholder has to authorize its physical representative or proxy to cast its vote
Voting:
-
-
141(1): Subject to by-laws, voting may be by show of hands, except where ballot is
demanded by a SH or proxy-holder entitled to vote at the meeting
141(2): SH or proxy-holder may demand a ballot either before or after any show of
hands
141(3): Vote may be held electronically, if corp makes avail a communication
facility
- Reg 45(1): communication facility must enable (a) votes to be verified and (b)
tallied votes to be presented to the corp w/o being able to identify voter
141(4): person attending meeting by electronic means is entitled to vote by electronic
means
- Reg 45(2): voting by electronic means when participating by electronic means
must enable (a) votes to be verified and (b) tallied votes to be presented to the
96
corp w/o being able to identify voter
Resolution in lieu:
-
142(1)
 (a): A resolution in writing can be valid as if passed at meeting, if ALL SH
entitled to vote sign
 (b): A meeting in writing can be held if all required business is included in
resolution and ALL SH entitled to vote sign the resolution
Requisition of meeting by SH:
Important  this is how SH get meeting if they have lost confidence in directors and
want to remove them (valuable power to intervene in management in-between annual
meetings)
-
-
143
 (1): If a shareholder holds 5% or more of the shares he may requisition
directors to call a meeting
 (2): requisition, signed by one or more SH, must state the business to be
transacted at the meeting and shall be sent to each dir
 (3): on receiving the requisition, directors SHALL call meeting, UNLESS
 (a) record date has been fixed under 134(1)(c)
 (b) directors have called a meeting of SH and given notice thereof
 (c) the bus of the meeting stated in requisition includes matters
described in 137(5)(b) to (e)  ineligible reasons to requisition a
meeting
 (4): IF directors fail to call meeting w/in 21 days, SH may do so
 (6): SH are entitled to reimbursement for requisitioning, calling and holding a
meeting
137(5)  Ineligible Conditions for Requesting a Meeting
 (b) primary purpose of the proposal is to enforce a personal claim or redress a
personal grievance against the corporation or its directors, officers or security
holders
 (c) person failed to send out the proposal
 (d) issue has been raised unsuccessfully before, and the shareholder has not
garnered any more support
 (e) rights conferred by this section are being abused to secure publicity
Court may: order meeting, review election of directors
Arises when bad blood between SH (e.g. one group of SH can block meeting b/c they hold
enough shares to prevent quorum)
-
144  Meetings Ordered by the Court
 (1): A director or SH entitled to vote, or the Director, can apply for the
court to order meeting to be called
 (2): court may order that quorum required by the by-laws or this Act be varied
97
or dispensed with at a meeting
 (3): meeting called and held pursuant to this section is a valid meeting of SH
-
145  Court Review of Elections
 (1): A court may, on application of corporation, SH or dir, determine any
controversy with regard to the election or appointment of a director or auditor
 (2): Powers of the Court: (broad discretion)
 (a) order restraining election
 (b) order declaring results of an election
 (c) order requiring a new election/appointment
 (d) order determining the voting rights of shareholders or persons
claiming to own shares
Shareholder Control of Fundamental
Changes
When fundamental changes are proposed, they must be approved by more than a simple
resolution of the directors or ordinary resolution of shareholders
Policy  The statutory regime attempts to balance:
- The right of the majority shareholders to control over fundamental changes
- the reasonable expectations of the minority that the corporation they originally
invested in will continue to be governed by the same rules
Fundamental Changes:
- Are “Special Business” 135(5)
Which Require:
- Special notice 135(6):
 (a) sufficient detail to permit shareholders to form a reasoned judgment
 (b) text of any special resolution
- Special shareholder resolutions
 2(1)  2/3 of the voters who vote
 139  no less than quorum (51%)
Amendment of the Articles of Incorporation
