IS THIS A SOLE PROPRIETORSHIP, PARTNERSHIP, LP, LLP OR CORPORATION?

Sole Proprietorships Sole Proprietorships: person engaged in business of trading, manufacturing or mining and uses something other than own name for business name (PA 1, 88)

1 owner who has both the prerogative and responsibility of making all ultimate decisions concerning the business PA 88(1): if doing business in a name other than their own + “and Company” (or some other word/phrase

indicating plurality of members) a SP must file with the registrar within 3 months of the time biz used name Attractions: Ease to commence and dissolve, modest expense to start up Disadvantages: the unincorporated owner is fully liable (100% personal liability) for all debts and other

obligations incurred by the business Name must not be the same/similar to another BC biz – the registrar has discretion to refuse a name (PA 89(1))

PartnershipsPartnerships: relationship between persons 1) carrying on business 2) in common 3) with a view to profit ((PA 2)

Persons includes a corp, carrying on business likely involves ongoing activity – co-ownership leading to profits alone is not sufficient (Kamex), and view to profit doesn’t mean profits actually need to be generated

Kamex: In addition to joint ownership, necessary to find w/in that agreement an intention on the part of the parties thereto to carry on a business in common w/a view of profit

o  the mere fact that co-owners intend to acquire hold, and sell a building for profit does not make them partners

o in this case, clearly intended to maintain their rights as co-owners ( i.e. keep separate their respective beneficial interests)

Rooted in CL– codified by PA+ PA 91 states rules of equity and CL still apply, unless they are inconsistent w/ the PA. PA 3: who is not in a partnership, as well as describing the principles for interpreting PA 4 PA 4: partner is an agent of the firm and other partners for the purpose of business of partnership To avoid a partnership, it is best to avoid any remuneration based on the net profit of the enterprise. One of the

ways to avoid the partnership rules from applying to you is by using a corporation or PA 3 Advantages: ease of formation and dissolution, great flexibility in designing the internal managerial structureWHAT IS THE LIABILITY? (DISAVANTAGE) UNLIMITED LIABILITY OF EACH PARTNER , jointly, or jointly and severally (default position (PA 7(1), (2) UNLESS a) and b)): (a) the partner so acting has in fact no authority to act for the firm in the particular

matter, and (b) the person w/whom he or she is dealing either knows that the partner has no authority, or does not know or believe him or her to be a partner.

Partner could limit liability by becoming a LP, but then they can’t play any part in the direction of the business Representing, or allowing yourself to be represented, as a partner could hold you liable as a partner even if you’re

not one: PA 16 A partner is jointly liable for firm debts when they’re alive, and severally liable when they’re dead (GPs only): PA 11 The firm is liable for injuries/losses to a person who isn’t a partner or any penalties incurred because of a wrongful

act or omission by a partner: PA 12 PA 19 outlines the liability of a new, retired or retiring partner

IS THERE A PARTNERSHIP? PA 4 Rely on the whole character if the transaction to determine partnership or not (Pooley) Generally formed by K, but could “accidentally” create a partnership – be careful when profit sharing! a) owning property in common doesn’t, by itself, create a partnership, even if profits are shared b) sharing gross returns doesn’t, by itself, create partnership (ex: consignment) c) rebuttable presumption that sharing profits is proof of a partnership

o THEN LISTS EXCEPTIONS i), ii), iii), and [iv) (Pooley)] The court focused on: the creditor could require the business to use contributions for certain

purposes; the creditor could get paid at the end of the day with the assets of a partnership; the creditor could require the partnership to take certain legal action; the partnership could not deal without the consent of the creditor; the creditor had unlimited access to the books/records; the bankruptcy of the creditor ended the agreement; there was also an arbitration clause.

Though none of those in particular would have tipped the balance, the overall relationship is indicative of a partnership arrangement, rather than a true creditor.

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WHAT IS THE LEGAL PERSONALITY OF A PARTNERSHIP? PA 81 states that certain businesses (trading, manufacturing, or mining) must register as partnerships unless they

are LLPs, and PA 82 grants 3 mos to do so. Applies whether or not individuals are aware they are in a partnership.o If firm has a name, then have to registero When in doubt, register

No separate legal personality from the partners themselves: Thorne (a partner can’t be employed by the partnership)

A partnership is a legal entity or persona juridica separate and distinct from the indvl composing it Collective term for people in a partnership is a “firm” (PA 1), but the name “firm” is a matter of convenience and has

no substantive legal consequence (i.e. no separate personality): Thorne

PARTNERSHIP PROPERTY According to PA 1.1 , partnership property is defined as all property and rights and interests in property that was:

o originally brought into the partnership stock,o acquired, whether by purchase or otherwise, on account of the firm, oro acquired for the purposes and in the course of the partnership business.

All partnership property is held/used exclusively for the partnership and in accordance with the agreement: PA 23(1), but often varied by the partnership agreement

Property bought with firm money is deemed to be bought on account of the firm, absent contrary intention: PA 24

WHAT IS THE RELATIONSHIP BETWEEN PARTNERS?Rights and duties of partners are outlined in PA 27

Sets out the partnership they are deemed to have These can be changed- but are what you have by default so partnership = cannot be forced out or be required to stay in but there are certain situations where the

partnership is dissolved without the consent of a particular individualBased on four principles:

Equality: o Partners’ rights and obligations to share equally in profits and losses (PA 27(a)) o Right to participate in the management of the business (PA 27(e)), to have access to the partnership books

(PA 27(i)o Duty to render to each other true accounts and full info of all things affecting the partnership (PA 31).

Consensualism:o Rights and duties of partners can be expressly or impliedly varied with unanimous consent (PA 21)o Admission of new partners must be unanimous (PA 27(g)]o Changes to the fundamental character of the partnership agreement must be agreed upon unanimously –

ordinary matters can be decided by majority (PA 27(h)]o Subject to the existence of an agreed upon set term, a partner can end the partnership whenever by giving

notice (PA 29(1)]o Unless the power to do so is expressly in the partnership agreement, no majority of partners can expel a

partner (PA 28) can change this Utmost good faith (fiduciary character): partners have the duty to act w/ utmost fairness and good faith to other

partners in the business of the firm (PA 22(1)]o fiduciary duty to each partner with respect to partnership businesso partnership exists in respect to the carrying on of a specific businesso so this should be set out fairly comprehensively – although keep in mind just writing down what the

business entails may not include everythingo certain things that you must do, certain things that you ought not to doo MUST act in best interest of partners

any information must be given to other partners any property has to be given to other partners any profits must be given to other partners (and then u get your share)

o part of this duty of good faith/best interest is that you have to stay on top of the business of the entity can breach the duty if you are not as involved as you should be

o you can’t K out of the FD – but you can structure it – how and when info has to be revealed. But the basics – informing and benefits cant be contracted out of

o Personal character of the partnership K: many of the provisions can be K’d out of in a partnership agreement

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DISSOLUTION OF A PARTNERSHIP: Subject to the existence of an agreed upon set term (i.e. undefined term), a partner can end the partnership

whenever by giving notice (PA 29(1), 35(1)(c)] Subject to an agreement, a partnership is dissolved if there is an existing set term that expires (PA 35(1)(a)) or if

the adventure/undertaking for which the partnership was entered into ends (PA 35(1)(b)] Death, bankruptcy or dissolution of partner A: partnership dissolved if 2 partners (PA 36(1)(a))) or dissolved btwn

partner A and the rest, subject to partnership agreement (PA 36(1)(b)] Partnership is dissolved if there’s an event making business unlawful to be carried on: (PA 37] PA 38 outlines when a court can decree dissolution On dissolution, partners are entitled to apply partnership property to debts/liabilities of firm and then will have

surplus assets divided amongst them: PA 42(1)(a)&(b)]

WHAT IS THE RELATIONSHIP OF PARTNERS TO THIRD PARTIES? A new partner to an existing firm doesn’t become liable for any debts/liabilities incurred before they became

partner: PA 19(1) Retirement doesn’t exonerate a partner from debts incurred by the firm before retirement: PA 19(2) A partner is jointly liable for all debts and obligations of the firm: PA 7, 11, 12, 14 A person can be held liable as a partner to the extent that a partner would be, even if they never were one, if

they hold themselves out, or allow themselves to be held out, as a partner: PA 16

JOINT AND SEVERAL LIABILITY Example: Assume P has a claim against A-B-C “entity,” and assume: A 75% responsible for claim; B 25%; C 0%.

Joint Liability: A & B & C each 100% liable to P (though P can only claim once) - A, B, C have no claim against each other (thus, for example, C could end up paying 100%). This is a very precarious position for A, B and C when they have significant assets, especially since partnership assets are not prioritized over personal ones; Can’t K out of JL to the ROWSeveral (or Proportionate) Liability: P can claim 75% from A and 25% from B (thus, C has no liability to P). This is the idea behind a limited liability partnership.Joint and Several Liability: W/respect to parties outside the partnership, liability is joint. W/in the partnership itself, liability is several Kually. So if A & B & C each 100% liable to P (though P can only claim once) - A, B, C among themselves entitled to sort out the claim so A is 75% responsible, B 25% and C 0% (so P could claim 100% from C but C can recover 75% from A and 25% from B).

TYPES OF PARTNERSHIPSRegistration Creation Rights/Obligations Dissolution

General Partnership

Maybe (if name is confusing)

Operation of Law Partners ROW

Undifferentiated

Easy

LLP Yes Choice & operation of law

Partners ROW

Different liability (except negligence)

Easy/ deregister

LP Yes Choice & operation of law

Gen Partner ROW

Undifferentiated

Ltd Partner ROW

Limited liability

Deregistration OR by operation of law for some purposes

GENERAL PARTNERSHIP – ONE GOVERNED BY BC LAW THAT ISN’T AN LP OR LLP: PA 1All partners have presumptive = access to info and decision-making. Any liability that one of you has is the liability that all of you have to the ROW. You don't need to find the right partner to deal w/, b/c they are all able to make decisions that are binding on the partnership w/ respect to the rest of the world. Internally, you can agree as partners as to how to change the basic “equality.” this internal agreement will have no

change on your interactions with the ROW (can K out of some of the benefits, but you can’t K out of any of the liabilities)

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The recognition of the partnership entity is a legal mechanism for protecting others, rather than those w/in the partnership (opposite of a corp)

Unlimited personal liability

LIMITED LIABILITY PARTNERSHIP Preconditions: a) there must be a written agreement btwn 2 or more persons designating their partnership as an LLP;

b) the partnership is formed to carry on a profession governed by an act that permits practice of the profession by an LLP, and the governing body of which profession requires its members to maintain a minimum amount of liability insurance; c) the LLP's name is registered ; d) the LLP's name must include the words "limited liability partnership" or the abbreviation LLP as the last words or letters of the firm names

A partner in an LLP isn’t liable for other partners’ shit just b/c they’re a partner ((1)(a)) or for an obligation btwn the partnership and another person (debts) ((1)(b)) and isn’t liable to the partnership or partner for either scenario ((1)(c)), they are only liable for their own negligence or the negligence of someone under their direct supervision/control ((2)(a)) or if they knew of the other partner’s shit and didn’t take reasonable actions to prevent it ((2)(b)(i)&(ii)): PA 104

Can’t accidentally have an LLP – registration is required: PA 96 If the General Partnership ends, the LLP ceases as well still have a claim to partnership property which is presumed to be =, but the external indvls who are bringing claims

against you can claim only against the partnership property o the outside person has no access to the personal property of the partnerso only way personal property can be exposed if there is a claim against me and it is my negligence that caused the

problem LLP has the advantage of sheltering Professional LLPs must be expressly authorized under their governing statute and meet any pre-requisites: PA 97 A change in partnership doesn’t affect the LLP status: PA 102 Partners are subject to the same obligations as corp directors w/regards to personal liability for payments (ex: unpaid

wages, unremitted taxes, torts (inducing breach of K), partners personally liable for a partnership obligation (ie K obligation) if they would be liable for the obligation if the obligation were an obligation of a corp and they were directors of that corp PA 105(1)

o Doesn’t create a FD or DoC; partner ought to know what is going on, cannot escape liability by being unaware: PA 105(2)

IF A CORPORATION IS A PARTNER IN AN LLP : directors are jointly and severally liable for any obligations imposed on the corpo under (1) or PA 104(2): PA 105(3) unless the director dissented (see appraisal remedy) or took reasonable actions to prevent the act/omission that resulted in the liability: PA 105(4)

Can’t use an LLP to get out of a) previous obligations of the partnership before it became an LLP or b) Ks entered into before it was an LLP: PA 106

LIMITED PARTNERSHIP At least one general partner and one limited partner: PA 50(2)

o 1 person can be both (rights/powers/restrictions of a general, but has LP rights against the other partners), but you need at least 2 actual people: PA 52

Can’t accidentally form an LP – formed by filing a declaration: PA 51(1) LPs don’t have a separate legal personality A general partner has all the rights and powers of a regular partner (PA 56] A limited partner can contribute $ and property, but not services since they can’t contribute by being part of the

running of the business (PA 55(1))) and their interest is limited to person property (PA 55(2)] A limited partner is only liable to the extent they agree to or contribute to the capital of the LP: PA 57 Limited partners share capital and profits in proportion to their contributions, and everything else equally: PA 61(1),

unless provided otherwise in the partnership agreement: PA 61(2) Limited partners don’t get property until all liabilities of the LP are paid – the limited partners have preferential access

to profits and being paid out if the partnership ends: PA 62 Limited partners will be held liable as general partners if they’re the directing minds and represent themselves to

be management; If a LP takes part in the control of a business, he becomes liable under the statute as a GP (i.e. unlimited liability to the extent of his assets): Haughton Graphics – participate in management of business: PA 64

o Weren’t liable in Nordile Holdings b/c they didn’t hold themselves out to be management – acted in their capacity as directors and officers of the general partner

can receive the return of his contribution: 1) on dissolution 2) if the partnership agreement provides for it 3) if not other procedure is specified in the partnership agreement, then after he or she has given 6mos notice to all other partners; 4) if all the partners consent to the return

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you can for internal purposes be limited, but for external being general: meaning that you can have the perks of a LP (preferential access to profits and assets upon distribution) but allowed to be involved in management and exposed to the outside world (external purposes same as GP)

closest to corporation in the way that they define what they can do

COMPARISON OF BUSINESS ENTITIESSOLE PROPRIETORSHIP

GENERAL PARTNERSHIP

LIMITED LIABILITY PARTNERSHIP

LIMITED PARTNERSHIP

CORPORATION

Owners Sole proprietor Partners PartnersGeneral partners and limited partners

Shareholders

Controlling factor in formation

Start of businessMeeting the def in s 2, factors in s 4, & CL (s 91)

Satisfaction of s 96 requirements

Satisfaction of s 51 requirements

Compliance with formalities

Registration needed?

If name indicates >1 owner: s 88(1)

No - unless business within s 81 Yes - s 96 Yes - s 51 Yes

Differentiated “owners”?

N/ANo - subject to an agreement to the contrary s 27

No, even if formerly a limited partnership (s 103)

Yes, either general or limited partner, per s 50 (or both, s 52) *

Possibly, if there are different classes of shares

Form of owner’s contribution

Unrestricted

Any property - “partnership property” in ss 1.1, 23, 24 - no restriction on services

Same as for general partnership - s 95(1) (see s 112(3) for contribution of services)

As in a general partnership for GP. LP can give $/property but not services (s 55)

Fair equivalent “consideration”: money, property or past services

Participation in entity decisions?

