Canadian corporate law concerns the operation of corporations in Canada, which can be established under either federal or provincial authority.
Federal incorporation of for-profit corporations is governed by Corporations Canada under the Canada Business Corporations Act. All of the Canadian provinces and territories also have laws permitting (and governing) the incorporation of corporations within their area of jurisdiction. Often, the choice of whether to incorporate federally or provincially will be based on many business considerations, such as scope of business and the desire for application of particular rules which may be available under one corporate statute but not another.
History
Prior to Canadian Confederation, companies were organized through several procedures:
through contract as a partnership or unincorporated company through royal charter, as was done for the Hudson's Bay Company through an Act of the Parliament of the United Kingdom, as for the Canada Company by an Act of the local legislature formation as a joint stock company without limited liability under the laws of the applicable colony (first introduced in Lower Canada in 1849 for limited purposes, extended to other types of business in the Province of Canada in 1850)
Before 1862, limited liability was the exception, being conferred on specific companies through royal charter or special Act. When it was introduced into UK company law by the Companies Act 1862 as a matter of general application, the Canadian colonies introduced legislation to enable the same locally.
Upon Confederation, s. 92(11) of the Constitution Act, 1867 gave provinces jurisdiction over "Incorporation of Companies with Provincial Objects." The judicial construction of this phrase has been the subject of several significant cases in the courts, and most notably at the Judicial Committee of the Privy Council:
In 1881, in Citizen's Insurance Co. v. Parsons, it was held that the Parliament of Canada had authority to incorporate companies with objects of greater scope. In 1914, in John Deere, it was held that the provinces could not interfere with a federally incorporated company by requiring them to be registered locally in order to conduct business. In 1916, in Bonanza Creek, it was held that "provincial objects" did not restrict a company's operations to the province of incorporation,, setting aside so long as it was licensed or registered to operate in another jurisdiction, and its incorporating Act allowed for that to occur.
The first Federal and Provincial Acts generally provided for incorporation through letters patent, but the procedure was excluded federally for certain classes of company (such as railways and banks), which still had to be incorporated by special Act of Parliament. It was in this manner that the Canadian Pacific Railway was originally formed.
Current Acts (such as the Canada Business Corporations Act) generally provide for formation by articles of incorporation, but Prince Edward Island still retains the letters patent procedure and Nova Scotia provides for incorporation by memorandum of association.
Corporations Canada Corporations Canada is Canada's federal corporate regulator, operating under Innovation, Science and Economic Development Canada. It is responsible for administering laws regarding the incorporation of Canadian businesses as well as "corporate laws governing federal companies, except for financial intermediaries." (Financial institutions are incorporated by the Office of the Superintendent of Financial Institutions.)
It has the authority to dissolve a corporation that has not filed its annual returns. Corporations Canada is responsible for the administering the following laws:
Canada Business Corporations Act Canada Cooperatives Act Boards of Trade Act Canada Not-for-Profit Corporations Act
Corporate governance
Board of directors
The articles of incorporation can provide for different classes of shares (which may carry the right to elect separate directors). Like most of the Commonwealth and Europe, the "one share, one vote" principle prevails in public companies, but cumulative voting can occur where the articles of incorporation so provide.
Shareholders must elect directors at each annual meeting, and, where the articles are silent, directors remain in office until the annual meeting after their election. after incorporation (at which time the initial directors are simply registered). There can be staggered boards, but any director's term is limited to three annual meetings. Directors elected by a particular class cannot be removed without consent of that class. All changes in directors have to be filed with the registrar.
Where a company's securities are traded publicly on the Toronto Stock Exchange, from 31 December 2012, it is required to:
elect its directors individually, as opposed to electing a slate, hold annual elections, as opposed elections for multi-year and/or staggered terms, disclose annually whether it has adopted a majority voting policy for uncontested director elections, and if not, explain why, and after each meeting at which directors have been elected, notify the TSX if a director has received a majority of "withhold" votes (if it has not adopted such a policy), and promptly issue a press release disclosing the voting results.
In October 2012, the TSX also issued a proposal to require majority voting at uncontested elections.