**Special Resolution – may get separate class vote – if not overruled in the existing
articles for situations (a), (b), or (e)
-
-
173(1): Articles must be amended by special resolution
These are some things that can be changed  look to 176 to see if a class vote is
necessary
(173(1)(o)) – any thing that is included in the articles
6(3): if the articles or USA require greater number of votes than the 2/3 requires
by the act for a special resolution, that is permitted
 (i.e. requiring in articles unanimous support for fund change – internal way
98
-
-
-
-
of ensuring no SH rights could be affect w/o their consent)
173(2): directors, if authorized by shareholders in the special resolution, revoke
the special resolution without further consultation
 allows directors to be flexible in business dealings
173(3): Directors may change the corporate name from a numbered name to a
word name without shareholder approval
175
 (1): Any director or SH entitled to vote may propose to amend articles, in
accordance w/s.137 (spec notice required)
 (2): special notice provisions apply (SH needs to be informed)
 notice must set out the proposed amend, and state that a dissenting
SH is entitled to be bought out under 190
 failure to make that statement doesn’t invalidate amend
135(1) Notice must be sent to SH entitled to vote,
 must determine what SH will be entitled to vote as they are the only ones who
are required to receive notice
176  Class Votes
 (1): These Amendments must be approved by SEPARATE CLASS
VOTE of shares affected by the proposed amendment
 BUT Separate class votes can be overruled in the existing
articles, for changes set out in 173(1) (a), (b) or (e)
 (a) Increase or decrease max number of shares of a class, or classes
of shares superior to your shares
 (b) Exchange, reclassification or cancellation of all or part of
shares of a class
 (c) add, change, or remove rights, privileges, restrictions on
conditions attaching to shares:
 (i) remove or change prejudicially rights to dividends
 (ii) remove or change prejudicially redemption rights
 (iii) reduce or remove dividend or liquidation preference
 (iv) remove or change prejudicially conversion privileges,
options, voting, transfer, or pre-emptive rights
 (d) increase rights of shares with equal or superior rights to your
shares
 (e) create a new class of shares equal or greater to yours
 (f) make any shares with rights inferior or superior to yours
 (g) change the rights of shares of one class into shares of another
class (subsuming the rights of one class into another)
 (h) constrain or remove a constriction of the issue or transfer of
shares of a class
 (5): Special class of SH may have right to vote separately on amendments
regardless of whether that class normally has right to vote (if they can bring
themselves w/in the circs set out in (1))
 each SH presumptively gets one vote (140)
 (6): Where a separate class vote is held, amendment must be approved by
special resolution of each class entitled to vote (2/3rds majority)
99
Once Approved
- 177(1): amended articles will be delivered to Director
-
178: Director shall issue certification of amendment
-
179
 (1): amendment is effective on date shown on certificate
 (2): rights preserved (amend doesn’t affect existing cause of action)
Export or Continuation of CBCA corporation
**every SH votes (no class votes); SH have right to dissent
-
188
 (1): Continuance requires authorization of shareholders
 (3): special notice to SH required (must comply w/135)
 (4): every SH is entitled to vote on the proposal to continue in another
jurisdiction, even when their shares don’t normally carry the right to vote
 (5): approval is by special resolution
Extraordinary Sale, Lease, Exchange of substantially all
corporate assets
**may get separate class vote, under (7); entitled to dissent under 190
Shareholders invested in the business on the understanding that it would be a certain type
of business with certain types of investments  fundamental changes to those assets must
be approved by a special resolution
“all or substantially all”  well over 50%, no clear test, look at both relative value of
assets left after disposal, AND significance of assets to corporation’s business (i.e. can it
still carry on the same bus??)