AbsoluteYes - s 27(e) - unless agree to contrary

Yes - ss 27 and 95(1) - unless agree to contrary

GP: yes, LP: no. If LP does so, they become a GP: s 64

By voting (if eligible) at mtgs (sometimes by agreement) - and through some remedies

Entitlement to profits/income

TotalYes - in = measure - s 27(a) - unless agree to contrary

Yes - ss 27 and 95(1) - unless agree to contrary - and subject to s 112

Yes - and some priority for return of property to LP: s 59 – LP rights can vary – s 61

On declaration of dividend (if entitled) - or sometimes through remedies

Extent of liability for entity obligations

Sole and unlimitedUnlimited and personal- see s 11

Usually limited except for negligence (s 104) and similar to director (s 105)

GP: unlimited & personal, s 56LP: limited, s 57

Only to extent of payment for originally-issued shares

Nature of liability to non-“owner” parties

Sole and unlimitedJoint, per ss 7, 11, 12, 13, 14, 19

Several, except in negligence-type situations - s 104

GP: joint - s 56LP: several - s 57 *

Limited

Nature of liability among “owners”

n/aJoint, unless agree to contrary - s 21

Several, w/ exceptions - s 104

GP: joint - ss 21, 56LP: limited - s 57

Only through certain remedies (e.g. oppression)

Termination of entity

End of business or death or incapacity of proprietor

By notice of any partner, expiration of term, death or bankruptcy of partner, if unlawful business or court

On cancellation of registration - s 129

On bankruptcy, retirement, death, mental incompetence of GP: s 67 - or winding up: s 69

Winding-up, bankruptcy or other liquidation of corporation

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order - ss 29, 36, 37

11– Jointly liable for all debts/obligations incurred while partner, estate severally (GP)

27 – starting point for rights and obligations in partnership (GP/LLP) – pg. 2

52 – 1 person can be both a GP and an LP (LP)

82 – GP for purposes of trading, manufacturing, mining (GP)

103 – LLP reg. trumps the LP reg. re: ownership (LLP)

23 – Partnership property applied only for PS use (GP)

50 – LP needs at least 1 GP and 1 LP (LP)

56 – GP has all the rights to carry on business/make decisions (LP)

95(1) – same rules as GP for participating in entity decisions/property (LLP)

105 – same liability as the directors of a corp (LLP)

24 – Property bought with firm $ is deemed to be PS property (GP)

51 – LP reg. requirementsEx. certificate with business name (51)

57 – LP only liable up to his/her contribution to the firm (LP)

96 – LLP reg. requirementsEx. reg. statement w/ address

112 – restricts distribution of LLP property post wind-up until all obligations have been satisfied

Corporations creature of statute – can’t accidentally create one-CL recognizes 2 forms of incorporation: a) incorporation by exercise of the royal prerogative (ie royal charter) and b) incorporation by a private or general act of the legislature -BC sui generis (BCBCA = more management friendly), POGG s 91 of Con : incorps falls w/in the general powers of the fed-a prov can not endow a prov corpo w/the right to carry on its activities in another jurisdiction but does not preclude a prov from conferring on a corp the capacity or power to carry on business elsewhere if the extra-prov jurisdiction was willing to allow it to do so -fed corps remain subject to prov laws of general application; they do not enjoy immunity from otherwise valid prov legs

LIMITED LIABILITY AND CREDITOR PROTECTIONCorps are a separate legal entity from the subscribers – not an agent or a trustee for them: Salomon v Salomon & Co. starting point

A SH is not liable for the obligations of the corporation: CBCA 45(1) and BCBCA 87(1) The corp itself does not enjoy any limited liability – as a separate legal entity, all of its assets are up for grabs

Overcoming SalomonDevices Available At The Time of Salomon Devices Not Available At The Time Of Salomon- K: guarantee of indemnity; 2dary interest; warranty of authority- Tortintentionaldeceit; inducing breach of K

a. If someone in the K (ie. D) induces breach of K between A+B (ie. employment K), then D (indvl employment of company) is held liable

b. If corp breaks the K, whoever caused the corp to make that decision can be held liable, NOT company

- Tort unintentional negligence- Restitution – unjust enrichment/ quasi-contractual- Lifting/ piercing corporate veil (ie. ignoring corp form for “fraud”)

 Allows for indvl to be liable as the corp in respect of the transaction

When the limited partner acts as the general partner, they don't become the general

Same with piercing the veil, for the purpose of the transaction you can lift the veil and go after the asset, but ONLY FOR THAT TRANSACTION

-Fiduciary Duty-Criminal responsibility fraud

- Warning/ info techniques access to records; securities legislation-Directors’ personal liability

a. Employee/ director/ officer wagesb. Statutory derivative actionsc. Other direct liability

-Capital maintenance requirementsa. Required to keep capital assets at certain level

-Oppression duty and remedya. SHs are not personally liable for actions of the corp,

subject to certain circumstances (BCA s 87, CBCA s 45).

b. Directors, officers, and employees of a corp are personally liable for their tortious conduct (ADGA)

c. However, if the employee shows they acted bona fide in the interests of the corp, they will not be personally liable for inducing breach of K (Said)

d. B/c a corp is a separate legal personality, directors can be employees of the corporation (Lee).

HOW TO PROTECT CREDITORS? Capital Maintenance Requirements: The corp is required to maintain a certain level of assets – dealt with mostly

through securities law Cautionary Suffix: Corps must have a cautionary suffix in their name to warn creditors that they are dealing with a

limited liability entity (SHs): BCBCA 23

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Publicity: must file corporate and securities documents in a public office Officers’ and Directors’ Liability: allows liability to attach to indvls instead of the corp for their own acts/omissions

similar to limited liability partners under the PA 105o Unremitted taxeso Unpaid wages – whether or not directors were negligent

Oppression remedy TORT RESPONSIBILITY

Torts committed by directors, officers, or employees: ADGA Systems, London Drugs v Keuhneo Employees are liable in tort, except for where they are acting in the best interests of the company and the K

being breached is btwn the P and the company itself (reaffirming Said v Butt). ADGA Systemso Difference btwn this and Said: lies in whether or not the corp of which they were employee or a director

of was a party to the K that was broken K that was broken in Said was a K that the employer was a part of therefore employees were not

held separately responsible K that was broken in ADGA was a K that the employer was not a part of, therefore

employees/director were held separately liableo Once it is determined that a person breaches a duty, liability may be imposed on him and he may not

escape by saying that as well as being a wrongdoer, he is also a company manager or employee. Where property pleaded, officers or employees can be liable for tortious conduct even when acting in the course of duty (their actions are themselves tortious or exhibit a separate identity or interest from that of the company). ADGA Systems

o In tort law, in general, employees are separate from the corp and can be held personally liable. However, in this case where the K btwn the 2 companies had a exclusion clause, the employees could claim the use of the clause to protect themselves. London Drugs v Keuhne

HOW DO YOU HOLD SOMEONE OTHER THAN THE CORPORATION LIABLE?-PIERCING THE CORPORATE VEIL

Hold SHs liable for the obligations of the corp alter ego, family law, sham, conduit pipe Can refer to the imposition of liability upon the SHs of a corp for the obligations of the corp (a person wronged by an

impecunious corp might ask a court to hold the corp's SH’s liable for her loss) Non-recognition of the separate personality of a corp where the correct construction of a statutory or other

standard requireso Using unit of analysis beyond the corp in isolation: look to its parent, subsidiary, SHs – joining affiliated,

subsidiary, etc companies together: BCBCA 2 outlines these corporate relationships Separate personality of a corp will not be upheld where it would produce results “flagrantly opposed to justice”:

Clarkson Co v Zhelkao Company formed for the purpose of wrongful/unlawful actso Where the corp is a sham, cloak or alter ego – company is a mere agent of the principal SHso Whether company is an indvl’s agent is a question of fact of each case – look to the realities of the situation

(less likely in these employment contexts): Jodrey Estate v Nova Scotia Controlling/total share interest is not prima facie evidence to establish agency: Lee v Lee’s Air

Framing Ltd No lifting in Clarkson b/c not a case where corp was set up to avoid existing liabilities/obligations

o Corp can K with its directors/SHs as long as it’s not a sham or mere agent: Lee v Lee’s Air Framing Ltd Separate personalities may not be upheld where the corps are controlled by the same directing mind and there is no

substantial separation: De Salaberryo Potential indicators of cascading entities that are not necessarily separate:

Are the profits treated as parent company profits? Are the persons conducting business appointed by parent company? Was the parent company the head/brain of trading venture? Did the parent company govern the venture/decide what should be done/what capital should be used? Did the parent company make the profits by its own skill/direction? Was the parent company in effectual and constant control? Is the directing mind and will of the parent company reaching into/through the corporate façade of the subsidiary? Is there thin capitalization of the subsidiaries?

o The business of 1 company can embrace the apparent or normal business of another where it can be said "that the 2nd company is in fact the puppet of the 1st; when the directing mind and will of the former reaches into and through the corp façade of the latter and becomes, itself, the manifesting agency”

o Jodrey Estate v Nova Scotia: Grandfather created corps to leave property to his grandchildren in a way to avoid having them pay succession duties – the corps never engaged in any business activities and had the same SHs and directors – it was a mere conduit pipe linking the parent company to the estate – veil is lifted

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A more flexible approach will be applied in situations where justice and fairness require it: Lynch v Segal – more flexible in family law, more strict in commercial context – deadbeat dad set up corps to disguise his assets and get out of paying child support and alimony

o In appropriate cases, piercing the veil of one spouse's biz enterprises may be an essential mechanism for ensuring that the other spouse and children of the marriage receive the financial support to which, by law, they are entitled

THEORIZING CORPORATE PERSONALITY Fiction Theory: corp personality is a legal creation – “an artificial being, invisible, intangible and existing only in

the contemplation of law” Real Entity school: “when a group reaches a sufficient level of organization, when it can make decisions and when it

has a continuity of experience, then a new personality has actually come into existence” – a natural person essentially

Contractiarian school: agree w/ fiction theorists that corp personality is a fiction, however, rather than emphasizing the role of the state in bringing corps into existence, contractarians view the corp as a web of transactions, or “Ks”, among SHs, creditors, employees, management, and the BoDs. It is not a special privilege, but a mere notional convenience – “nexus of Ks”

o BCBCA view, whereas the CBCA views corporations law as an administrative function

Jurisdictional and Categorization Considerations Definitions: BCBCA 1

Company (BCA): a) a corp recognized as a company under this Act or b) a pre-existing trust or insurance company Corporation (CBCA 2(1)): company, body corporate, body politic and corporate, an incorporated association or

society, but not a municipality or a corporation sole Extra-provincial company: foreign entity registered under 377 or 379 Foreign entity: foreign corp (not a company and has issued shares), limited liability company (organized outside of

BC, not a corp or partnership of any kind), or an extra-provincial society – doesn’t have to be a corp!

JURISDICTIONAL CONSIDERATIONS BCBA, ss. 1“company”, “extra-provincial company”, “foreign entity”, “foreign corp”, “limited liability company” Jurisdictional shopping: incorporators can elect to incorp where they want – none of the corp Acts require the

incorporators to be residents of that prov/territory – happens much less in Canada than the US b/c the Acts are generally uniform (ie: Delaware phenomenon)

o Some Acts impose Canadian nationality and/or residency requirements for directorsHOW DOES A FOREIGN ENTITY REGISTER TO CARRY ON BUSINESS IN BC?

Foreign entities must register to carry on business in BC (with exceptions): BCBCA 375(1)(2)o Step 1: reserve your company name and then if approved, file a registration statement: BCBCA 376; s 26o Step 2: If 376 is fulfilled, the registrar must, if it is a fed corp, and may, in any other case, file the

registration statement and register the foreign entity as an extra-provincial company: BCBCA 377o Certain foreign corps who do a lot of business in BC should be registered under the BC statute and are

called an extra-provincial company when they register. A Foreign entity can be a LLC, a foreign corp, or an extra-provincial company

WHAT ARE THE EFFECTS OF REGISTRATION? If it’s noted as an extra-provincial company in the corp register, it is conclusive evidence that the foreign entity has

been duly registered on the date and time shown in the register: BCBCA 378(1) As long as it doesn’t break any laws in BC or this Act, the company can exercise any powers from its home

jurisdiction according to its charter: BCBCA 378(2) The foreign entity must still comply with its governing documents: BCBCA 378(3) 3rd party protections – no act of foreign entity (ex: transfer of property) is invalid merely b/c it violates its

governing documents(a) or the entity wasn’t registered at the time(b): BCBCA 378(4): actions are likely valid even if contrary to company’s own restrictions

BCBCA 379 governs the requirements regarding amalgamation of an extra-provincial company In BC, a company is a corp who has chosen to be under the BC statute WHERE a foreign corp are those that are not

governed directly under the BC statute (including CBCA)

CONTINUANCE UNDER THE LAW OF ANOTHER JURISDICTIONTwo Step Process:

1) EXPORT – requires the consent of the original jurisdiction and

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2) IMPORT – must meet the requirements of the receiving jurisdiction’s ActREASONS FOR CONTINUANCE?

Effect of continuance: tax advantages, better corporate climate, useful for friendly takeovers, BUT doesn’t affect prior obligations, property rights or involvement in legal proceedings pending before

continuance: BCBCA 305(1), same for amalgamation: BCBCA 285(1)BC PROCESS:

If it’s noted as a continued company in the corp register, it is conclusive evidence that the foreign entity has been duly continued on the date and time shown in the register: BCBCA 305(2)

If any of the amalgamating corps are foreign corps, they must provide whatever documents and proof the registrar wants to effect an amalgamation: BCBCA 275(1)(b)

Continue INTO BC:1. If a company wants to continue in BC it must file a continuation application, provide whatever info the registrar

wants and have one+ director sign the articles they will have once continuing: BCBCA 302(1)2. BCBCA 302(2) outlines the requirements of the continuation application

o BCBCA 303 outlines (1) when a foreign corp is continued, (2) what the registrar and (3) the company must do once it is continued in BC as a company

o The foreign corp may give notice of withdrawal of application before it is continued: BCBCA 304o Shares that have been already issued before continuance are deemed to be issued in compliance / the Act

and the companies articles as per 307 and rights of the shares are preserved upon continuing: BCBCA 306 o The articles of a company are those that one or more directors signed during the application; if you don’t

have such articles , then you are deemed to be governed by the default articles under the act: BCBCA 307(a)

Continuation OUT OF BC: A company may apply for continuation out of BC so long as it is authorized by its SHs by a special resolution (2/3 or

higher depending on company constitution) and the registrar must authorize the company to continue (export) if they are satisfied with the application: BCBCA 308

A shareholder can dissent to the special resolution from 308: BCBCA 309 BCBCA 310 outlines when continuation out of BC is prohibited

CLASSIFICATION OF CORPORATIONS

BCBCA 1: public company, reporting issuer” and “reporting issuer equivalent CBCA 2(1): distributing corp

COMMUNITY CONTRIBUTION COMPANIESBCA 51.91(1) Community purpose means a purpose beneficial to (a) Society at large, or (b) A segment of society that is broader than the group of persons who are related to the community contribution company,

a purpose of providing health, social, environmental, cultural, educational or other services, but does not include any prescribed purpose

BCA 51.92 Community purposes: one or more of the primary purposes of a CCC must be community purposes community purposes must be set out in its articles.