The larger pension plans and other investment funds have instituted practices relating to the behaviour that is expected of the companies they invest in. Publications in that regard include:
Proxy Voting Principles and Guidelines 2013 Best Practices for Proxy Circular Disclosure Proxy Voting by Canadian Mutual Funds 2006–2009
On September 29, 2016 the Financial Post reported that a "Bill introduced in Parliament would vanquish 'zombie' directors who fail to win majority shareholder votes"
Board structure
Directors set their own remuneration. They have a fiduciary duty to not put their own interests first when setting it. Some case law exists where decisions about remuneration were not reached fairly, or where directors' fees are unusually high, thus attracting oppression remedy claims under the various corporate statutes. Otherwise the remuneration committee should be composed of independent directors. There is no say on pay rule in the CBCA. However, a large number of Canadian companies have been having say on pay votes, as a result of shareholder proposals to change company constitutions in order to introduce them.
For publicly traded companies, the Canadian Securities Administrators have issued various National Instruments that have been implemented to varying degrees by the provincial and territorial securities regulators in order to assure better-functioning boards. They include:
51-102: Continuous Disclosure Obligations51-102: Continuous Disclosure Obligations 52-109: Certification of Disclosure in Issuers' Annual and Interim Filings52-109: Certification of Disclosure in Issuers' Annual and Interim Filings 52-110: Audit Committees52-110: Audit Committees 58-101: Disclosure of Corporate Governance Practices,58-101: Disclosure of Corporate Governance Practices the Canadian implementation of the practices recommended by the UK Cadbury Report, made mandatory by the Toronto Stock Exchange for listed companies.TSX Company Manual, s. 472
Shareholder rights
Under s. 140(1) of the CBCA, all shareholders have the right to vote. Shareholders holding the same class of shares must be treated equally, and so, for instance, no voting ceilings are allowed.
With 5% of the voting rights, known as a requisition, shareholders may require directors to call a meeting. Uniquely, under s. 137 of the CBCA:
a beneficial holder of shares may submit a proposal (which may include nominations to the board of directors), even though she is not a registered owner of shares. This means a broad group of people who sit behind investment dealers or other intermediaries in the investment chain are now enfranchised. any shareholder can make a proposal, a brief statement of which must be included with notices of meetings, but it can be refused if it "does not relate in a significant way to the business or affairs of the corporation," or "the rights conferred by this section are being abused to secure publicity" and under s. 137(8) the only way to challenge this is by application to a court. The proposal also has to not have been submitted within the last 5 years, if the last time it got less than 3%, 6% or 10% of the votes (depending on how often it had previously been submitted). Before 2001 there was a prohibition on proposals for economic, political, racial, religious or social causes, but this has since been repealed. careful preparation is required in order to succeed in getting a proposal approved at a shareholders' meeting, especially where it calls for the replacement of the existing board otherwise, the directors determine what goes on the meeting and proxy solicitation agenda
While a starting point of Canadian companies is that directors "manage or supervise the management of, the business and affairs of a corporation", shareholders may unanimously agree to do a corporate act, regardless of what directors think. Shareholders can amend the articles with a three-quarters majority vote.
Political donations by corporations (and trade unions) have been prohibited since the Federal Accountability Act repealed s. 404.1 of the Canada Elections Act in 2006.
Directors' duties
The laws in the various jurisdictions governing the duties of directors generally follow that laid out in s. 122 of the CBCA:
Extensive jurisprudence in the Canadian courts have expanded on the matter:
In Peoples Department Stores Inc. (Trustee of) v. Wise it was held that the duty is not merely owed to the corporation itself, but also to corporate stakeholders, namely "shareholders, employees, suppliers, creditors, consumers, governments and the environment.: This duty is not mandatory. The main directors' duties under Canadian corporate law is the duty of care, and then avoiding conflicts of interest, which include primarily of engaging in undisclosed self-dealing, taking unauthorized corporate opportunities, competing with the company, and being enriched in a takeover bid. A director has to meet a minimum standard of care, regardless of how clever or incompetent he is. It has also been implied by the case law, that if directors have special skills or qualifications, this will raise the standard expected further above the minimum.Re Standard Trustco Ltd (1992), 6 B.L.R. (2d) 241 (O.S.C.) In UPM-Kymmene Corp v UPM-Kymmene Miramichi Inc the board approved a large pay package for the chair and major shareholder, Mr Berg, after a seven-minute meeting of the compensation committee, and a 30-minute discussion on the full board. This was not long enough to consider the issues, properly inform themselves about the package, especially given their own compensation consultants, and the former compensation committee, had expressed serious concerns. Neither was this an issue of "business judgment" because that can logically only apply where some real judgment has in fact been exercised, where the board has "been scrupulous in its deliberations and demonstrated diligence in arriving at decisions."