"BC Business Corporations Act: New Business Act to Offer More Flexibility to Firms", Vancouver Sun

by Janice and George Mucalov

Touted as a legislative measure for making the province a more attractive place to do business, the new Business Corporations Act, introduced on May 8th, will indeed offer more flexibility for BC companies. Twelve years in the making, it's the first significant update of the current BC Company Act since 1973.

While not yet in effect - officials say that will likely happen some time later next year - the new statute pioneers a number of sweeping changes:

• You can use email to submit the documents needed to incorporate a company and keep it alive. Currently, the Corporate Registry only accepts paper filings.
• Residency requirements for directors have been purged, which should help encourage international investors to establish BC companies. Under the current Company Act, a majority of directors must live (be "resident") in Canada, at least one in BC.
• You'll no longer have to file your company's articles at the Corporate Registry as you do today. Articles need only be kept at the company's records office.
• Shareholders' meetings can be conducted by telephone and held outside the province without the approval of the Registrar of Companies. At present, annual general meetings must take place in BC, unless the Registrar approves another location.
• If all shareholders agree, a private company won't have to prepare financial statements. Currently, private companies must prepare financial statements and can only waive the requirement of an auditor.
• Restrictions on giving financial assistance have been softened - the only requirement will be that this must be disclosed to the shareholders in certain cases. At present, there are significant constraints on the giving of financial assistance, such as the restrictions on a company lending money to someone for the purpose of buying shares in the company.
• It'll be easier to amalgamate. Unlike the present statute, related companies can amalgamate without having to enter into an amalgamation agreement.
• The rules for the payment of dividends and other corporate distributions to shareholders have been clarified. The new Act uses a one-pronged solvency test - can the company pay its debts in the ordinary course of business? Under the existing Act, assets may also have to exceed liabilities to meet the solvency test.

Not everyone is happy with the approach taken by the new Act, however.

Some argue the Act should follow the more modern approach initiated by the federal Canada Business Corporations Act (CBCA) some 25 years ago - rather than being a reworking of a statute based on an older company model. Ontario and Alberta, as well as Saskatchewan, Manitoba and New Brunswick, all have legislation modeled on the CBCA.

The argument is that BC's reform legislation should be aiming for uniformity with the other CBCA jurisdictions.

If it did, business people would have the benefit of being able to rely on a quarter century of judicial interpretation of similar legislation - giving them greater certainty. And they'd get the benefit of future case law in those other jurisdictions. The argument goes that business people will choose to set up companies under statutes where they know what to expect, rather than here in BC with a unique and unfamiliar statute, however good.

One contrary argument is that BC's legislation will have many attractive features not available elsewhere. As in Delaware in the U.S. - where many flock to incorporate because of its sophisticated corporate regimen - these features will attract company promoters and encourage new BC company formation. They will more than compensate for the lack of uniformity and make learning the ins and outs worth the time and effort.

The jury is out. Only time will tell whether this will be borne out.

In the meantime, it'll be easier to roll over the 270,000 or so existing BC companies under the new Business Corporations Act (which still follows the same model as the current Company Act) than it would to start over under a brand new Act modeled after the CBCA. You'll have two years after the new Act becomes law to file a transition application in the prescribed form.

And those considering incorporation in BC will have a choice. If they want the CBCA model, they can still always incorporate a CBCA company. But if they want to take advantage of some unique corporate features offered by the new legislation, they can choose to incorporate under the new Act.

© Copyright by Janice and George Mucalov

A version of this column was first published in the Vancouver Sun. The column provides information only and must not be relied on for legal advice. Consult your lawyer if you need legal advice.