CHAPTER 02 Types of Business Organizations
FEDERAL OR PROVINCIAL INCORPORATION A business corporation can be incorporated either federally, under the Canada Business Corporations Act (CBCA), or in any of the provinces. Ontario and Québec each have a Business Corporations Act (OBCA and QBCA, respectively). The CBCA, OBCA and QBCA prescribe essentially the same requirements, with some exceptions, the most significant of which are discussed below. Under all of these statutes, incorporations can be effected quickly and at a reasonable cost. A federal corporation has the right to carry on business under its corporate name in any province of Canada (although it must use a French form of its name in Québec). In contrast, a corporation incorporated under provincial law cannot do so as of right in another province. Hence, an OBCA or QBCA corporation cannot be licensed or registered under its name in another province if a confusingly similar name is already being used there by another corporation. If this is a concern, incorporation under the CBCA may be advantageous, although as a practical matter, a CBCA corporation may need to operate under a different name in any province where its corporate name would be confusing. However, it may be easier to obtain a desired corporate name by incorporating provincially. Under the OBCA and QBCA (unlike the CBCA), proposed corporate names are not subject to pre-clearance for possible confusion with existing names. Incorporators can decide for themselves whether there is any risk of other parties objecting to the names they wish to use. Both federally and provincially incorporated corporations must satisfy the registration requirements of every province in which they intend to carry on business. In most provinces, corporations must file corporate returns annually to keep their registrations up to date.
Generally, only public corporations, whether federally or provincially incorporated, must file financial statements on the public record. The directors and officers of all corporations must be disclosed on the public record, but not the shareholders (except in Québec, where the three largest voting shareholders must be disclosed, and except as required to comply with the transparency requirements discussed below). In Québec, if all of the powers of the directors have been withdrawn pursuant to a unanimous shareholders’ agreement, the names and domiciles of the shareholders or third persons having assumed such powers must be declared with the Québec Registraire des entreprises (REQ). The CBCA requires at least 25% of the directors to be Canadian residents, unless a corporation has fewer than four directors, in which case it needs to have at least one Canadian resident. The OBCA and QBCA do not require that any directors be Canadian residents. The CBCA, OBCA and QBCA all require, however, that a public corporation have at least three directors and that a certain number of such directors be independent. Additional corporate governance requirements are imposed by securities regulators on public corporations (see the Corporate Governance chapter of this guide). The CBCA, OBCA and QBCA allow directors and shareholders to participate and to vote at meetings by electronic means. There are a few other important differences between the CBCA and the OBCA on the one hand, and the QBCA, on the other. The QBCA authorizes the creation of shares with or without par value and provides for the issuance of shares that are not fully paid up, whereas the CBCA and OBCA prohibit par value shares and the issuance of shares that are not fully paid up. The QBCA has a special regime for sole shareholder corporations, and the sole shareholder may choose not to establish a board of directors and not to comply with some requirements of the QBCA relating to bylaws and
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