Changes to Company law in British Columbia

In October 2002 the British Columbia Legislative Assembly made substantial changes to the Company Act RSBC 1996 c.62, including a change of name to: Business Corporations Act SBC 2002 c. 57. The new Act came into force March 28, 2004. During the Act's dormancy it had accumulated over 100 amendments to its 447 sections, however most of these are clarifications and corrections, leaving the substance largely intact.

Out of the numerous changes represented by the new Act the following selection of trends, highlights, and significant practical implications are worthy of note.

The major trends are as follows:

1. There is more privacy particularly for private companies;
   
2. Directors will be better protected from personal liability;
   
3. Unnecessary technicalities and restrictions are reduced or eliminated;
   
4. It is easier to involve foreign participants;
   
5. Company law continues to enter into the electronic age.

The following are some highlights of practical consequence:

1. Waiting is eliminated. Incorporation will only take minutes and in any event a deal can be signed for the company even before incorporation.
   
2. Shares can be issued in a foreign currency.
   
3. A company may register a foreign-language name for doing business in another country.
   
4. The public no longer has unrestricted access to the register of members.
   
5. Directors no longer need to be resident in British Columbia or Canada.
   
6. Annual meetings no longer need to be held in British Columbia.
   
7. Amalgamations can be carried out without opening a court file which is accessible to the public.

These and other changes are elaborated on below under the following headings:

Incorporation

Two or three weeks to incorporate was often too inconvenient and payment of hundreds of dollars to "expedite" was distasteful. Under the new Act incorporation takes place at the instant the documents are filed (s.13(1)(a)). If a company is needed before the next business day, an individual may sign on behalf of a future company today; and as long as the company is formed and assumes the agreement the individual is released (s.20).

The form of incorporation is substantially altered. Incorporation is accomplished by filing a Notice of Articles which sets out the name, share capital, address, and directors of the company. A company will be able register a translation of its name for valid use in another language (s.25(3)). The articles of the company, the document that describes the inner workings, including any special rights or restrictions attached to shares, will no longer need to be filed with the Registrar of Companies.

Shares

Whether to authorize 1,000 shares or 1,000,000 shares of a class is no longer a question. Companies are simply authorized to issue as many shares of a specified class as are useful (s. 53(b)). It will be easier to involve foreign investors by issuing par value shares in foreign currency (s.53(3)). It will no longer be necessary to offer new shares to existing shareholders before bringing in another investor (s.66) and shareholders will be able to sell to whomever they want without asking other shareholders first (s.80(1)). Redeemable shares may be called back selectively (s.81), just like any other loan which can be paid off at will, provided enough capital is left over for other creditors. If the participants in the company do not wish all these freedoms, they are free to express whatever restrictions they want in the articles of the company. A company may now bring in a participant who happens to be short of cash by lending him or her the necessary amount (s.195) provided disclosure of the loan forms part of the corporate record. Dividends may be paid not just out of profits but also out of capital (s.70). Rights and restrictions of classes of shares may be altered by the general membership in a resolution with a 2/3rds majority or by any greater majority specified in the articles. Given the protection potentially available by such greater majority, an individual shareholder no longer has a right to dissent if he is not happy with the outcome decided on by such a majority.

Disclosure

It has always been possible to waive audits by unanimous resolution. Under the new Act it will be possible to waive the production of financial statements altogether (s.200). The only way that the public or even another member will be able to gain access to the register of members is to swear an affidavit (s.47) that access is needed for the purpose of buying or selling shares, amalgamation, influencing votes at a meeting, or calling a meeting.

Directors and Management

Directors no longer need to reside in British Columbia or even in Canada; but they must provide an address where they may be served (s.126). The company no longer needs a president or a secretary. Directors can simply appoint one or more managers and call them whatever they want (s.141(1)). A substantial change allows a director to escape responsibility for any management area which the articles assign either to a particular director or to an officer (s.137). To protect the director or officer from liability in his area of management, the company may now indemnify the individual without a court order (s.160).

Members meetings

There will now be three types of members resolutions:

1. the ordinary resolution - 50% plus 1;
   
2. a special resolution of a 2/3rds majority, or if the articles so provide, up to 3/4 majority;
   
3. exceptional resolutions involving any greater majority the articles specify, including unanimity. (s.264)

The articles or a resolution at a company meeting can provide for a future general meeting to take place outside British Columbia. This makes it easier to invite foreign investors or principals to participate. It would be best to consult an accountant before attempting to write off the travel costs to attend a general meeting on an exotic island if there is not a good business reason to hold a meeting there. If travel is not the object or not convenient, meetings can be conducted by telephone or electronically provided everyone can communicate with each other.

Major corporate procedures

Amalgamation - A company can amalgamate with its sister (s.274) or parent (s.273) company by directors resolution. Other amalgamations which previously needed the concurrence of 3/4 of the issued shares of any class and approval by court order will under the new Act need a combination of a 2/3 majority of all shareholders and a 2/3 majority of the holders of any class of shares which may be prejudiced by the amalgamation (s.277). Given such consent, and absent prejudice to creditors, no court approval is needed, no financial statements need to be submitted, and public disclosure of financial details is avoided.

Sale - Any buyer of 9/10ths of a class of shares may demand to buy the remaining 1/10th on similar terms (s.300). The sale of all of the company=s assets to a parent, subsidiary, or sister company can now be effected by the directors alone (s.301). Sales to others still call for a special resolution, however the three-weeks notice need no longer stand in the way, as a sale will be valid so long as the resolution takes place after the sale.

Dissolution - A liquidator is no longer needed even though there may be creditors, as long as the creditors are provided for (s.314).

Restoration - In most cases restoration can be accomplished without court order (s.356).

Extra-provincial companies

Unregistered extra-provincial companies may now own land and use the British Columbia courts (s.378(4)). Directors of unregistered extra-provincial companies may carry on business without being personally liable for debts. However it is clearly an offence, with a penalty yet to be defined, to fail to register as an extra-provincial company (s. 428(3)).

Transition:

All B.C. companies must within two years (s.436(1)) of the new Act coming into force do the following:

1. File a transition application (s.437), which is in substance the equivalent of a Notice of Articles, or the incorporation document of a new company;
   
2. Update its Articles, if necessary, to comply with the information to be contained in the transition application (s.438), filing any needed amendment resolution with the Registrar of Companies
   
3. Establish a central securities register to record all future share transactions (s.111(1))

Extra-provincial companies must promptly after the act takes effect ensure that the Registrar has an address, available during statutory business hours for mailing or delivery of documents to the company (s.444(2), 386(3)).

As the new Act permits a greater latitude for the Articles, the company can make optional amendments or adopt an entirely new set of "standard" articles. In this connection some issues should be considered in advance and should be discussed with a legal advisor.

Updated November 1, 2004
Heiko van Eijnsbergen

The foregoing is posted for reference only and is not to be relied on with respect to any specific situation or corporate procedure.