BCA 51.921 Name must contain “Community Contribution Company” or the abbreviation “CCC” as part of its name

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BCA 51.93(1) CCC must have at least 3 directors (regular company only needs 1) ; Further, If you are a director/ officer you must act with a view to the community purposes of the company as set out in the articleBCA 51.931 The transfer of assets is prohibited unless its…

for fair market value, to a qualified entity, in furtherance of the community purpose,

What purpose do CCC’s serve? CCC’s were established in response to an emerging demand for socially focused investment options. They were designed to bridge the gap between for-profit and non-profit enterprises. It allows you to pursue social goals while still generating a profit.

o Half way btwn purely profitable corp and a non-for profit corp :. Perhaps it would attract more investment :. An entity that allows you to have an investment with a return BUT the bulk of what the company makes goes to charity

The Corporate Constitution1. Decide a jurisdiction (think about benefits to BC vs CBCA; BC is more management friendlyo choose federal if you want to do business anywhere in Canadao Easier to bring a corp into existence on CBCA – 10 provisions on how to bring it in whereas BCBCA is 20 o Ie if everything else fails, you can use CBCA 234 (although it isn't clear who can raise this therefore it

might be that the court has to do it himself-likely the director/officer would try though "in the alternative, you can excuse me by way of s 234 b/c…" the court has discretion under this section to let you off

o Possible parameters under this provision thougho Possible reason why a corp would want to incorp under BCA and not CBCA

2. Determine a name 3. Must decide what type of corp its going to be; nature of the business that is going to be carried on

-When a corp is brought into existence, it is presumed to be able to do anything BUT may be that you want to restrict the business in a certain way BCBCA 11 CBCA 6

4. Decide who the initial SH’s are going to be -under the CBCA, you don’t need any SH’S in the beginning therefore doesn’t need to have any capital at the beginning

5. Have management in place- who are going to be the initial managers6. In BC, must decide what the day to day rules (articles) are going to be (need SH approval to change them

afterwards)-the CBCA does not require this-after the corp comes into existence, the director decides the bylaws -under CBCA can be brought /out shareholders or any capital at all or no bylaws (shelf corp)

7. Long-term ownership structures8. The potential SHs has to be set out in both statutes- the share structure- the potential shares that could be

sold by the corp to the first SHs- see pages 33 “Shares” -under BC, at least 1 of those share has to be already issued (not CBCA, none have to be issued)-Set out in the language what classes of shares you’re going to have and w/in the class, what series are going to be issued and what is the max #-can change this later on, but difficult

CORPORATE NAMESPurpose: Ensuring that the public not be misled by confusingly similar corporate names

The name of the company is whatever if it has been reserved (through the application process in BCBCA 22) and the reservation is still in effect at the time the company is recognized: BCBCA 21 (21 is the procedure to follow)

Corps must have the cautionary suffix as per BCBCA 23 and the name must be either English or French, and can use another language outside of Canada if it is set out in the articles: BCBCA 25

A person can’t use certain abbreviations that connote a certain type of company if it is not that type: BCBCA 24 If the name of a foreign entity contravenes any of the prescribed requirements/the Act, it must reserve an assumed

name to be registered as an extra-provincial company and must acquire property/rights/interests in that assumed name and can sue under either: BCBCA 26

The company must display its name in a conspicuous position at the place of business, on its documents, seals, etc: BCBCA 27

The registrar may order the change of name if the name of a company or extra-provincial company contravenes the prescribed requirements/the Act: BCBCA 28

A company must alter its notice of articles according to BCBCA 257 and must do so by director or ordinary resolution and all other requirements are outlined in BCBCA 263

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CREATING THE CORPORATION (ARTICLES) WHAT ARE ARTICLES? (DEFINITIONS)

“Articles”: BCBCA 1: Documents/articles as prescribed by BCBCA 12 and includes articles of a pre-existing company and the bylaws of a company incorporated.

“Articles”: CBCA 2(1): articles are articles of incorporation, amalgamation, continuance, reorganization, arrangement, dissolution, revival CBCA 5 (1) requires incorporators to be 18+, not of unsound mind as found by a court and not bankrupt OR (2) bodies corporate Under BCBCA 10 – the memorandum is replaced by a document called the “notice of articles”, the articles will no longer be publicly filed, and the incorporators will enter into a brief “incorp agreement” intended to preserve the Kual basis of the memorandum corp

WHEN IS A COMPANY RECOGNIZED AS A COMPANY? (1) when it’s a) incorporated, b) converted, c) amalgamated or d) continued in BC under this Act or 2) when it’s a)

incorporated, b) converted, c) amalgamated or d) continued in BC under a former Companies act. 3) A pre-existing trust/insurance company is recognized under a former Companies Act when it became that trust or insurance company: BCBCA 3

HOW TO FORM A COMPANY? 1 or more can form a company by a) entering into an incorporation agreement and b) filing an application with the

registrar: BCBCA 10 – 2) and 3) outline the requirements of the applicationo FORMATION IS BY K

BC K Model – BCBCA 10: incorporators must enter K for incorp agreement in advance. Sets out how many shares they get and it must be signed. Other than that, no restrictions on the incorporators (could be another corp or company) (s 10).

o S 10(3)(e): An incorporation application must contain a notice of articles (see s 11 for those requirements) CBCA Opt-In (Administrative) Model – CBCA s 5: Decide on “incorporators” – no Kual basis – they must sign

articles of incorporation and comply with s 7. This statute distinguishes between indvls and artificial entities. Indvs cannot be bankrupt and are subject to other restrictions in s 5(1). Restrictions on artificial entities are set out s 5(2).

o FORMATION IS BY REGISTRATION Both statutes allow for a single person to be the incorporator. Provincially, this is odd because of the contractual

basis. The notice of articles has bare bones info & is filed with the registrar BCBCA 11 what has to be in the notice of

articles:o Name of company & directors, address of records office, share structure, including special

rights/restrictions with each class/series of shares The bare bones articles set out the registered office, share structure, # of directors, business restrictions, etc: CBCA

6 According to the CBCA 6(e), you need to determine who the directors are going to be. CBCA s 6(3) allows you to make certain changes to the majorities required by the bylaws (special majority requirements). The bylaws don't have to filed at incorporation, however.

o Sets out what you need- called the director, as opposed to the registrar, -have to have the name and share structure agreed in advance (more days to reserve the name here (90) whereas BC is 56)

Articles are kept by the company and detail conduct and restrictions: BCBCA 12 A completing party must examine and deliver all appropriate documents – other requirements are outlined: BCBCA

15WHEN IS A COMPANY INCORPOATED/COMES INTO EXISTENCE? A company is incorporated when the application is filed with the registrar or at the specific time/date or just date

in the application and the registrar must issue a certificate of incorporation: BCBCA 13 A corp comes into existence on the date shown in the certificate of incorporation: CBCA 9 An incorporator or other appropriate person can file a notice of withdrawal for the application of incorporation

before the company is incorporated: BCBCA 14WHAT ARE THE EFFECTS OF THE ARTICLES? The corp and the SHs are bound by the articles and notice of articles from the time of recognition: BCBCA 19 –

doesn’t expressly say that each member is deemed to K w/the company, but it has been held to this effect; company and SH’s bound by the articles and notice of articles

Ultra Vires doctrine : a corp had no legal capacity to act in a way not authorized by its incorporating documents A company can only alter its notice of articles in accordance to the act, by a court order, resolution specified by the

act or articles, or by special resolution if nothing is specified, and must file a notice of alteration with the registrar: BCBCA 257

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WHAT IF YOU WANT TO CHANGE THE ARTICLES?BCBCA 2591) A company can alter its articles by a resolution specified by this Act or its articles, or else by special resolution. 2) Can alter its articles in regards to what constitutes a majority in special resolutions (must be between 2/3 and 3/4) if the SHs approve by special resolution. 3) Can alter its articles in regards to what constitutes a majority w/in a certain class of shares to pass a special resolution (must be between 2/3 and 3/4) if the SHs approve by special resolution and that class of SHs consent by separate special resolution:

A name change requires changes to the notice of articles: BCBCA 263 After corp brought into existence: BCBCA 17 tells you what to do

CBCA 173 A change in the articles requires a special resolution – the section lists what kind of changes must be made by special resolutionCBCA 173 after the certificate of incorporation (application approved) is issued, a meeting of the directors of the corporation should be held at which the directors may (do various things): make the by-laws

BCBA CBCA

-person who has to file the application is the SH; no constraints like s 5 of the CBCA ; can be a corp

-all by-laws don’t need to be approved by the SH’s b/c the articles are made prior to the application-easier to make articles, but they must be made before-in order to change by-laws, need special resolution-directors run the corporation (s 136): the directors of a company must manage or supervise the affairs of the company

-only need to file the articles of the corp-by-laws are the equivalent of articles-s 5 says who is entitled to bring the corp into existence (must be an indvl, not less than 18, sound mind, no bankruptcy); DO NOT HAVE TO BE A SH; can be a corp-all by-laws must be approved by the SH’s

-have to wait to make by-laws and SH’s must approve them-can change by ordinary resolution (majority) under s 103-directors must run the corporation (s 102(1)) (but possible for SH’s to take over in USA)

CONCEPT OF RESTRICTIONSWHAT CAN CORPS DO?

Corps can do whatever natural persons of full capacity can do (some limits, to this though, ie a corp cannot be a director has to be a natural person): BCBCA 30

BC corps can carry on business outside of BC and accept powers/rights concerning the corp’s business and powers outside of BC from a lawful authority: BCBCA 32

An extra-provincial company can exercise the powers permitted by its charter from its home jurisdiction, so long as it doesn’t break any BC laws or contravene this Act: BCBCA 378(2)

s 33(2): no act of a company is invalid b/c the act contravenes s 33(1). Therefore, while the corp is not supposed to be engaged in this business or method of business, the transaction itself is still valid and still binding

o note: this is mostly to protect outsiders – company cant say the transaction is invalid – if the opposite were true, every time you engaged in business with this company you would have to go to its articles to ensure it wasn't doing something its not supposed to do

o Therefore limited to consequences internally only and not externally o Note: this sections says it is not invalid MERELY b/c it contravenes an articles therefore there may be some

other factor that the court feels is significant and declare the whole transaction invalid there if someone goes to court saying this transaction is invalid, a risk still exists

o ex: the 3rd party having knowledge that the company was doing business outside their restrictionsWHAT CAN’T THE CORP DO?

A company mustn’t carry on business restricted in its articles or exercise any powers inconsistent w/its articles: BCBCA 33

o THIRD PARTY PROTECTION: 2) No act is invalid merely because it is inconsistent with its articlesCOMPENSATION

If the company pays compensation as a result of breaking 33(1), any director who voted/consented to a resolution authorizing that action is SOL and is jointly and severally liable to pay the company anything it can’t recover: BCBCA 154(1)(a)

The court can order compensation be paid to the company or party for a contract contrary to 33(1): BCBCA 228(3)(c)

o statutory version of an injunction; called compliance and restraining orders; broadens what would normally be available in equity by way of injunction

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o 3RD PARTY PROTECTION – no act of foreign entity (ex: transfer of property) is invalid merely b/c it violates its governing documents or the entity wasn’t registered as extra-provincial at the time: BCBCA 378(4)

HOW TO CHANGE RESTRICTIONS? A corp can change its restrictions via special resolution (2/3 present and voting, unless articles state otherwise):

BCBCA 259 A SH can send a notice of dissent to the company regarding any resolution to alter the restrictions on the power or

type of business the company can carry on: BCBCA 260WHAT ARE THE ADVANTAGES?

tax reasons Directors/ officers may be concerned that they would be in breach of their duty if they did not take advantages of

opportunities that come up – restricting the duties would put less pressure on the directors/ officersWHAT ARE THE DISAVDANTAGES?

If the corp goes outside their duty, the directors can be personally liable to the corp for having caused it to do thato S 154: directors of a company can vote for or consent tor resolution

If the corp does things its not supposed to, an outsider may take them to court under s 228o S 228(2); contravenes articles or notice of articles, complainant (almost anyone) can go to the court to seek

relief

Pre-Incorporation Contracts

DIFFERENT TYPES OF CONTRACTSMain Contract: a contract between a third party and a company – the K may or may not come into existenceCollateral Contract: a K btwn a 3rd party and an agent (often in cases where the corporation does not exist yet)

What normally happens is the promoter claims to be an agent of a non-existent corp. Basic CL says there cannot be a K at will with a corp that does NOT exist, and that the corp could never adopt that K

So the question becomes whether its possible for there to be any K at all given it was meant to involve the corp on the other side (which in actual fact does not exist)?

Yes! Warranty of Authority: a guarantee by the promoter (claiming to be the agent) that the corp existso You cannot be an agent for somebody that doesn't exist

The 3rd party can claim breach of K against the agent under the breach of warranty of authority Breach of warranty of authority can also be a tort – the extent of liability is correlated to if the promoter was

mistaken or not

Scenario set 1 -they are an agent OR they look like one 1.The agent has actual authority to enter into that transaction  The agent has apparent/ostensible authority:  Agent is actually an agent but doesn't have that particular authority for the action it committed (principal is bound

by agent’s act). Action between principal and agent will be in contract.o INDOOR MANAGEMENT RULE

dealing with somebody who does or apparently does have authority to act for a corp, then they are allowed to bind the corp (even if this is outside their employment K). Problem will be resolved internally but will not affect outside person that is led to believe they have a K with the corpLik

Agency is apparent but not actual (corp made someone look as though they had authority)-(principal is bound if it can be shown that they allowed that person to be put in a position of apparent agency). Action btwn Principal & “agent” will be in tort. 

In all these situations the agent is not personally liable to the third party as a result.   The K comes into existence The principle (corporation) is liable

o The principle's actions needs to have cause person to have ostensible agency/authority Remember there still is a K between X and A, but they are not responsible for anything b/c the warranty of

authority was eithero Not brokeno Broken without damageo Though in this case this could constitute deceit or negligence in tort

If the principle K has screwed X over, then they have suffered loss and A is to blame for lying/being negligent

No damages though because K never came into existence when acting under ostensible authority

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[Could claim that this constitutes deceit] UNLESS corporation/principal did something to make X believe that Agent had the authority à in

that case, K is valid and can sue for breach of K  Scenario set 2 -they are not an agent and they do not look like one-No actual or apparent agency (someone just purports to act on my behalf, and I didn't put them in that position), then the claim is against the agent alone(can be in K [warranty of authority] or tort). 

However, note that if the corp was in existence at the time, the corp can choose to adopt/ratify the K (overtly or implicitly). 

o This can affect the damages Can eliminate the damages But if there is a delay in ratification then there can still be damages for the "agent's" breach of

warranty of authorityo If the principle acts as if there is a K they may be taken to have implicitly ratified

If the corporation comes into existence later, they cannot (more later)o If X + A is aware (or ought to have been aware) that there was no K, then there IS a main K, but it is btwn X

and A only For the same K terms meant for the principle Cannot claim damages because you should have known?

If either not aware there is no main K in existence o But A is liable for breach of warranty of authority

Corporation in existence (but no K between X and corporation) That person can ratify K + adopt it

o Principal is party to K, whether they want to be or not Does not ratify K

Breach of warranty of authority (agent will be liable) No corporation in existence: can’t be an agent (principal doesn’t exist)

Are parties (X + Agent) aware of non-existence? *Or ought to be awareo Then K IS in existence, but Agent is personally bound by it o K between X & Agent in their personal capacity (no breach of warranty of authority)

Not aware of non-existence of corporation No main K in existence (Agent is liable for breach of Warranty of Authority)

o Any claim made must be made against person who is purportedly the Agent (breach of Warranty of Authority)

o May also have a claim in tort against them as well (tort of deceit or negligent misrepresentation)

STATUTORY REFORMS SINCE KELNER DIDN’T CONSISTENTLY PROTECT PARTIES- FOR WHEN THE CORP DOES EVENTUALLY COME INTO EXISTENCE

Summary: both BC and CBCA make the promoter personally liable (reversing Wickberg) and obviate the need for assignment or novation by enabling the corporation to adopt the K after the fact.

