An Overview of the BC Business Corporations Act

Beyond Numbers, Apr 2004

The British Columbia Business Corporations Act (BCBCA), which came into force March 29, 2004, is the single biggest change to corporate legislation in British Columbia in 30 years. The BCBCA directly affects BC's approximately 300,000 registered companies, all of which have two years from the date the Act came into force to carry out prescribed transition procedures.

The BCBCA removes some of the restrictions and idiosyncrasies of its predecessor the Company Act, and clarifies a number of ambiguities. Here are some highlights:

INCORPORATION AND TRANSITION

Incorporation

"Persons" (including corporations and societies), not just individuals, may now incorporate under the BCBCA, which means companies can incorporate subsidiaries directly. The incorporator(s) must enter into an "incorporation agreement," pursuant to which they agree to take shares of the company and file an "incorporation application."

Another change from the previous law is that the incorporators do not have to be the first directors of a company.

Charter documents

A company's memorandum is now replaced with a "notice of articles," setting out limited information. The articles of a company continue, but are no longer filed in the Office of the Registrar and are only available for inspection at the company's records office.

Transition

Each "pre-existing company" (a BC company in existence on the date the BCBCA came into force) has two years from March 29, 2004, to adopt a "notice of articles" in place of its memorandum, to alter its articles (if and to the extent necessary) to comply with the BCBCA, and to update its securities register. A "transition application" must be filed with the Registrar for the transition to be effective.

Note: If a company does not make the transition within the required two-year period, the Registrar can dissolve the company. Moreover, until a transition application is filed, a company cannot, with limited exceptions, alter its memorandum or articles (to change special rights and restrictions on shares, for instance) or take advantage of certain new features available under the BCBCA (such as conducting a short form amalgamation).

At the time of transition, a company wishing to take advantage of flexibility in the BCBCA may make additional changes to its articles. However, care should be taken before deciding to make any changes to the existing articles or share rights, because those changes could have tax consequences.

FINANCE

Share structure/rights

Companies can have an unlimited number of authorized shares in a class, making it possible to avoid the problems that would otherwise arise when the authorized capital is exceeded inadvertently. The BCBCA also expressly permits fractional shares.

Pre-emptive rights

The Company Act required a BC company issuing new shares to offer them to existing shareholders before they could be sold to new investors. Pre-emptive rights on share issuances continue under the BCBCA for pre-existing companies, but can be removed by special resolution. Companies incorporated under the BCBCA have the option of including pre-emptive rights in their articles if they so choose.

In addition to clarifying certain areas of uncertainty with respect to pre-emptive rights, the BCBCA offers a new exception to pre-emptive rights for shares issued for consideration other than money. This can provide flexibility for Section 85 rollovers.

Repurchase/redemption

The obligation to repurchase shares rateably continues for pre-existing companies, but can be removed in the articles. Similarly, the obligation to redeem shares rateably, unless the memorandum or articles otherwise provide, continues for pre-existing companies.

Reduction of capital

A company may now reduce its capital by special resolution, without a court order, if the capital is reduced to an amount that is not less than the realizable value of the company's assets less its liabilities. Otherwise, a court order is required. This makes it easier to return capital, tax free, to shareholders without triggering a disposition of shares.

Dividends

The BCBCA makes it clear that a company may pay dividends out of profits, capital, or otherwise, unless the company is insolvent or the payment of the dividend would render the company insolvent, clearing up an ambiguity in the current law. This restriction does not apply to stock dividends.

Financial assistance

There are no longer any restrictions on financial assistance. A company can give financial assistance to any person for any purpose by means of a loan, a guarantee, the provision of security, or otherwise. However, a company must disclose any material financial assistance it gives to certain persons (shareholders, directors, officers, affiliates, or employees of the company, or affiliates and associates of such persons) or for the purpose of purchasing shares in the company. There are several exceptions to the disclosure requirement, such as when financial assistance is given pursuant to an employee share purchase plan.

Insolvent