- look for fact pattern where almost everything is being sold, transferred, or leased
-
189
 (3): Requires special approval of SH (special notice, all classes entitled to
vote, spec res)
 (4): Special notice must be given to SH(135(5) and (6)) and must
include:
 copy or summary of the sale, lease, etc. agreement
 notice that dissenting SH has access to 190 (failure to make this
statement doesn’t invalidate the transaction)
 (5): SH have power to authorize the transaction, and to fix or authorize the
directors to fix the terms and conditions of the transaction
 SH can approve diff terms than are in the draft – power to change
terms of agreement (3rd party might not accept changes)
 (6): every SH is entitled to vote on the for extraordinary sale, lease, or
100
exchange of substantially all corporate assets, even when their shares don’t
normally carry the right to vote
 (7): A class or series is entitled to vote separately if it is affected by the
transaction differently than another class or series
 (8): approval is by special resolution
 (9): directors, if auth by SH approving proposed sale, lease or exchange, and
subject to rights of 3rd parties, can abandon the transaction w/o further
approval of SH
 directors have auth to abandon the deal w/o going back to SH
Voluntary Liquidation and Dissolution
**Separate Class Vote Required if more than one class
Voluntary liquidation and dissolution is distinct from involuntary or court ordered one
under ss.213-214
-
211
 (1) and (2): A director or SH entitled to vote at any annual meeting may
propose liquidation and dissolution, and special notice must be sent to each
SH (special bus – 135(5))
 (3): The proposal must be approved by special resolution, and where a
corporation has more than one class of shares, each class must separately
approve the proposal by spec resolution
Shareholder Proposals
-
Recent changes to CBCA make it easier for SH to make proposals, and changes to
proxy rules makes it easier for SH to get support
any SH can give their share to proxy-holder  essentially makes the PH the agent of
the SH to go to the meeting and vote the shares according to SH wishes
Remember:
(1) Regardless of whether a proposal is properly made and passed by shareholders,
it may not be binding on directors with regard to the powers clearly afforded to
them under the Act and the articles (management of the business and affairs of
the corporation)
a.
Automatic Self-Cleaning Filter: shareholders cannot bind
directors when they are within their managerial powers
described in the articles
b.
But, proposal is often led by powerful institutional investor –
enough voting power to influence directors to change policy
(threat that SH could requisition meeting under 143(1) and
remove directors)
(2) In order to affect things normally under the managerial control of the directors,
Shareholders can propose to amend the by-laws or articles
a.
Such a change would require special resolution and potentially a
101
class vote
-
broad categories of proposals:
- 175(1): proposal that articles be amended
- 211(1): proposal the liquidation and dissolution of the corporation
- 103(5): proposal that a by-law be made, amended, or repealed
Proposal Procedure:
-
137(1) (a) and (b): registered or beneficial SH of shares w/normal voting
rights can make any proposal and raise discussion
IF an eligible SH makes a proposal, it will be voted on at the next meeting
137(3): if so requested by the parson that submits a proposal, the
corporation shall include in the management proxy circular a statement in
support of the proposal
IF the SH wants a special meeting to vote on the proposal, the procedure is
under 143
-
137(1.1)  Eligibility
a. (a): To be eligible to make a proposal, must hold minimum amount
of voting shares and have held them for prescribed period of time
i. Reg 46: 1% of voting shares, or shares w/FMV of $2000,
held for 6 months
b. (b): You can meet those minimum requirements as a group
-
137(1.2): Info to be provided by proposer:
a. name, address of the person and supporters, and number of shares
held and when acquired
137(1.3): The information provided under (1.2) is not part of the proposal
(doesn’t affect word limit)
137(1.4): If requested, proof may be required that person meets (1.1)
a. Reg 47: corporation must request proof w/in 14 day of receiving
proposal; proof must be provided by SH w/in 21 days of receiving
request
137(4): SH w/at least 5% of shares, or 5% of class of voting shares may make
nominations for election of directors (doesn’t preclude nomination at the
meeting)
-
-
137(5) Inappropriate reasons for making a proposal
a. the proposal is not submitted to the corp w/in 90 days (Reg 49)
before the anniversary date of the notice of meeting that was sent to
SH in connection w/previous annual meeting of SH  give corp
time to give notice, etc.