If a corp comes into existence and adopts the K, the corp is bound by and is entitled to the benefits of the K and the agent is no longer bound by or entitled to the benefits of the K

PROVINCIAL : written and oral Ks A Corp is not bound by a K made before its incorporation purportedly on its behalf (thus cannot claim

benefits from such a K). CONSEQUENCES :

o Rather than being liable under the K itself, the promoter is liable for breach of warranty of authority if the corp does not come into existence AND adopt the K w/in a reasonable time.

o The promoter (defined as facilitator in s. 20(1) “someone who purports to enter into K on behalf of corp. before it’s incorporated”) is deemed to have warranted to the other parties that the company will come into existence and adopt the K w/in a reasonable time (thus if this does not occur it is a breach of deemed warranty) (BCA 20(2)(a)) The measure of those damages is set out in BCA 20(2)(c).

o BREACH OF WARRANTY OF AUTHORITY - If damages result from breaching the warranty of authority then the facilitator is personally liable to the other parties (BCBCA 20(2)(b)

o MEASURES OF DAMAGES FOR BREACH OF WARRANTY (BCA 20(2)(c)): the same as if the facilitator entered into a K that did exist but for which the agent didn’t have authority to do so and the company

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doesn’t ratify – i.e. everything that flows from that K not being valid (fixes the nominal damage award problem flowing from breach in Wickberg while preserving that tort claim). i.e. Pins damages for breach of the pre-incorp K on the tort of breach of warranty of authority and makes facilitator/promoter personally liable for them.

o Way around for promoter: not liable b/c the parties to the pre-incorp K agreed, in writing, to his/her exemption from personal liability (BCBCA 20(8);

SUBSEQUENT ADOPTION: The statutory scheme seems to want to avoid the issues with the CL approach, thus do not need to ask if there is a valid K under the CL to apply the statutory scheme. Can adopt K’s in the name of or on behalf of the corp.

o Corp may w/in reasonable time after its incorporation, adopt the pre-incorp K by action or conduct, signal intention to be bound (BCBCA 20(3 Simply have to behave as if bound by the K.

o On that adoption the company is bound and is entitled to the benefits (BCBCA 20(4)(a)changing result in Kelner) and the facilitator ceases to be liable with respect to the K (facilitator ceases to be liable in certain ways (BCBCA 20(4)(b)

o NB: passing a formal resolution adopting such a pre-incorporation contract is a good practice. NO ADOPTION? a facilitator can apply to court for an order that the new corp restore to it any benefit obtained

(BCBCA 20(5) SETTLE OBLIGATIONS - if the new company or facilitator wants to dispute its liability it can apply to court under s.

BCBCA 20(6) asking it to set the obligations as joint or joint and several or otherwise apportioning liability between the facilitator and new company

*CONTRACT REMEDY: Still open to argue for a K’al remedy in the interval btwn when the K is entered into and when the corp is incorporated & it adopts the K on the basis of Kelner b/c statute only gives tort remedy such that if both parties were aware corp. wasn’t in existence at time of K, promoter/facilitator is personally liable.

FEDERAL: written contracts Case law is more applicable for BC than for CBCA WRITTEN K’s ONLY If Oral go to the CL; beach K. if comes into into being and don’t come into being the

facilitator can be liable for the K itself. INDIVIDUAL AGENT LIABLE IN MOST CIRCUMSTANCES - Promoter who enters into a written K on in the name of

or on behalf of the corp, before it is in existence, is personally bound to perform the K and is entitled to its benefits K is deemed to always exist, even though the corp doesn’t (CBCA 14(1), (This means that ANY promoter who enters into any K (whether they know or not that the corp is in existence) are bound changes the CL entirely as always liable, whereas CL looks at the K to determine liability)

o BUT - promoter can expressly K out of liability in writing (CBCA 14(4)THUS, agents have all liability prior to adoption.

SUBSEQUENT ADOPTION? The statutory scheme seems to want to avoid the issues with the CL approach, thus do not need to ask if there is a valid K under the CL to apply the statutory scheme.

o Corp may w/in reasonable time after coming into existence, by action or conduct, signal intention to be bound and adopt a written K CBCA 14(2)(a)

o Promoter is then off the hook and no longer liable under 14(1) (CBCA 14(2)(b) NO MATTER WHAT HAPPENS - A party to the K can apply for court order wrt obligations & liabilities of the

promoter or corp (BCBCA 20(7)], CBCA 14(3) NOTE: Generally thought there is no K for breach of warranty of authority (as nothing in CBCA says that that K

continues to come into existence in these circumstances). But nothing says tort actions do not apply.

Common Law CBCA- easier to understand BCBCAno company in existence, someone claimed to negotiate on behalf:

where both parties know that, the main K does come into existence; is there a warranty of authority? Yes (the promise to enter into K and that is broken and no damages from that as the main K does come into existence)

-confirming that, you have a K, does not add any warranty of authority

-adding a promise the company will come into existence and will adopt the K (now party personally responsible for the lease, and also liable if the company does come into existence and also if it never does)

-1 or both of the parties is actually mistaken no main K at all in existence, the only obligation is warranty of authority

Basic CL is no K and complaint

-changes that radically and brings into existence the K and doesn’t say anything about the warranty of authority

-does not change the main K, there is no main K, if the corp never comes into existence or it does and choose not to adopt the K, there is never a lease K in existence period; the person complaining can get breach of warranty of

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against that indvl authority-confirms the law of breach of warranty of authority, but to add to the promises made under the warrant of K;

Adds to the promises does not negate any CL promises

Allows the corp to adopt the pre-incorp K (works similar to CBCA)

S 20 (2)

THREE COMMON LAW POSSIBILITIES: IF CORP DOES NOT COME INTO EXISTENCE OR FEDERAL ORAL K Possible Liabilities in:

Contract: argue agency, assignment or novation (if company later adopts the K) Tort: Breach of warranty of authority (Wickberg) – this breach occurs as separate from the “main” K that would be

between the corp and the 3P. Instead, an agent who enters into a K with a 3P (for and on behalf of a principal) by implication warrants that he or she has the authority to do so. If this is not the case, the 3P has the right to sue the agent for breach of warranty of authority.

Restitution: K never comes into existence but parties are behaving as though it’s there and have changed their position accordingly

Estoppel: bind people to untruths.

1. No Mistake: Both parties to the pre-incorp K (the promoter and K-ing party) know that the corp has not yet been incorporated The K is valid as btwn the promoter (agent) personally and the 3rd party; those who sign on behalf of a

company prior to its existence are personally liable if both parties know it does not yet exist (Kelner) – constructive notice seems to be enough to make promoter personal liable (Kelner).

Agent will be personally liable if there is the intention that they will be personally liable, even if the corp later ratifies the K once it becomes incorporated

Promoter’s personal liability is retained as the ostensible agent for a non-existent principal even if the corp later ratifies it b/c it cannot ratify something for which it was not in existence – had no capacity to later fix (Kelner)

Way around : Promoter gets company to buy out position (assignment) though may still have issues w/names & dates promised, argue novation (must show all parties agreed the corp would be substituted for the promoter); or argue parties never intended there would be personal liability for the promoter based on construction of agreement (this was implied intention of parties in Black v Smallwood from their common mistake); or get the other side to complete a new K with the corporation and release promoter from obligations under the old.

Kelner v Baxter: the promoters will be liable (it is essentially a personal K btwn the promoters and the 3rd party) (K liability)

o All aware no corp in existence, all involved in setting up the corp (no misrepresentation); by the time the K entered into the corp not in existence; they had all agreed they were going to be directors when it came into existence, so they were aware

o Director in personal capacity entered into a K with other people who were going to be directors, whereby the corp would buy up his alcohol supplies

o Nobody acting under a mistake in this K 2. Unilateral Mistake: The promoter knows that the corp has not yet been incorporated, but the K-ing party does not

The agent is aware of the corp’s non-existence, but the other party does not: the agent is not liable for the K if the intention to be personally bound is not there, but could be liable for breach of warranty of authority or fraud

The K (main K) MAY be a NULLITY and no personal liability for the promoter if parties made it clear that the K was between the company and the 3rd party (i.e. if there is a K at all it’s with the company) (Wickberg)

o Counterargument : Argue estoppel: the promoter should not be able to escape personal liability for a K’al breach by causing someone else to be mistaken about who they were contracting with – with facts like those in Wickberg that 3P party may be estopped if he later acquired knowledge of the true state of facts – court would then just weigh each estoppel.

However, possible to have breach of warranty of authority (of other K, i.e. not the main one) if the promoters knowingly entered the K w/understanding corp did not exist – but problem is with damages: 3P will only get damages related to that breach of authority, as damages flowing from breach of the K are too remote (Wickberg – loss was from lack of business success that resulted in his wrongful termination; not from entering K in first place) (BC statute changes damages result: BCA 20(2)(c)).

Wickberg v Shatsky: Where the D’s undoubtedly so acted as to warrant to the P that the corp was in existence and that they had the power to represent it and to speak for it when entering into agreement, they will be liable for this breach.

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o Employment K: someone thinks they have been hired by a particular corp to do work, but that corp is not in existence yet; The indvls who claimed to be directors knew that the corp was not in existence yet

o Although that corp never came into existence, there was a business that came into existence doing what that corp claimed to be doing

o Although the 3rd party didn’t know it, he wasn’t actually an employee of the corp but someone was paying him to do work hired to do for; The business did not succeed and he is terminated

o He wants damages for wrongful termination of his employment K the problem is to sue for damages, you need an employment K to be in existence obvs

o MAC DISAGREES: the court says that even though clearly a unilateral mistake, the other party is not mistaken at all and knew full well not in existence, this is one of the very particular sitch where a unilateral mistake means there is no K in existence

o No employment K o Where one or both parties mistaken with existence, no K in existence cant sue for breach of Ko Breach for warranty of authority: for no K that came into existence

3. Common Mistake : Neither party to the pre-incorp K knows that the corp has not yet been incorporated; the promoter mistakenly believes that the company has been incorporated and the K-ing party relies on the promoter’s representations The agent mistakenly believes the corp exists and the other party relies on that representation: the K is void

if it is the result of a mutual mistake and no personal liability for the promoter Black v Smallwood ( Black v Smallwood (Australian): If both parties are not mistaken, then the promoters will be held personally liable.

If both parties are mistaken, then no liability will be found and the K will be void. If the corp later comes into existence, certain steps must be taken to ratify the K if that is what both parties wish. If

the corp NEVER comes into existence, Black still applies as there is no statutory solutiono No corp in existence, and one of the parties does not actually know that the corp is not in existence, and

that party does not know why its not in existence b/c they were told by somebody they were representing XY corp

o That person, although misrepresenting, is also mistaken innocent misrep that leads to common mistakeo Indvls who thought they were directors and were acting as directors might, but they weren’t in fact

directors b/c the corp didn’t exist at that pointo The other party thought there was a K with the corp b/c they had been told it was in existenceo Differentiates from Kelner: the parties here were both mistaken, common mistake, where you have a

common mistake about an important quality of the K that there is no K that comes into existence and the K is void

o Not told whether the indvls who claimed to be directors whether they can be sued for breach of warranty of authority (prob could be today as they thought to be in K therefore guaranteeing they do have such authority to enter into the K)

Management and Control of the Corporation MENTION S 142 OF THE BC STATUTE ON THE EXAM Definitions: BCBCA 1(1)

o A director of a company is someone who has been elected/appointed to the board Someone is appointed if they’re appointed in accordance of this Act or the articles, designated

by the articles or declared by the court to be a director: BCBCA 1(3)o A first director is someone who is designated as a director on the notice of articles

Definitions: CBCA 2(1)o A director is someone appointed under 260o An officer is someone appointed under 121, the chairperson of the BoDs, the president, a VP, the

secretary, the treasurer, the comptroller, the general counsel, the GM, a managing director, of a corp, or any other indvl who performs functions for a corp similar to those normally performed by an indvl occupying any of those offices

HOW TO REMOVE A DIRECTOR? A company can remove a director before their term is over by a) special resolution or b) according to the method or

resolution specified in the articles: BCBCA 128(3) SH’s can remove directors by ordinary resolution at a special meeting or if the right to elect is held exclusively by a

certain class of shares, then at a meeting of that class of shares: CBCA 109

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o A company can set up its articles in regards to the weight of particular shares for voting purposes – all the statute said was that the vote had to be a special resolution, so the articles can allow whatever it wants for how the votes are to be valued: Bushell v Faith

If there are no directors someone authorized by the SH’s/incorporators by an instrument in accordance w/ 2) can call a meeting to elect/appoint directors and can appoint interim directors OR an appointment at the annual general meeting can be affected in the various ways outlined in 3): BCBCA 135

WHAT DO THE DIRECTORS HAVE TO DO/ROLE/DUTY? ***1) The directors of a company must, subject to this Act, manage or supervise the management of the business

and affairs of the company, subject to the statute and articles 2) A limitation or restriction on a power or function of a director doesn’t apply to someone who doesn’t know about that limitation or restriction: BCBCA 136, CBCA 102(1) – (subject to a USA)***

o A corp has to have at least 1 director, but if it is a distributing corp/public company and it has shares held by more than 1 person, it has to have at least 3 directors, at least 2 who aren’t officers or employees of the corp or its affiliates: CBCA 102(2)

***Directors and officers owe a) a FD/duty of loyalty (act honestly/in good faith w/a view to best interests of the CORPORATION, and b) a DoC (standard of a reasonably prudent indvl in comparable circumstances) BCBCA 142(1), CBCA 122(1)(a)(b)

o DoC is not defined ; say they breached this duty and point to what was breached. Usually a tort- negligence, deceit

o You can’t K out of these duties or liability for negligence, default, breach of duty or breach of trust, or relieve liability by writing so in the articles: BCBCA 142(3), presumptively leaving SHs’ resolution available) CBCA 122(3) (USA ok to transfer duties s 146(5))

HOW TO TRANSFER DUTIES? If there is a provision in the articles at the time of incorp, or if it is subsequently added by special resolution, and the

provision clearly indicates the intention to transfer, the articles can transfer some or all of a director’s power to manage the business to 1+ other persons: BCBCA 137; can transfer duties to someone else

If a person is performing the functions of a director, but isn’t a director , the Act applies as if they were a director, but doesn’t apply to those participating in management under the director/control of a SH, director or senior officer, if they’re a lawyer, a trustee in bankruptcy or a receiver/creditor: BCBCA 138; those people now owe the same duties that would have been owed

WHAT IS THE EFFECT ON SH’S? SHs are bound by the incorporating documents: the articles stated that SHs could only override directors by special

machinery and the vote in this case was by simple majority – the S’s decision not to sell the assets b/c they felt it didn’t benefit the company was therefore upheld: Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame

o The SHs could have amended the articles under BCBCA 259, CBCA 173 or removed the directors in favour of more compliant ones under BCBCA 128(3), CBCA 109

BC you need a special resolution to vote the director out (2/3); whereas CBCA is normal resolution

Subject to the articles, by-laws, or USA, directors can make/amend/repeal by-laws and must submit these to the SHs at the next meeting – these will be effective until SHs confirm, reject, or amend the resolution: CBCA 103

o SHs who can vote can make a proposal to make/amend/repeal by-laws: CBCA 103(4) Even if there is an irregularity in their election/appointment or defect in their qualification, the act of a director or

officer is still valid: BCBCA 143, CBCA 116

INDOOR MANAGEMENT RULE A company or guarantor for the company can’t assert against a person dealing with the company that the articles

haven’t been complied with, that the directors on the corp register aren’t actually the directors, that someone held out to be a director, officer or agent isn’t actually one of those or that they don’t have the authority to exercise the powers that normally come w/ those positions, or that a record wasn’t supposed to be issued or isn’t authorized – a person may rely on the authority of the company and their directors, officers and agents: BCBCA 146(1) CBCA 18

o This doesn’t apply to someone who knows, or b/c of their relationship to the company, ought to know about one of those situations: BCBCA 146(2) CBCA 18(1)

CL constructive notice rule doesn’t apply anymore – constructive knowledge isn’t applied simply b/c documents have been filed: CBCA 17

HOW ARE OUTSIDERS TO THE CORPORATION PROTECTED? Ostensible authority – as long as it looks as though somebody has the authority to act for the corp, then you do not

have to ask any further. That transaction will be held to be valid w/ the corp (assuming the corp is in existence) (the statutes CBCA ss 17 and 18 and BCA s146 codify the CL of agency); corp can be bound by agents’ actions, even if unauthorized

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o If there is a problem there, it would now be an internal problem as opposed to a problem for outsiders to deal with

Both statutes have the indoor management rule, whereby outsiders are entitled to assume that their dealings w/ a person holding themselves out as a corp director are valid (18(1) CBCA, 146(1) BCA), unless the outsider has notice or ought reasonably to suspect that the person with whom they are dealing does not have the authority they purport to have (18(2) CBCA, 146(2) BCA).

o A person who has knowledge of the facts (and then going against the articles) they cannot rely on thiso The idea is based on knowledge – that the outsider person is relying on what the corp has allowed to be put

out into the world (17 CBCA)o A party dealing with the corp is entitled to adopt the terms of letter at face value b/c the solicitor held out

authority as an agent of the corp and he had the authority to speak for his clients: Sherwood Design Services Inc

Dissent: the indoor management rule was used to get around a pre-incorp K- allowing the K to be entered into when the corp isn't even named AND allowing someone who isn't even part of the corp to force the corp to then adopt the K

Majority: no breach of K, (numbered corp was not even named in the K); IMR applied wrong person taking the action (lawyer did not have authority) and outsiders should not have to take fall

Sometimes the court goes beyond the IMR and does things that it should not do Internal procedures: a limitation or restriction on the powers or functions of the directors is not effective against a

person who does not have knowledge of the limitation or restriction. BCBCA 136(2) Even if there is an irregularity in their election/appointment or defect in their qualification, the act of a director or

officer is still valid: BCBCA 143, CBCA 116

CORPORATE RESPONSIBILITY – TO WHOM IS THE CORPORATION RESPONSIBLE?MENTION 122/EQUIVALENT PROVISIONS ON THE EXAM OR YOU WILL NOT PASS!!!

