Incorporating in British Columbia and Federally
By Linas Antanavicius, Barrister & Solicitor
Someone who plans to carry on a business in British Columbia may want to incorporate either under the federal Canada Business Corporations Act (“Canada Act”) or the provincial British Columbia Business Corporations Act (“BC Act”). This article discusses some of the differences, advantages and disadvantages of incorporating under the Canada Act and under the BC Act. The Canada Act uses the term “corporation” and the BC Act uses the term “company” with respect to the entities incorporated under those acts.
1. Capacity to Carry on Business throughout Canada
The Canada Act gives corporations the right to carry on business throughout Canada. The BC Act has no equivalent provision, and companies registered under the BC Act may have to apply to register extra-provincially to carry on business outside of British Columbia. However, federal corporations carrying on business in British Columbia still need to register as extra-provincial corporations in British Columbia because failure to register may result in a fine under the BC Act.
2. Residency Requirements for Directors
The Canada Act requires that 25% of the directors be residents of Canada. Under the BC Act no directors have to be residents of Canada or British Colombia. This is a potential advantage for foreign businesses, which may want to incorporate in Canada and have no directors residing in Canada.
3. Protection of Corporate Name
The Canada Act gives the right to use a corporate name across Canada, while companies incorporated under the BC Act will have to change their names in order to register in another province if that name is used by another company and the registrar in that province deems it necessary to change the name.
Under both acts, companies can have an unlimited number of shares and are able to issue fractional shares. The Canada Act prohibits the creation of par value shares, while par value shares are allowed under the BC Act. The ability to issue par value shares can be useful in tax planning and creation of preferred shares.
Under the Canada Act, corporations are generally prohibited from holding their own shares. Under the BC Act, companies are permitted to hold their own shares.
5. Directors and Their Personal Liability
Under the Canada Act directors are elected and removed by an ordinary shareholder resolution. Under the BC Act, directors may be removed by a special resolution or by some other method specified in the articles of the company. The latter provision provides for flexibility in determining the manner in which directors can be removed.
The liability of directors is similar under both acts; however, the Canada Act makes directors liable to the employees of the corporation for a maximum of six months’ wages.
Under both acts, the amalgamation procedure is similar. However, the BC Act provides for an option to apply for court approval to amalgamate, in addition to the shareholder approval. The BC Act also permits a company to amalgamate with a corporation from another jurisdiction to form a British Columbia company, if the other jurisdiction permits the amalgamation. The Canada Act does not provide for an option to amalgamate with a foreign corporation. If a non-federal corporation wants to amalgamate with a federal corporation, it will have to continue under the Canada Act first, and then amalgamate.
7. Waiver of Production and Publication of Financial Statements
The BC Act permits shareholders to waive the production and publication of financial statements for private companies by a unanimous resolution of all shareholders (including non-voting shareholders). Such resolution can be passed even after the date on which the financial statements are due. The Canada Act provides for no option to waive the production and publication of financial statements.
Every company carrying on business in British Columbia must register as an extra-provincial company and pay the extra-provincial registration fee. Therefore, the cost of registering a federal corporation that plans to carry on business in British Columbia is greater than registering a British Columbia company.