b. if primary purpose of proposal is clearly to enforce a personal claim
or redress a personal grievance against the corp or its dirs, officers or
security holders
102
b.1 it clearly appears that the proposal doesn’t relate in a signif way to
the bus or affairs of the corp
c. if proposing SH failed, w/in last 2 yrs (Reg 50) to attend a meeting,
in person or by proxy, where a proposal at that person’s request had
been included in mgmt proxy circular relating to the meeting
d. substantially the same proposal was submitted to SH in a mgmt or
dissident proxy circular relating to a meeting of SH held not more
than 5yrs (Reg 51(2)) before the receipt of proposal and didn’t
received the prescribed min of support
i. Reg 51(1): if at one meeting – 3% of shares voted, if at 2
meetings – 6%, if at 3 meetings – 10%
Proxy Solicitation and Proxy Circulars
Shareholders do not have to be physically present at meetings, they can cast their votes
through a proxy
147 Definitions
- “Proxy”  a completed and executed form of proxy
-
“Form of Proxy”  a written or printed form that, on completion and execution
by or on behalf of a shareholder, becomes a proxy
-
“Solicitation of Proxy” 
- (a) Includes:
(i) a request for a proxy whether or not accompanied by a form
(ii) a request to execute (or not) a form of proxy or revoke the proxy
(iii) the sending of a form of proxy or other communication to a
shareholder under circumstances reasonably calculated to result in
the procurement, withholding or revocation of a proxy
(iv) the sending of a form of proxy to a shareholder under section
149
- (b) Does not Include:
(i) sending a proxy form in response to an unsolicited request of a
SH
(ii) performing administrative acts or professional services on
behalf of a person soliciting a proxy
(iii) solicitation by someone who is the beneficial owner of the
shares
public announcement by the SH of intent to vote and reasons
i. Reg 67 – speech and public broadcasts of all kinds
ii. To avoid situations where shareholders criticize a
company and are held to be soliciting proxies
(iv) Communication for the purposes of obtaining the number of
shares required for a shareholder proposal
(v) Communication other than solicitation that is made to
shareholders, in any circumstances that may be prescribed
103
i. Reg 68 – things that are not solicitation include:
a. communication to other shareholders about the
business and affairs of the corporation
b. communications concerning the organization of a
proxy dissident solicitation
c. giving financial, business, corporate, legal advice to
a dissident in the ordinary course of proxy voting
advice
ii. Reg 69 – you can solicit by public broadcast if you meet
certain requirements
Remember:
149(1)  if the company is a distributing corporation or has more than 50 shareholders,
the management must solicit proxies
150(1)
- if management solicits proxies, they must send a proxy circular
- if dissidents solicit proxies, they must send a proxy circular UNLESS they are
soliciting 15 or less shareholders (150 (1.1))
Proxy:
-
-
-
148
- (1) Proxy-holders do not have to be shareholders, they can be designated
by any shareholder entitled to vote
a. (probably this includes all shareholders)
- (2) proxy shall be executed by the shareholder or by the shareholder’s
attorney in writing
- (3) Proxy is valid only at the meeting for which it is given, or at any
adjournment
- (4) Shareholder may revoke a proxy
- (5) Deposit of proxy – directors may specify a time not more than 48
hours earlier than the meeting by which the proxy must be deposited at
the corporation
150  Soliciting Proxies
- (1) A person shall not solicit proxies, UNLESS:
a. in the case of MANAGEMENT SOLICITATION, that
management has sent out a management proxy circular in the
prescribed form
b. In the case of a DISSIDENT SOLICITATION, the dissident
sends out a dissident proxy in the required form
- Forms must be sent to the auditor, each shareholder whose proxy is
solicited, and each director
- (1.1) Exception for DISSIDENTS may solicit proxies without a proxy
circular if they are soliciting from 15 or fewer persons
151: on application of an interested person, the Director may exempt the
person from requirements under 149 or 150(1)
152: The person who is appointed Proxyholder
104
-
(1) shall attend the meeting in respect of which the proxy was given
(2) shall have the same rights as the shareholder at that meeting would
have had (vote or vote by proxy)
154: Court Oversight
- (1) If a circular contains untrue statement or omission of a material fact,
and interested person or the Director may apply to the court for “any
order it thinks fit”, including:
a. order restraining solicitation, meeting, or any implementation of
resolution passed at meeting during which the proxies voted
b. order requiring correction of proxy form or proxy circular
c. order adjourning the meeting
-
Management Circulars
-
-
-
-
149(1) and (2)  Concurrently with every meeting, a corporation must
solicit proxies if they are a distributing corporation or have greater than
50 shares
150(1)(a): if the corporation must solicit proxies, it MUST also send out a
management proxy circular
a. onus is on corp to ensure everyone entitled to vote has necessary
information
137(2): a corp that solicits proxies shall set out the proposal in the
management circular required by s.150
137(3): proposal may request corp to include a supporting statement in the
circular in support of the proposal (may also include names of person
supporting)
a. Reg 48: proposal and statement together max 500 words
137(5): Exemptions: corp not required to comply with (2) and (3) if:
(permits mgmt to omit a proposal that doesn’t relate in a significant way to
the bus of affairs of the corp)
a. the proposal is not submitted to the corp w/in 90 days (Reg 49)
before the anniversary date of the notice of meeting that was sent to
SH in connection w/previous annual meeting of SH  give corp
time to give notice, etc.