Historically, directors were held accountable if decisions did not directly benefit the corp or SHso Business corps are organized primarily for SH profit and directors’ discretion should be employed to that

end – how that profit is pursued and over what time frame is a managerial decision they can make – altruistic ends can be pursued, but to the extent that it benefits the SHs: Dodge v Ford Motor Company

It is not w/in the lawful powers of a BoD to shape and conduct the affairs of a corp for the merely incidental benefit of the SHs and for the primary purpose of benefiting others

o The law does not say there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company. Three part test: 1) is the transaction reasonably incidental to the carrying on of the company’s business? 2) Is it a bona fide transaction? 3) Is it done for the benefit and to promote the prosperity of the company? Parke v Daily News

The court will uphold the validity of gratuitous payments, if, but only if, after such inquiry, it appears that the tests are satisfied

Breach of duty for directors to disregard entirely the interests of a company's SHs in order to confer a benefit on its employees

Here: The decision to distribute the sum of $ was not taken simply in the interests of the company; The directors of the D company are proposing that a large part of its funds should be given to its former employees in order to benefit those employees rather than the company

The modern approach is that a FD is owed to the corp only, but other considerations can also be legitimateo When determining if an act is in the best interest of the corp, directors MAY (not must) take into account,

inter alia, interests of SHs, employees, suppliers, creditors, consumers, etc, HOWEVER AT ALL TIMES OWE A FD TO THE CORP - the FD set out in BCBCA 142(1) and CBCA 122(1) are owed to the corp only: Re Peoples

The interests of SHs, those of the creditors and those of the corp may and will be consistent w/each other if the corp is profitable and well capitalized and has strong prospects

This can change if the corp starts to struggle financially; the residual rights of the SHs will generally become worthless if a corp is declared bankrupt upon bankruptcy, the directors of the corp transfer control to a trustee, who administers the corp's assets for the benefit of creditors

The best interests of the corp may coincide with the best interests of the SHS and that’s more likely to be the case when the corp is thriving; therefore an action when striving that hurts the financial interests of the SHs likely a breach of the FD the director owes the corp

Short of bankruptcy the directors' FD does not change when a corp is in this Any honest and good faith attempt to redress the corp's financial problems will, if

successful, both retain value for SHs and improve the position of the creditors If unsuccessful, it will not qualify as a breach of the stat FD

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If the interests of the SHs and stakeholders conflict with the interests of the corp, the directors duty is to the corp

FD is owed only to the corp, not the SH’so The duty of directors to act in the best interest of the corp includes a duty to treat indvl stakeholders

affected by corp actions equitably and fairly: Re BCE Inc Therefore, in exercising their FD to the corp, directors must take care to use act as a reasonably

prudent business person in dealing with 3rd party stakeholder Directors are responsible for the governance of a corp; subject to 2 duties: A FD to the corp under s

122(1)(a) and a duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances under s 122(1)(B)

If you can show their was a disregard and your interests were contemplated or taken to deliberately prejudice you then you can probably show oppression

Factors to consider when thinking about a corporations level of corporate responsibility:o Where in the corporate lifecycle the company is Public vs. private? And Nature of the business

When decisions are taken that are detrimental to the interests of the other parties, how can the creditors complain? Can they use the breach of duty by the SHs to the corp? YES; by using oppression remedy can piggyback on FD (can establish duty to oppress was broken to you) ; Lots of groups whose interests should be taken into account

THE AUDIT COMMITTEE The function of the auditor is to assess the financial statements which the corp proposes to place before the SHs and

to report on the preparation and accuracy of those statements: BCBCA 225 To be useful, auditors must be guaranteed appropriate access to records: BCBCA 226, must be independent, and

must be properly qualified. Large/widely held/public corps or financial institutions require the appointment of an audit committee: CBCA 217,

BCBCA 223 (only for public company), to be elected at their 1st meeting held on or after each annual reference date: BCBCA 224(1)

o Must be comprised of not fewer than 3 directors, a majority of whom shall not be officers or employees of the company: BCBCA 224(2)

Allows directors who aren’t involved in the day-to-day operations to say informed MAC says this is a false comfort in a way, b/c no matter how well intentioned the audit committee is, there are

limits to how much info their presentation can communicate Managers are liable if they go along with a decision they are liable they are not liable for the decision if they dissent to it; only if they vote w/the group who proceeds with the decision

SALE OF THE UNDERTAKING A company can’t sell or get rid of all or most of its undertaking unless it does that as its business or it has been

authorized by special resolution: BCBCA 301(1), CBCA 189(3) (CBCA 189(4)-(8) outline the process for approval)o Otherwise, by application, the court can stop the disposition: BCBCA 301(2)o Even if it has been passed by special resolution, the directors can abandon the disposition if they want:

BCBCA 301(4), CBCA 189(9)o CBCA 189(6) Gives all SH the right to vote, whether or not they otherwise carry the right to vote

3rD PARTY PROTECTION: a disposition contrary to 301(1) won’t be invalid if it is a) for valuable consideration and in good faith OR b) if it is ratified by a special resolution after the fact: BCBCA 301(3)

Shareholders can dissent to any of these special resolutions: BCBCA 301(5) Exceptions to 301(1) are listed in BCBCA 301(6) – security interest, lease of >3years, to a subsidiary, to a parent

company, to an affiliated company, to 100% shareholder of the corporation or subsidiaryo NO CBCA EXEMPTIONS!

UNANIMOUS SHAREHOLDER AGREEMENTS (AND EQUIVALENT) A USA must be one that restricts, in whole or in part, the powers of the directors to manage, or supervise the

management of, the business and affairs of the corporation BC doesn’t explicitly refer to USA’s but provides for an equivalent in s 137

CHANGING ARTICLES? o If there is a provision in the articles at the time of incorp, or if it is subsequently added by special resolution, and the

provision clearly indicates the intention to transfer, the articles can transfer some or all of a director’s power to manage the business to 1+ other persons: BCBCA 137 does not apply to a CCC BCBCA 51.93(3)

o If they are transferred to someone else, duties that would normally be the director’s would be borne by whoever the new person is exercising those functions

o In order to change the articles, you do need a SH’s agreement but not a USA20

Rather, you need a special resolution to approve the change (2/3 vote) MORE management control in this case (easier to get 2/3 vote than USA)

o To get change to articles, meeting is called by and set by management WHO ISN’T A USA EFFECTIVE AGAINST?

A USA isn’t effective against a transferee of a security who has no actual knowledge of it unless it has been noted on the security certificate: CBCA 49(8)(c)

EFFECTS OF THE USA? USA’s are presumed to be valid : Presumption that a lawful written agreement btwn all the SHs (or including 1+

persons who aren’t SHs) that restricts some or all of the directors’ power to manage the business is valid: CBCA 146(1)

A purchaser/transferee of shares subject to a USA is deemed to be a party to that agreement: CBCA 146(3), but has 30 days to rescind the transaction of acquiring shares if they were not given notice of the existence of that agreement: CBCA 146(4)

CBCA 146(5): whoever gets the new function now carries the burden of the duties of the director CBCA 146(6): if you leave the powers with directors, they can never fetter and their hands are tied; have to leave

hands free to make the decisions best for the corpo Use USA to transfer power to someone who is not a director, then that person will carry out the decision

making and they can fetter discretion (can dictate the decision of what to do; couldn’t do this if left with the directors)

o Good for SH’s b/c decision will be implementedo Directors initiate this b/c worried they will break their FD if make certain decisions so want someone else

to do it so they cannot be said to have breached this duty o If you give certain powers to other people to carry out certain decisions, although they do carry the normal

duties of the director, the directors have hands tied and have to implement WHAT HAPPENS IF SOMEONE ISN’T COMPLYING WITH THE USA?

If someone who should be (ex: director, officer, employee, trustee, etc) isn’t complying with the USA, they can make an application to the court to order them to comply or prohibit them from breach it and the court can make the order and whatever other order it wants to: CBCA 247

o Courts can amend a USA if it is oppressive: Bury v Bell Court finds that yes; someone who is a party to a USA can nonetheless claim to be oppressed by the result of a USA

o Can both be party to and oppressed by a USAo Issues: Can this be done through USA? Does the SH have any cause for complaint?

Yes, this is allowed under USA. Even though this person was a party to this agreement and knew it was a possibility that he would have no employment for a year, this was actually oppressive: it prevented people from leaving b/c they would be out of work for a year.

Court held that this was unfairly prejudicial to interests of stakeholder and applied oppression remedy

The Court has authority under the oppression remedy to make an order “creating or amending a USA”: CBCA s241(3)(c)

CBCA BCBCA-SH’s usually initiate the USA

-oppression more likely to succeed

-Management-friendly b/c the resolution to to put to the SH’s is done by management-still can bring oppression claim, but less likely to succeed

Duties of Directors and OfficersHOW MANY DIRECTORS?

Must be at least 1 director (BCBCA 140(4) allows for a meeting to constitute of the sole director), and if it’s a public company, it must have at least 3: BCBCA 120

***1) The directors of a company shall manage or supervise the management of the business and affairs of the company, subject to a USA CBCA 102(1)***

o A corp has to have at least 1 director, but if it is a distributing corp/public company and it has shares held by more than 1 person, it has to have at least 3 directors, at least 2 who aren’t officers or employees of the corp or its affiliates: CBCA 102(2) (true indirectly in BC b/c of the audit committee)

o The SHs of a corp may amend the articles to increase or to decrease the # of directors, or the min or max # of directors, but no decrease shall shorten the term of an incumbent director CBCA 112(1)

WHO CAN BE A DIRECTOR?o A first director is set at the recognition of the company and must be an incorporator who signed the articles or

consented to be a director in accordance with 123: BCBCA 121

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Subsequent directors must be appointed/elected as per the articles and no election/appointment is valid unless the indvl consents to be a director or it’s made at meeting where the indvl is present and they don’t refuse: BCBCA 122

BCBCA 123: have to agree to be a director, cannot be elected without it Disqualifications: under 18, incapable of managing own affairs, undischarged bankrupt, convicted of an offence

dealing with a corporation or fraud (lists the exceptions to this): BCBCA 124 Disqualifications: under 18, found by a court to be of unsound mind, not an individual or bankrupt: CBCA 105

o Subject to the articles, a director doesn’t have to be a shareholder; if you cease to be qualified, you must promptly resign: BCBCA 125, CBCA 105(2)

o Subject to other requirements in 3.1-3.3) at least 25% of directors must be Canadian residents, or if there are less than 4 directors, at least one: CBCA 105(3)

An appointed/elected director is not deemed to be a director unless they were present at that meeting and they didn’t refuse the office, or if they weren’t present, they consented in writing within 10 days of the election/appointment or they were a director already: CBCA 106(9)

A company must keep a register of its directors: BCBCA 126 Incorporators must send a notice of directors to the Director and the Director must file it – each director named will

hold office until the first SHs’ meeting: CBCA 106(1)&(2) If you’re not qualified to be a director (see disqualifications 124), you can’t be an officer: BCBCA 141(3) A corp can authorize someone to act as their representative if the corp holds shares of another corp at that corp’s

SHs’ meetings and if the corp is a creditor of another corp, at the other corp’s creditors’ meetings: BCBCA 145HOW TO END TERM/CEASE OFFICE? A director of a corporation ceases to hold office when the director (a) dies or resigns; b) is removed in accordance

with section 109; or (c) becomes disqualified under subsection 105(1) CBCA 109 SHs will by ordinary resolution at the 1st meeting and every annual meeting when necessary have an election of

directors whose term is no longer than 3 annual meetings following the election: CBCA 106(3) A director ceases to hold office when their term ends, they die or resign, or they’re removed; BC doesn’t say max,

CBCA 104 says 3 years: BCBCA 128 A company can remove a director before their term is over by a) special resolution or b) according to the method

or resolution specified in the articles: BCBCA 128(3) SHs can remove directors by ordinary resolution at a special meeting or if the right to elect is held exclusively by a

certain class of shares, then at a meeting of that class of shares: CBCA 109; you can be removed by an ordinary resolution (therefore put in and removed by same- differs from BC)

WHAT IF THERE IS A VACANCY? A vacancy is to be filled according to 131-135 unless the articles provide otherwise: BCBCA 130 If there is a vacancy b/C a director has been removed , it can be filled by the SHs at a SH meeting, or if it is a casual

vacancy, it can be filled by the remaining directors: BCBCA 131 If a vacancy results in the loss of quorum, directors can appoint people to be directors to make up those #s or call a

SHs’ meeting to fill those vacancies: BCBCA 134 If there are no directors someone authorized by the SHS/incorporators by an instrument according to 2) can call a

meeting to elect/appoint directors and can appoint interim directors OR an appointment at the annual general meeting can be affected in the various ways outlined in 3): BCBCA 135

WHAT CONSTITUES PRESENCE AT A MEETING? A director is deemed to be present at a meeting if those that are entitled to participate/vote attend in person or by

some other communication method so long as all present directors can communicate w/ 1 another (unless the articles prohibit this): BCBCA 140; can be held at a distance (ie phone call)

Subject to the articles or by-laws, directors can meet anywhere and on such notice as the by-laws require, though there are Canadian resident director requirements as outlined in 3) and 4): CBCA 114

o if you are present and do not vote, you are deemed to go along w/the decision and therefore could be liable if they did something they shouldn’t have done

o if you were not there, you will be given the minutes of the meeting and if you do not actively dissent, you are deemed to have agreed and therefore trying to not be involved is not allowed

A director of a corp is entitled to receive notice of and to attend and be heard at every mtg of SHs CBCA 110FIRST DIRECTORS MEETING

After the certificate of incorp is issued, an organization meeting of directors must be held to make by-laws, adopt records, authorize issue of securities, appoint officers and an auditor, making banking arrangements and deal with other business issues, and can be called by giving at least 5 days notice by mail to each director, stating time and place of meeting: CBCA 104

WHAT SORT OF RESOLUTIONS ARE VALID? A resolution can be passed without a meeting of directors in the circumstances outlined in BCBCA 140(3) A resolution in writing without a meeting is valid if it is signed by all directors entitled to vote on that resolution:

CBCA 117

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WHO CAN DIRECTORS APPOINT AND REMOVE AND WHAT CAN THEY CHANGE/AMEND? Subject to the articles, directors may appoint and specify the duties of officers, and they can appoint anyone,

including a director, as well as can appoint one person to 2+ offices: BCBCA 141(1)&(2) Subject to the articles, directors can also remove officers without prejudice to their contractual or legal rights, but

the appointment doesn’t of itself create any contractual rights: BCBCA 141(4)&(5) Directors can appoint a managing director and delegate any director powers to them or a committee, except for the

powers outlined in 3): CBCA 115 Subject to the articles, by-laws, or USA, directors can make/amend/repeal by-laws and must submit these to the

SHs at the next meeting – these will be effective untilSHs confirm, reject, or amend the resolution: CBCA 103WHAT CAN A PLAINTIFF CLAIM AND WHAT IS A DEFENDANT RESPONSIBLE FOR?