b. if primary purpose of proposal is clearly to enforce a personal claim
or redress a personal grievance against the corp or its dirs, officers or
security holders
b.1 it clearly appears that the proposal doesn’t relate in a signif way to
the bus or affairs of the corp
c. if proposing SH failed, w/in last 2 yrs (Reg 50) to attend a meeting,
in person or by proxy, where a proposal at that person’s request had
been included in mgmt proxy circular relating to the meeting
d. substantially the same proposal was submitted to SH in a mgmt or
dissident proxy circular relating to a meeting of SH held not more
105
than 5yrs (Reg 51(2)) before the receipt of proposal and didn’t
received the prescribed min of support
i. Reg 51(1): if at one meeting – 3% of shares voted, if at 2
meetings – 6%, if at 3 meetings – 10%
e. Rights are being used to secure publicity
**motivation no longer relevant – just has to not relate to the ordinary bus
and affairs in a significant way
-
-
-
137(5.1): management may refuse to include proposal if person who submits
it fails to continue to hold the # of shares required by (1.1) up to and including
the day of the meeting, and may refuse to publish a proposal by that person for
2yrs (Reg 52)
137(6): A corporation cannot be sued for publishing a circulating proposal
relying on 137(1.1)(a)
137(7): if a corporation refuses to include a proposal in the circular, it must
notify the SH in writing w/in 21 days (Reg 53) after receiving the proposal, or
after receiving proof under (1.4) and include reasons
137(8): SH may apply to court for an order restraining the corp from holding
the meeting until it properly prepares the proxy circular
137(9): corp may seek order from court permitting the corp to omit the
proposal from the proxy circular
137(10): Director shall be given notice of action under (8) or (9)
Immunity:
-
137(6) – no corp or person acting on its behalf incurs any liability by reason only of
circulating a proposal or statement in compliance w/this section
- Might want to go to court to get ruling re: whether corp must publish proposal
(protect themselves from defamation)
Brown v. Duby
Example of a proposal found to be an solicitation of proxies without a proper dissident
proxy circular, and the court applying a remedy
Part of the same action in Canso (dispute over no SH holding more than 1000 votes, no
matter the # of shares). Brown alleges that dissidents have been soliciting proxies without
complying with the CBCA. First letter went to USA Shareholders only, and the second
letter went to all SH.
Held:
- The First Letter: was a letter to requisition a meeting, not a solicitation (it was
fine)
- The Second Letter: was a solicitation
- It was sent out to oppose existing management
- It stated the intention to solicit proxies for the next meeting
- Even though there was no proxy form sent, it asked SHs not to sign the
management proxy form
a. Probably fell under the definition of a “request” to sign a proxy or
not sign a proxy in 147
106
-
The management was seeking an injunction under 154 for an improperly
prepared solicitation of proxies
- Instead of an injunction, the court ordered a correction of the dissident
circular
- Here, the failure was to provide the information that the law says you
must provide
- There was no lack of discussion or improper conduct – preventing the
meeting through an injunction was not in the interests of ensuring the best
outcome for corporate shareholders
Vote Pooling Agreements

145.1  A written agreement between two or more shareholders may provide
that in exercising voting rights the shares held by them shall be voted as
provided in the agreement.