A D found responsible for a financial loss is liable to the P by apportionment of fault, but the court can reallocate an uncollectable amount to the other Ds w/IN a year of the judgment, by multiplying the uncollectable amount by the corresponding degree of fault, but not for an amount more than 50% of the original amount owed: CBCA 273.3

If there was fraud or dishonestly established, a P can recover the whole amount from any of the Ds who were held responsible for financial loss, but that D is entitled to claim contribution from the others that were held responsible: CBCA 273.4

PERSONAL LIABILITY OF DIRECTORSNature of Duty Liability Defences/Considerations-Directors who vote for resolution are joint and severely liable for listed financial matters BCBCA 154(2) CBCA 118(2)

-to corp -not liable if could not have known /reasonably known consideration less than the fair equivalent BCBCA 154(4) CBCA 118(9)A director who is present at the meeting is deemed to have consented to a resolution passed unless their dissent is in the minutes, put in writing and given to the secretary before the end of the meeting, or delivered/mailed to the company’s registered off “promptly after the end of the meeting”: BCBCA 154(5)-A director who isn’t present at the mtg is deemed to consent to the resolution if, in the case that the resolution was passed at a director’s meeting, they were a director at the time or, if it was passed at a meeting of a committee of directors, they were a member of that committee: BCBCA 154(7)But this doesn’t apply, if w/in 7 days of becoming aware of the resolution, delivers or mails a written dissent to the company’s registered office: BCBCA 154(8)

o LIMITATION: 2 years after the date of the resolution: BCBCA 154(9)

-A director found liable under 154 is entitled to contribution from the other directors who also voted in favour: BCBCA 156-If the company pays compensation as a result of breaking 33(1), any director who voted/consented to a resolution authorizing that action is SOL and is jointly and severally liable to pay the company anything it can’t recover: BCBCA 154(1)(a)

-Directors are joint and sev liable for up to 6mos of unpaid wages CBCA 119

-to employees -no liability in some cases of lawsuits, bankruptcy, liquidation, debt CBCA 119(2)

“Knowing” director of officer fails to display company name

-to 3rd party who sustain loss

-A director is personally liable to purchasers, suppliers, security holders for loss/damage as a result of the director knowingly allowing the company name to not be displayed, as well as issuing/authorizing the issue of an instrument that doesn’t have the company name, unless the company duly pays it: BCBCA 158

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Directors and officers who act in accord with act and articles BCBCA 142(1)(c)(d) ; duty to comply with act, bylaws, articles, USA CBCA 122(2)

-to various (depends on provision)

no K-ing out BCBCA 142(3), CBCA 122(3)-if rely in good faith on others: A director isn’t liable under 154 if they complied w/ their FD and DoC and relied in good faith on a) financial statements of the company, b) a written report by a credible professional, c) a statement of fact represented by an officer to be correct, or d) any other record the court deems to be appropriate, whether or not there was fraud involved: BCBCA 157(1)-if reasonable care and company includes reliance reports : A director won’t be liable under 118 or 119 and will have complied with their duties under 122(2), if they exercised the care, diligence and skill of a reasonably prudent person in comparable circumstances, including reliance in good faith on a) financial statements of the corp represented by an officer or the auditor to be fairly accurate or b) a report made by a credible profession: CBCA 123(4)

Directors and officers owe b) a DoC (standard of a reasonably prudent indvl in comparable circumstances) BCBCA 142(1)(b) CBCA 122(1)(b)

-presumptively to corp (but Re Peoples contemplates others)

-rely in good faith on others BCBCA 157(1)-good faith reliance on reports CBCA 123(4)-objective/subjective considerations: Peoples-judicial deference: business judgment rule

WHEN IS THE DIRECTOR NOT LIABLE? If, by application, the court determines the director/senior officer had a disclosable interest that was fair and

reasonable to the company, they can make an order that they will not be liable to account for profits and whatever other order the court wants, or vice versa if they find the interest to not be fair and reasonable: BCBCA 150

CARE AND SKILL – COMMON LAW Can be K’d out through the CL but not the statute A director must act honestly and with some degree of both skill and diligence. The SoC is “reasonable care”: Re City

Equitable Fire Insurance (Note: this standard is lower than the statutory standard)o 1) A director doesn’t need to exhibit more skill than the reasonable person and is not liable for mere errors

of judgment (was later changed in Re Peoples)o 2) They are not bound to give continuous attention to the company (don't have to attend all meetings, but

must, when they can, do so – note: this doesn't apply to officers) (note: If you don't attend as many meetings as you can, that is a breach of the DoC) and

o 3) Can, absence grounds for suspicion, rely on officers to honestly conduct/report business.*** The SoC is higher today- it may be a breach to accept a position when you don’t know very much; expect to attend more mtgs than used to be the case AND required to stay on top of mins (esp under CBCA) ***

CARE AND SKILL – STATUTORY REFORMWHAT DUTY DO THE DIRECTORS AND OFFICERS OWE?

CBCA requires only good faith reliance; it does not require that the reliance be in anyway reasonable or non-negligent (CL)

***Directors and officers owe b) a DoC (standard of a reasonably prudent indvl in comparable circumstances) BCBCA 142(1)(b) CBCA 122(1)(b) – you can’t K out of this duty or the FD

BCBCA 142(2): no provision in a K or articles relieves an officer/director from a stat duty (note no mention of resolution therefore SHs can make a duty go away except in a few cases)

Directors must show fair and reasonable diligence in managing the company and act honestly, they need not have special knowledge – CBCA 122(1)(b) is objective-subjective: Re Peoples

o Satisfying the FD is not sufficient to satisfy the DoC: FD does not refer to the quality of director’s management but rather to their personal conduct. DoC (duty of competency) defines their duties in light of the quality of their decisions – relates in a sense also to the consequences of their actions. REMEMBER: they wont be accountable for honest errors in business judgment.

o It is not enough for a director to say they did their best; also, honesty is not enough. The standard, however, is not a professional one, it is objective and subjective, there is a basic level of competency that you must have, don’t have to be an expert. Once you have that basic competency then the subjective kicks in.

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WHAT ARE THEY LIABLE FOR? the 2 sources of liability for directors and officers are s 154 (certain scenarios for which the directors might be

liable) Directors who vote in favour of a resolution are jointly and severally liable for the corp’s monetary payments as a

result of an action contrary to the various sections listed: BCBCA 154o BCBCA 154(1): directors are liable to the company for a) to vote in favour for action that is contrary to

company b) pay dividends contrary to provisions c) vote for consent to issuing of shares lower than market value are liable to make up differences for any losses that follow

Duties are all owed and only owed by directors (not officers)- pay attention to statue to determine who has the burden

BCBCA 158: name must be properly displayed and if not may be liable for any expenses to 3rd parties as a result CBCA 118(5) order by the court to do as it sees fit

WHEN IS THE DIRECTOR NOT LIABLE? A director isn’t liable under 154 if they complied w/ their FD and DoC and relied in good faith on a) financial

statements of the company, b) a written report by a credible professional, c) a statement of fact represented by an officer to be correct, or d) any other record the court deems to be appropriate, whether or not there was fraud involved: BCBCA 157(1), CBCA 123

If you as the director engage the right sort of people to do the work for you in good faith you are probably not in breach of those duties under 154 and 142 (unlikely you can use this for FD) much more likely to be for DoC and competency

A DIRECTOR isn’t liable under 154 if they didn’t know and couldn’t have reasonably known that the act done or authorized by the resolution was contrary to the Act: BCBCA 157(2)

PRESENCE AT MEETING/VOTING AT RESOLUTIONS A director who is present at the meeting is deemed to have consented to a resolution passed unless their dissent is

in the minutes, put in writing and given to the secretary before the end of the meeting (CBCA 123(1)(b)), or delivered/mailed to the company’s registered off “promptly after the end of the meeting”: BCBCA 154(5) 154 only for directors; 142 is for directors and officers

o A director who votes for or consents to a resolution can’t dissent: CBCA 123(2), BCBCA 154(6) A director who isn’t present at the meeting is deemed to consent to the resolution if, in the case that the resolution

was passed at a director’s meeting, they were a director at the time or, if it was passed at a meeting of a committee of directors, they were a member of that committee: BCBCA 154(7)

o But this doesn’t apply, if w/in 7 days of becoming aware of the resolution, delivers or mails a written dissent to the company’s registered office: BCBCA 154(8), or causes the dissent to be placed in the minutes of the meeting: CBCA 123(3)

o LIMITATION: 2 years after the date of the resolution: BCBCA 154(9) (limitations on liability) DIRECTOR VOTES FOR/CONSENTS TO A RESOLUTION TO ISSUE OF A SHARE FOR CONSIDERATION OTHR THAN $

A director will be jointly and severally, or solidarily, liable to the corp if the consideration received is less than the fair equivalent of the $ value: CBCA 118(1)

o pursuant to s 199, liable for employee wages (note this isn't in BC but is present in BC labour laws)o A director won’t be liable if they prove they didn’t or couldn’t have reasonably known that the share was

issued for consideration less than the fair equivalent of money: CBCA 118(6)o A director will be jointly and severally, or solidarily, liable to the corp to restore any amounts distributed or

paid for a listed action contrary to the various sections: CBCA 118(2)o A director won’t be liable under 118 or 119 and will have complied with their duties under 122(2), if they

exercised the care, diligence and skill of a reasonably prudent person in comparable circumstances, including reliance in good faith on a) financial statements of the corp represented by an officer or the auditor to be fairly accurate or b) a report made by a credible profession: CBCA 123(4)

o LIMITATION: 2 years after the date of the resolution authorizing the action complained of: CBCA 118(7)

THE BUSINESS JUDGMENT RULE- INVOKE IN RESPONSE TO BREACH OF DOC AND FD When there is no evidence of fraud, illegality or conflict of interest in respect of a given corp action involving

business judgement, the directors are presumed to have acted in good faith and on a reasonable basis (Shlensky v Wrigley – US Case) – thus, no liability for DoC or duty of loyalty (CBCA s 122)

o The BJR is a presumption that in making a business decision, the directors of a corp acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.

The court, when using the BJR, will look to see if the directors made a reasonable decision, not a perfect one – their decisions are not subject to scrutiny with perfect hindsight – a board is entitled to get advice, but it doesn’t relieve them of their obligation to exercise reasonable diligence: UPM-Kymmene Corp

o The burden is on the plaintiff to demonstrate that there has been neglect in directors’ duties

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o Requires a careful, thoughtful, and objective analysis of the consultant’s opinion o Directors are only protected to the extent that their actions actually evidence their business judgemento Courts are entitled to consider the content of their decision and the extent of the info on which it was based

and to measure this against the facts as they existed at the time the impugned decision was madeo The BJR cannot apply where the BOD acts on the advice of a director's committee that makes an

uninformed recommendation The question is whether the directors of the target company successfully took steps to avoid a conflict of interest

(acted on advice of a special committee), if so, the rationale for shifting the onus to the directors (to justify their actions as being in the best interests of the company) may not exist: Pente Investment

FIDUCIARY DUTIES Usually the duty can fit into 1 of 4 contexts: self-dealing, corporate opportunity, competition, hostile takeover Ensure corp actors carry out their respective duties w/the utmost good faith, don’t put themselves into a conflict of

interest situation, and don’t derive secret profit from their office – heart and soul of corporate law Non-SH welfare is protected by other mechanisms (ex: employment standards for employees) Conflict rule: any conflict of interest, no matter how small, may cause the K/transaction to be voidable Profit rule: if a director or officer made any profit as a result of their position in the corp, then the FD was breached

(other than the agreed upon remuneration) Directors and officers could enter into Ks w/ their company or have material interests in other parties with whom

the company was dealing, so long as full disclosure was made and the interested party refrained from voting on any matter involving their conflict of interest

CL was put into an explicit provision in the statute – “good faith” standard (combo of conflict & profit rules) Canadian courts have tended to apply different standards in different contexts

o Typically a subjective standard but in hostile takeover bids the courts require that there be some objective evidence to back up the managers’ normally self-serving statements that they were acting in the best interest of the corporation

o “Structural” conflict of interest , insofar as the target managers will be tempted to fight off a hostile bid (because they lose their jobs), even if it is in the best interests of the shareholders/corporation

The directors must act in good faith and there must be reasonable grounds for their belief Interaction between Fiduciary Duty and the Business Judgment Rule:

o Business judgment rule is, in essence, a “safe harbour” rule: if directors and officers fulfill certain conditions – mostly involving the procedural integrity of the decision-making process – they will tend to escape liability – the court will find no breach of duty

***Directors and officers owe a) a FD/duty of loyalty (act honestly/in good faith w/a view to best interests of the CORPORATION, and b) a DoC (standard of a reasonably prudent indvl in comparable circumstances) BCBCA 142(1), CBCA 122(1)***

o You can’t K out of these duties or liability for negligence, default, breach of duty or breach of trust, or relieve liability by writing so in the articles: BCBCA 142(3), CBCA 122(3)

TO WHOM IS THE FIDUCIARY DUTY OWED? (BCE) The directors’ fiduciary duty to the corporation is to act in its best interests. It may also be appropriate although not mandatory, to consider the impact of corp decisions on SHs or other

particular groups of stakeholders. Courts should give appropriate deference to the business judgment of directors who take into account these ancillary interests. But when they conflict then the duty is clear - it is to the corp (Re Peoples).

FIDUCIARY DUTIES – SELF-DEALING (CONTRACTING WITH THE CORPORATION) DO NOT APPLY CBCA S120 TO SITUATIONS INVOLVING COMPETITION – this section only applies to

situations involving a K or transactionWHAT IS SELF-DEAING?