o This seems like a no-brainer, coming from BC corporate law which
essentially views the corporation as a contractual relationship
between shareholders
o In other jurisdictions, there is some controversy over what
shareholders can agree to or team up to do outside of the constitution
articles
Ringuet v. Bergeron
Vote pooling agreements are valid and binding on shareholders, but not on directors 
cannot “Fetter the Discretion” of the directors to act in the best interests of the
corporation
Closely held corporation. Minority shareholders enter into agreement to purchase equally
the shares of another shareholder so that they constitute the majority. Once they take
control of the board, they make themselves VP, Pres, and Secretary, and agree to vote
together (vote pooling agreement). Then the shareholders enter into a new vote pooling
agreement with a 4th SH, and exclude one of the original SHs by holding a directors
meeting, becoming directors, and excluding him. Excluded SH brings suit, claiming that
they voted against him contrary to the VPA, and the defence is that the original vote
pooling agreement was invalid.
Held:
- Vote pooling agreement was valid against shareholders, it did govern their
voting as shareholders, but it is no longer binding on their votes as directors
- The ousted SH wins, and the remedy is that all the votes are given to him
(he is in total control)
- Fettering the Directors: The one thing that shareholders cannot do is agree in
advance how they will act when they are directors
- Agreeing as a shareholder with other shareholders to do certain things
once you’re a director is fettering your discretion as a director to act in
the best interests of the corporation
107
Unanimous Shareholder Agreements
A USA is a fundamental change to the normal governance structure of a corporation,
transferring director’s powers to shareholders
- Basically, all the shareholders acting together can affect the directors powers,
including those restricted to the directors in 115(3)
- Submitting to SH any matter requiring their approval
- Fill vacancy among the officer of auditor or appoint additional directors
- Issue securities
- Issues shares of a series
- Declare dividends
- Purchase, redeem, or otherwise acquire shares issued by corporation
- Adopt, amend, or repeal by-laws
USA are primarily used in closely held corporations, where the shareholders are
directors and officers  Where there is only one or few shareholders, and their interest
are closely aligned, it makes sense to have the shareholders able to unanimously direct
management role
s. 2: Theoretically Defines USA – but basically describes it as what is described in s. 146
146: Unanimous Shareholder Agreement
- (1) Requirements for a valid USA
- an otherwise lawful written agreement
- all shareholders of the corporation must be party to it (though the
agreement can include non-shareholders)
- It must restrict in whole or in part the powers of the directors to
manage the corporation
- (2) If a person who owns all the shares in a corporation makes a written
declaration that restricts in whole or in part the powers of the corporation the
declaration is a valid USA
- this is used in closely held corporations, or
- in situations where a parent company wants to maintain control of a
subsidiary, despite that corporation’s director, it can transfer all the
shares in the corporation to a single person and have that person write a
USA that says that all of the management of the corporation will be
undertaken by the shareholder
- (3) A purchaser or transferee of shares subject to a USA is deemed to be
part of the agreement
- (4) If there was no notice of the USA, the person who purchased the shares can
rescind the transaction within 30 days
- (5) Transfer of Liability
- If management of a corporation is transferred from the directors to
someone else by USA, the person that exercises the power will be subject
to the same liabilities as directors (Duty of Care and FD) and the directors
will be relieved of that liability
- (6) where shareholders are acting as directors, they CAN fetter their discretion
108
(they can agree as to how to make decisions – unlike directors)
Remember: 20(1)(a)  must keep a record of the USA with the corporate records
Duha Printers v. The Queen
Iacobucci outlines the nature of a USA
Complex tax question, question was who controlled the corporation and what constitutes
a proper USA.
Held:
- The distinction between a USA and an ordinary shareholder’s agreement is
some transfer of director’s powers to the shareholders
- Shareholders can make whatever other agreements they want, though
directors do not always have to abide by these agreements
- Private agreements between shareholders that are not USA are simply
subject to normal contract law
- Hybrid Nature
- USAs are contracts that are also part of the corporate constitutional nature
- Directors and officers might not be part of the USA, but they must agree
with it
109