S-D transactions involve Ks or transactions concluded btwn the directors and officers of a corp, either directly or through their interest in another entity, and the corp itself (they are on both sides of the transaction)

o Ex I am the director and I have a K to buy all the old computers-this is a breach of FD b/c you are self dealing The risk of diversion of corp wealth is clear – a form of agency cost (where there is price differential at the corp’s

expense b/c they sold it to the director for too little or they bought it from the director for too much) The simplest form of self-dealing is the sale of an asset to the corp by a director or officer at a price that exceeds the

asset's fair market value the price differential at the corp's expense constitutes an "unbargained for" diversion of wealth from shareholders to the interested party

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A director or senior officer holds a disclosable interest if the K or transaction is material to the company, the company has entered/proposes to enter into the K or transaction and either the director/senior officer has a material interest in the K or transaction OR they are the director or senior officer of someone who has a material interest in it: BCBCA 147(1) : s 147 tells us what sort of K fits into self-dealing

WHEN DOES THE INTEREST IN A K/TRANSACTION HAVE TO BE DISCLOSED? A director or senior officer shall disclose in writing the nature and extent of any interests they have in a material

K/transaction, whether made or proposed, w/the corp if they are a) a party to the K, b) a director or officer of a party to the K (he other entity is another corp and you are the director or officer of the other corp)or c) has a material interest in a party to the K (not defined but probably involves a situation where you are a SH so the 2 parties to the K you are the corp and the other corp you have an interest in probably by shares): CBCA 120(1)

o have to figure out first whether you fit w/in this scenario ; on one side of this transaction/K has to be the corp (has nothing to do where you as a director have prevented your corp from having a K) on the other side the director or officer involved is the other party to the K (ie your corp owns a boat and you are buying the boat from the corp)

o doesn’t define material, but sense is that it is for only certain important Ks o CBCA 120(2) outlines when disclosure should be made in the case of a director; when in doubt disclose; no

harm in doing so; in most cases the first meeting after the transaction is entered into o CBCA 120(3) outlines when disclosure should be made in the case of an officer who is not a director; has to

be made ASAP o CBCA 120(6): continuing disclosure

If a material K/transaction is one that normally wouldn’t require approval of directors/SHs, a director or officer shall disclose in writing the nature and extent of their interest immediately after they become aware of the contract/transaction: CBCA 120(4)

If a director or senior officer holds any office or property, rights, interests that COULD result, directly or indirectly, in a conflict of interest/duty, then they must disclose the nature and extent of the conflict and it must be done promptly to the directors after they become a director or senior officer, or when the conflict is acquired: BCBCA 153

WHEN DOES THE DIRECTOR/SENIOR OFFICER NOT HOLD A DISCLOSABLE INTEREST? BCBCA 147(2) outlines circumstances where a director or senior officer do not hold a disclosable interest A director or officer does not hold a disclosable interest merely b/c b) the K/transaction relates to an indemnity or

insurance, c) it relates to the remuneration of the director or senior officer, e) it has or will be made with or for the benefit of a corporation affiliated with the company and the director or senior officer is also a director or senior officer of that corp: BCBCA 147(4) (note: BCA is much more management friendly)

o Know from this: certain situations in BC statute where you are excused to have to comply w the requirements

WHAT COUNTS AS A DISCLOSABLE INTEREST? A general statement in writing is sufficient disclosure of a disclosable interest: BCBCA 148(4) – the solution of what

you have to reveal in s.153WHEN IS THE DIRECTOR/SENIOR OFFICER NOT LIABLE?

BCBCA 148(2), CBCA 120(7)&(8) outlines scenarios in which a director/senior officer isn’t liable to account for profits and may keep them

o Ss 7 and 7.1 if you do not disclose in way you are supposed to then possibly the K is void or if you have gained anything by the K you may have to give to other party of the K

o The corp can decide to approve the transaction once been told this breach of FD is in existence. This approval process is in ss 7 and 7.1 ; can get it approved in 2 ways: 1. by the directors from vote w/other directors who are not involved in the K 2. approved by the SHs 3. or through both mechanisms, this is the most usual

o (7): court could declare K to be invalid or the director involved may have to account for any profit from that transaction or both

o One of the problem is for the other director: they have to vote but they are held to a standard that the K has to be fair and reasonable; by breaching your FD and starting the mechanism where you are excused from your FD by having the other directors approve, you may have caused the other directors to be in breach of their DoC and competency as they have to defend that K to be fair and reasonable to the corp (s 7.1 takes care of this)

o (7.1):as stat exception to what the statute seems not to allow otherwise; seen this w/ s 122 of CBCA that sets out the DoC and FD (subsection 3 says you cannot use a resolution to relieve a director from liability for breach of those duties); it allows the decision to be made by the SHs instead of the directors, even if the conditions of subsection 7 are not met (vote not put to directors or they didn’t approve) that director acting in good faith is not accountable to the corp for any profit if a b and c

A is special 2/3 resolution vote

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C SHs can approve instead of directors and they don’t owe a duty to the corp so if they approve they don’t owe a DoC to corp and FD so may be easier to get through the SHs than through the other directors

o (ex. (b) The contract/transaction is approved by the director in accordance with s.149) A K/transaction in which disclosure has been made may be approved by the directors or by special resolution (2/3

of the voting shares): BCBCA 149o A director with the disclosable interest can’t vote to approve it, unless all the directors have a disclosable

interest, then any or all of them can vote to approve ito you are allowed to show up while breach of FD is being discussed but not allowed to vote if K can be

approvedo Subject to the articles, a director who has a disclosable interest who is present at a meeting counts towards

the quorum whether they can vote or noto A director required to make disclosure can’t vote to approve it unless the contract/transaction relates to

their remuneration, is indemnity or insurance or is with an affiliate: CBCA 120(5)JUDIIAL ADJUSTMENT OF RULES

A court may, on application, set aside the K or require the director or senior officer to account for profits if they have complied with this section: CBCA 120(8)

If the court determines the disclosable interest was fair and reasonable to the company, it can make an order that the director or senior officer won’t be liable to account for profits or any other order it wants: BCBCA 150

o If it finds it wasn’t fair and reasonable, and it wasn’t approved, it can order the director or senior officer be liable to account for profits, stop the company from entering the K/transaction or any other order it wants

WHEN DO PROFITS HAVE TO BE ACCOUNTED FOR/HAVE TO DISCLOSE? A director or senior officer is liable to account for profits accrued as a result of a K/transaction which they had a

disclosable interest: BCBCA 148 3rd party comes and you enter into it w/yourself instead of w/corp and you make some $, can you use 152

to say you don’t not have to disclose this to the corp and do not have to account for any profits? No, the statute goes on in 153 that you probably have to disclose and 152b only lets off hook where you have a disposable interest, therefore CL applies= if breach of FD you have to account for profit

If a director or senior officer holds any office or property, rights, interests that COULD result, directly or indirectly, in a conflict of interest/duty, then they must disclose the nature and extent of the conflict and it must be done promptly to the directors after they become a director or senior officer, or when the conflict is acquired: BCBCA 153, see 148(4)

o restores and gives similar position to CBCA and to be proactive you have to reveal the possibility o possibility that any of these situations might arise where you will break your FD you have to reveal if

director or officer both statutes say what info you need to supply, both say if you don’t, you will have to account for any profits you

made under it o the CBCA says your K might be invalid if you don’t do this, BC doesn’t say this

WHEN DO PROFITS NOT HAVE TO BE ACCOUNTED FOR/NOT HAVE TO DISCLOSE? Unless it’s provided for in this Act, a director or senior officer has no obligation to disclose of any interests or

account for any profits as a result of a disclosable interest: BCBCA 152o A) starts with you do not have to disclose your interests in the K (no = in the CBCA); in situations where

you do have an interest in the K, the statute says you don’t have to disclose; where you don’t have an interest in transaction you may have to disclose

Director of 2 corps: you put yourself in conflict of interest by owing FD to 2 indvls; 152 has nothing to say about this

Breach of FD can happen b/c you are involved in a transaction that involves a breach of your FD or a sitch where you have no interest but put yourself in the middle or involved in a sitch where trying to save your own position (none covered by 152 a)

proposition that in these 2 you have no duty to disclose unless ; it is silent on these positions does not get you off the hook for not disclosing

o B) seems to say you don’t have to account for profit, but other provisions restore that duty Management-friendly approach; if going to have obligation to disclose info or account for profit

you have to find in this section or you don’t have such obligation A K/transaction isn’t invalid merely b/c a director/senior officer had an interest in it, didn’t disclose the interest or

the interest hadn’t been approved: BCBCA 151 – presumptively tries to save K for 3rd parties/the company

-BUT there are other situations when you breach FD and you profit – the statute doesn't deal with these :. There is no code for what happens in these contexts. Ex. corporate opportunity. Provisions don't tell you how to avoid accounting for profit.

o Thus, the CL would apply.28

o The provisions dealing with profits are not a complete code b/c it only deals with profits from self-dealing and there are other forms which you might profit from.

WHAT TO DO UNDER BCBA -if you do fit w/in in the context then 148 says the consequence for not disclosing is you have to account for any profits that you made -151 starts that the K is valid (CBCA starts with invalid and account for profit) but going to have to account for profit like CBCA-If not revealing in context of self-dealing 148 says you have to account for profit ; how to avoid? Avoid by revealing info and having that K approved either by other directors who are not involved or by the shareholders or possibly by both but only 1 necessary

o do not need to show that the transaction was reasonable and fair just simply need to get it approvedo if you go through this procedure the K will be valid and you can keep any profit you madeo don’t have to get directors or shareholders to approve the K to say it is valid b/c 151 says it is valid

-the BC statute sets out certain situations which are not self-dealing so you do not have to follow the procedure to reveal the info

Not entirely clear if you don’t have any duty at all or if these stat provisions don’t apply (grey area) The idea is you don’t have to worry about these situations at all (Mac's theory)

WHAT TO DO UNDER CBCA -under CBCA, there is no general statement = to 153 that in general you need to reveal info (proposition comes from the CL)-only talks about revealing info in context of self-dealing-tells you when there is a SD context, but slightly broader in CBCA than BC-in that context you are required to reveal the info , if you don’t then that K might be invalid and you may have to account for any profits -to avoid those 2 consequences, you are going to have to get the K approved (either by directors or SHs or possibly both) -have to worry that the K might not be valid unlike the BC-in addition to having the approval, you have to be prepared to defend the K as being fair and reasonable to the corpCOMPARISON OF THE STATUTES -both statutes so you need special resolution; in BC this means it is more difficult b/c special not ordinary resolution, but CBCA is allowing them to do something they ordinarily are not allowed to do-Both statutes say that if you hold a position of director or officer of 2 diff entities and they are the ones with the K that is also self-dealing

o CBCA says another context: you are director/officer of 1 corp and the K is with a diff corp and the person is a (shareholder) and has a material interest

-both CBCA and BCA use invalidity of the K language; hard to know what they mean: at CL the consequence would be it is possibly voidable meaning the beneficiary could set it aside or it could be said to be unenforceable

o s 151 BC: presumptively valid ; looks like it is changing the CL but that is what equity approaches in any event (codifying CL to say K might be affected by equity), starting position it does not affect the creation of the K but it is possible that it could be set aside

o CBCA the presumption is possibly this K is invalid (s 7 and 7.1 talks about if you do not follow the procedures, the K is possibly invalid, it allows the K to be validated through directors or shareholders resolution)

- The CBCA need to also how the K is fair and reasonable to the corp, whereas in BC you do not

FIDUCIARY DUTIES – CORPORATE OPPORTUNITIESWHAT IS CORPORATE OPPORTUNITY

Problems arise when a person operating in a fiduciary relationship to the corp independently invests in a project that could have been acquired by the corp

o Opp comes along and you take it for yourself to make some $ on the transaction rather than taking it for the corp

Key issue is whether the director or manager has usurped the authority granted to them by the SHs of the corp in order to acquire some “unbargained for” personal benefit

Breach of FD? Yes If you owe a FD, liability arises from the mere fact of a profit having been made – the profiteer, however honest

and well-intentioned, cannot escape the risk of being called upon to account. The profiteer isn’t allowed to take the opportunity, even if the corp couldn’t: Regal Hastings Ltd

o If you use the info to make a profit in your position as fiduciary, you are required to disgorge that to the beneficiary

To come w/in the rule, the impugned transactions must be by reason of the fact, and only by reason of the fact, that they were directors and in the course of the execution of that office: Regal Hastings Ltd

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Unless modified by statute or K, the officers owe a similar duty to corp as directors: CanAeroWHEN DO YOU HAVE TO DISCLOSE?

If a director or senior officer holds any office or property, rights, interests that COULD result, directly or indirectly, in a conflict of interest/duty, then they must disclose the nature and extent of the conflict and it must be done promptly to the directors after they become a director or senior officer, or when the conflict is acquired: BCBCA 153

WHEN CAN THE DIRECTOR TAKE THE OPPORTUNITY? Directors can take an opportunity where the corp made an informed refusal: Peso Silver Mines

o In this case, no SH approval of the use of this info, the court said it wasn’t exactly the same info and some details to be worked, the bare bones came through but not the exact info they used later on so that was ok

o The director who participated in an investment group which had previously been offered to the corp was not in breach of his FD b/c he was not approached in his capacity as director but as an indvl member of the public

WHEN IS THE DIRECTOR IN BREACH OF HIS DUTIES? If he takes advantage of an opportunity that the corp would otherwise be interested in but was unable to take

advantage. (Regal) Irrelevant that the opportunity taken was different from that offered to the corp: CanAero

o W/respect to the info, even if not identical, the basic info came from your fiduciary position so you cannot use this info

o Even if opp not fully formed and details to work out, still constitutes a breach of your FD to take that info and use for yourself even if the corp has decided not to use it and even resigned your position as fiduciary

o If the info came to you through the corp, you are still not allowed to take the opp on your own; needs to come form another source entirely or the opp has changed in a sig way (diff from what you heard about when you were in your position)

FD can be ongoing – even after the respondents quit; just b/c you resigned doesn’t mean you can then use the info that you got in your position as fiduciary, your duty continues even afterwards with respect to info that you gained in that position CanAero

FACTORS TO CONSIDER FOR WHETHER THE DUTY HAS BEEN MET OR NOT Fiduciary relationship is generally a standard of loyalty, good faith, and avoidance of a conflict of duty and self-

interest. A director or senior officer cannot obtain for himself, either secretly or w/out company approval, any property or business advantage that belongs to the company or that the company is in the process of negotiating for. This is especially true if the director or senior officer is involved in these negotiations on the company’s behalf. Court looked to these factors to signify whether or not the duty is being owed or is met: CanAero

1) Position or office held2) The nature of the corp opportunity (ripeness, specificness, the director’s or managerial officer’s relation to it)3) The amount of knowledge possessed, the circumstance in which it was obtained and whether it was special or private4) The factor of time in the continuation of the FD if the alleged breach is after terminating the relationship5) The circumstances under which the relationship was terminated (retirement, resignation, discharge).

HOW TO CURE? 1. Make sure it is outside of your FD (ex your beneficiary doesn’t have the capacity to enter into that type of K

you do not have to give them that opportunity) ie your corp buys hats, opp comes along to buy fish, you do not have to present b/c not in the scope of the beneficiary power

2. Having SHs approve it (Regal); if opp comes your way and SHs say ok, then you are not liable for the breach of your FD

3. You do give it to the corp to consider and then the corp decides not to take it then you are free to take it have to be careful as you could be thought to breach FD just be involved in the decision Peso Silver Mines

o The corp didn’t want to take up the opportunity, so you make another company and you have that company take it up no breach of FD b/c you allowed your corp to decide if they wanted to opportunity and they declined it

4. Stop being a fiduciary and resign from being director/officer; no breach b/c you do not owe the duty anymore to corp (not guaranteed b/c of the Canaero decision just b/c you resign doesn’t mean you cease with the duty as it make have an ongoing impact even after you resign)

TWO COMPETING LEGAL THREADS1. In CanAero, the court distinguishes Peso in such a way as to suggest that there is a line between the illegal

appropriation of a corporate opportunity and permissible competition, based on whether the opportunity was “essential to the success of the company”.

o Distinguish from Peso about how ripe the message was at the time ; in order for Peso to have been decided correctly the directors need to do 2 things: needed to make sure the director did not take that

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opp and given they were the directors of the corp probably through SHs; they have to have the SHs approve of their using of the info that they gained

2. But the rest of CanAero suggests agreement with Regal Hastings Ltd – fiduciaries should not take any competing opportunity even if the company couldn’t take it itself.

FIDUCIARY DUTIES – COMPETITIONWHAT IS COMPETTION?

If you're a director or officer of more than 1 corp, who are you going to favour when an opportunity comes; divided loyalty

Competition (conflict of interest) includes:1. A director serving on the boards of 2 competing corporations2. A director or officers operating a business that competes with the corporation3. A director or officer having a material interest in an entity that competes with the corporation

The CL has not applied the conflict/profit rules to these situations and found a breach of FD. For unknown reasons, the CL allows directors to serve on boards of 2 competing corps w/out breaching their duty to either.

WHEN DO YOU HAVE TO DISCLOSE? If a director or senior officer holds any office or property, rights, interests that COULD result, directly or indirectly,

in a conflict of interest/duty, then they must disclose the nature and extent of the conflict and it must be done promptly to the directors after they become a director or senior officer, or when the conflict is acquired: BCBCA 153

IS THE FD BREACHED?1)was there an actual or potential conflict of interest? 2) Were the opportunities acquired by virtue of their position as a director or officer?: Cranewood Financial Corp

There are cases in which a director can be breaching his FD to Company A merely by acting as a director of Company B – especially in cases when the companies are in the same line of business and where acting as a director of Company B will harm Company A.

You can apply either the doctrine of corporate opportunities or doctrines related to competition where a director or officer starts up a business that competes with the corp and earns a profit (this is what happened in CanAero)

CAN YOU SERVE AS DIRECTOR FOR COMPETING CORPS? You can serve as a director for competing corps as long as you keep your knowledge base separate – don’t use

the knowledge gained as a director of one in a prejudicial way with the other – and as long as you are not prohibited by K or the articles (this is an exception to situation 1 listed above): London and Mashonaland

Being the director of more than one entity is not inherently a conflict of interest.  There must be an actual conflict of interest at CL. A conflict of interest may ARISE but isn’t held to be inherently problematic. To be of MUCH concern it has to fit into another scenario: London and Mashonaland

Bell v Lever Bros: a director can be party to a K in which his company is not interested.IF YOU GOT INFO INDEPENDENTLY, BUT THE CORP MIGHT WANT TO USE IT, DO YOU HAVE AN OBLIGATION TO PASS THIS INFO ALONG BEFORE USING IT FOR YOURSELF OR NOT USING IT AT ALL?

If it comes w/in your role: cannot take the opp for yourself or use the info you have to get approval from the SHs If the info comes to you independently: give the info to your corp and have them decide if they want to take up

the opp; if they decide not to do it, you do not need further approval to use the info yourself as it did not come to you through your position as director

THE INFO WILL FOR SURE BE USED BY THE CORP (ACTUAL CONFLICT OF DUTY AND INTEREST) Either way that you got the info, you cannot use it or give it to someone else, you must pass the info over to the corp

first. It can only go to yourself or someone else when the corp has said they are definitively not using it. Here, you would be liable for any profits Slate Ventures Inc v Hurley

THE INFO EITHER CANNOT BE USED OR THE CORP HAS DECIDED NOT TO USE IT (NO CONFLICT OF DUTY AND INTEREST)

If you got the info by virtue of your fiduciary situation, you cannot use it yourself or give it to someone else (liable for any profits)

If you got it independently, you can give it to someone else (no liability for profits) Slate Ventures Inc v HurleyYOU AREN’T SURE IF THE CORP WILL USE IT OR NOT (POTENTIAL CONFLICT OF DUTY AND INTEREST)

If you got it through your role of your fiduciary, you can’t use it (liable for any profits) If you got it independently, you use to be able to use it BUT now the CA says that you have to let the corp exhaust

all other options before you can use it (no liability for profits) Slate Ventures Inc v Hurley\

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HOSTILE TAKE-OVERS AND DEFENSIVE TACTICS BY TARGET MANAGEMENT When someone is coming over to take over the corp (and likely put in new management); when can you take action

as a director and say that it is legitimately in the best interest of the corp (and not just save your own skin) Typical hostile takeover: acquirer will make a bid (almost always at a premium) for voting shares of a company. If

a requisite # of shares are tendered to gain control, the acquirer will use a “2 tier” approach attempting to force out the remaining SHs at a discount.

Management discipline approach : Acquirer can realize a profit by displacing opportunistic management for a more dedicated and efficient management team, maybe even acquirer themselves once control is obtained

If management discipline hypothesis for why people engage in hostile takeovers is correct, any defensive tactics taken by target management in those situations would falls well within breaches of FD. Things to think about:

o There is a conflict of interest in trying to keep managerial job and forgoing SH value maximization. Arguably, defense tactics should be allowed when there is a threat to society and/or SHs

o When actions are used as a defensive tactic by the target management, this results in raising the price that the current SHs would received – so why should law/statute favour SHs over acquirers in these cases? (Saying there shouldn’t be a blanket prohibition against all defensive tactics by target management)

HOSTILE TAKEOVERS – THE COMMON LAW Defense tactics: sale of crown jewels of the corp., scorched earth, Pac Man, white knight, poison pill The “poison pill” or pedestrian name of “SH rights plan” dominates defense tactics landscape in Canada

o If an acquirer gets enough of the target company’s shares (typically 20% ownership threshold), there is an issuance of rights – an option to existing SHs (not the acquirer) to purchase additional shares at a discounts (often at 50%) (1 option for every share).

o The net effect is diluting the takeover bids share value and diluting their ownership tender, making it expensive and/or extremely difficult to take over.

Canadian poison pills usually have permitted bid feature – allows bidder/acquirer to cross ownership threshold without triggering pill, as long as requirements are met by bidder/acquirer:

1. Holds bid open for longer period of time than required by securities regulation2. Proceed only if 50% or more of shares not already held by the bidder are tendered into the bid3. Allow SHs to withdraw their tenders at any time before the shares are taken up by the bidder and paid for4. Extend the bid for a further 10 days once 50% of the shares are tendered5. May additionally require bidder to make an “any-or-all” offer (impose no limit on number of shares that

will be purchased) rather than partial bid A board is not prohibited from issuing shares to frustrate a takeover bid, but it must be shown that it was in the

view of the best interest of the corporation: Teck Corp v Millaro Look to WHY the directors are doing something – if the directors’ purpose is not to serve the company’s

best interests, then it is an improper purpose. In the context of the hostile takeover bid, exercising power to defeat that bid is NOT necessarily improper

o TEST: directors must act (1) in good faith and (2) there must be reasonable grounds for their belief – they need to provide objective evidence of their good faith and these reasonable grounds; some sort of documentation of their consideration.

The fact that the directors rejected alternative transactions is irrelevant UNLESS it can be shown that the particular alternatives available were clearly more beneficial than chosen one (as long as the one they chose was a reasonable alternative, its okay – business judgement rule). Question is whether directors took successful steps to avoid a conflict of interest (e.g. special committee): Pente Investment

o Use of a special committee who is neutral is an appropriate way for the courts to decide whether the directors took successful steps to avoid a conflict of interest – insiders may still be allowed on the special committee.

RELIEF FROM LIABILITY – STATUTERELIEF THROUGH K/ARTICLES/BYLAWS?

No: You can’t K out of the FD or DoC or liability for negligence, default, breach of duty or breach of trust, or relieve liability by writing so in the articles: BCBCA 142(3), CBCA 122(3)

RELIEF THROUGH DIRECTORS/SH VOTE (IE A RESOLUTION)? NO: CBCA 122(3); POSSIBLY RELEVANT: BC s 233(6): DA; CBCA s 242(1); DA and oppressive claim Note: sections allowing approval of self-dealing situations BC s 148(2)(b)(c) CBCA 120(7)(7.1) note: under CBCA, you cannot have a resolution to approve EXCEPT under SD (s 120 (7.1)) which requires special

resolution and best interest of corp. in BCA, SH votes are allowed. Under s 148, procedures for voting that are

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actually stricter than the statute provides- usually a majority is only required BUT a special resolution to approve such breach (nothing about best interest of the corp tho)

there is a peculiarity associated with this:o In BC s 233(6): no application/legal proceeding, under 232 or 233 (derivative action statutes), can be

stayed or dismissed merely b/c it is shown that an alleged breach has been approved by SHs of company BUT evidence of this might be taken into account by the court in making an order

o Therefore, under BC you can get it approved BUT it is possible that the complaint will be brought through a derivative action and the approval by SHs is not determinative of court outcome although the court can take it into account

o Under CBCA, SH votes are not relevant b/c they cannot vote to cureo CBCA s 238: called part 10, and here, there are stat remedies that SHs have when they are complaining

when something has gone wrong (derivative action, oppression remedy, etc) BC is silent on SH resolution so its ok ; CBCA you cannot have a resolution

RELIEF BY COURT ORDER (ASLO APPLIES TO RECEIVERS AND LIQUIDATORS)? Good Faith Defence: Even if the court finds a director, officer, receiver, receiver manager or liquidator of a

company liable for negligence, default, breach of duty or trust, the court can make an order to excuse the person if it appears to the court that they acted honestly and reasonably and it would be fair to excuse them: BCBCA 234 – as an applicable party, you can actually apply to the court and ask them to make this order; final curative provision

Ie if everything else fails, you can use CBCA 234 (although it isn't clear who can raise this therefore it might be that the court has to do it himself-likely the director/officer would try though "in the alternative, you can excuse me by way of s 234 b/c…" the court has discretion under this section to let you off

o Possible parameters under this provision thougho Possible reason why a corp would want to incorp under BCA and not CBCA

RELIEF BY INSURANCE?- below RELIEF BY INDEMNITY? – below WHEN ARE YOU NOT LIABLE?

A DIRECTOR isn’t liable under 154 if they complied with their FD and DoC and relied in good faith on a) financial statements of the company, b) a written report by a credible professional, c) a statement of fact represented by an officer to be correct, or d) any other record the court deems to be appropriate, whether or not there was fraud involved: BCBCA 157(1), CBCA 123(5)

A DIRECTOR (not officers) isn’t liable under 154 if they didn’t know and couldn’t have reasonably known that the act done or authorized by the resolution was contrary to the Act: BCBCA 157(2)

CBCA = A director won’t be liable under 118 or 119 and will have complied with their duties under 122(2), if they exercised the care, diligence and skill of a reasonably prudent person in comparable circumstances, including reliance in good faith on a) financial statements of the corp represented by an officer or the auditor to be fairly accurate or b) a report made by a credible profession: CBCA 123(4)

INDEMNIFICATION AND INSURANCE A company can purchase director/officer insurance for an eligible party against any liability that may be incurred

by that party being a director or officer: BCBCA 165, CBCA 124(6) Due to the different coverage of indemnification and D&O (Directors and Officers) insurance, corps typically

purchase 2 types of D&O insurance: (1) Corp reimbursement coverage (for losses from indemnification of a director) and (2) personal coverage for liability of a director in which they are not indemnified

Statutes permit a corp to purchase insurance for the benefit of a director against any liability which may be incurred in his capacity as director, provided always that such liability does not result from a failure to act honestly and in good faith w/a view to the best interests of the corp

Statutes permit a corp to indemnify a director for any expense reasonably incurred in defending, settling or satisfying a judgment for any action, provided that the director's FD to act honestly and in good faith and w/a view to the best interests of the corp has been fulfilled

Definitions: BCBCA 159o Associated corporation: an affiliated company, partnership, trust, joint ventureo Eligible party: someone who is/was a director or officer of a company or associated corporation, and their

heirs or legal representativeso Eligible penalty: a judgment, penalty, or fine awarded/imposed in an eligible proceedingo Eligible proceeding: a proceeding which an eligible party, by reason of them being or having been a

director or officer, the company or associated corporation is or could be joined as a party or liable for a judgment, fine, penalty

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WHEN CAN A COMPANY NOT INDEMNIFY? if a) at the time of the indemnity agreement, it was prohibited by the articles, b) if indemnity is made other than

under an agreement, it was prohibited by the articles at the time, c) if in relation to the subject matter of the proceedings, the party didn’t act honestly and in good faith with a view to the best interest of the company or d) if it is an eligible proceeding other than a civil proceeding, if the party didn’t have reasonable grounds to believe that what they did was lawful: BCBCA 163(1) trumps other provisions

BCBCA 163(2) CBCA 124(4) unless court order and s 124(3) ok) if corp brings action (including DA) A company can’t indemnify an indvl UNLESS they acted honestly and in good faith w/ a view to the best interests of

the corpo and in the case of a crim or administrative action, the indvl had reasonable grounds to believe their actions were lawful: CBCA 124(3)

WHEN IS IT MANDATORY FOR INDEMNITY? A company MUST pay the expenses actually and reasonably incurred if the eligible party (a) hasn’t been reimbursed

and (b) they’re wholly successful or substantially successful in the outcome of the proceeding: BCBCA 161o An indvl ENTITLED to indemnity if they were not held at fault by the court: CBCA 124(5) (stronger than

BC, expenses only if you did not commit the breach; corp is required to indemnify you for your expenses if you are not at fault)

WHEN IS IT PERMISSIVE FOR INDEMNITY? Penalties (including potential penalties), final expenses BCBCA 160 (a)(b) Allows of interim expenses if agree to pay back if not ok under s 163): A company can pay expenses incurred in

advance of the final disposition of an eligible proceeding, but must not do so unless the party gives the company a written agreement that they will repay the amounts advanced if it is determined that indemnification is prohibited under 163: BCBCA 162

Penalties and expenses incurred because of association w/corp or other entity and ok under (3)(If someone sues you for negligence and is successful, the company is permitted to indemnify you): CBCA 124(1)

Can advance expenses but must pay back if not ok under (3) CBCA 124(2)COURT ORDERS

Despite all these sections, the court can order indemnification, payment for expenses, order enforcement of an agreement of indemnification, pay for expenses incurred in seeking this order and whatever else it wants to order (CBCA 124(7), BCBCA 164) CBCA 124(4): CAN ORDER PAYMENT IF ACTION BROUGHT BY CORP (INCLUDING BY DA)

Shareholders, Shares and Shareholders’ Rights

SHARES Definitions: BCBCA 1(1)

o Authorized share structure: the kinds, classes and series of shares, and the limits, if any, on the # of shares of those kinds, classes and series of shares, that a company is authorized, by its articles, notice of articles or memorandum, to issue

o Shareholder: a person whose name is entered in a securities register of a company as a registered owner of a share of the company

Fed corps must declare from the outset in the articles of incorporation the classes and max # of shares that the corp can issue and if there are 2+ classes of shares, the rights/restrictions/conditions of those classes as well as the rights/restrictions/conditions of any shares to be issued in series, with the authority of directors to fix the numbers of shares in the series: CBCA 6(1)(c) (set out authority share structure (including max #) in aritcles of incorp

A share in a company is personal estate : BCBCA 56 (ex: just b/c the corp owns land doesn’t mean a SH has a land interest)

o Side note: often you have an interest in a share but you are not a SH- ex: pension funds or mutual funds- often these are owned indirectly. Thus, often SHs are abstract entities

o No = in CBCA WHAT IS REQUIRED TO FORM A COMPANY?

1 or more persons can form a company by (1)(a) entering into an incorp agreement ( 2)a) which must include the agreement of each incorporator to take 1 or more shares of the company) and (1)(b) filing an application with the registrar: BCBCA 10 – (2) and 3) outline the requirements of the application

The notice of articles has bare bones info and is filed with the registrar: BCBCA 11o Name of company & directors, address of records office, share structure, including special

rights/restrictions with each class/series of shares

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o Description of the authorized share structure: It must set out the name of the class/series of shares and the kinds of shares that class has, the max # of shares the company can issue of that class or state there is no max, set the par value and identify any non-par value shares: BCBCA 53

A company must have 1 or both of PAR VALUE (these shares cannot be issued for less than the par value amount – must reference a currency; must ID what par value is) and NON-PAR VALUE shares (issue values can be decided on an issue by issue basis) and 1 or more classes of shares. Each class of shares must consist of shares of the same kind: BCBCA 52

o This differs from the CBCA b/c there is no par value The requirements for the contents of the share certificate are outlined in BCBCA 57; shows that you have an

intangible interest WHAT ARE THE BASIC PRESUMPTIVE RIGHTS

Voting/dividends/property CBCA 24(3) CLASS MATTERS

As an aggregate, all classes of shares w/in a corp must contain the rights to vote, receive dividends, receive assets if the corp winds up. However, each class does not need to contain all 3 – each class must have at least 1 of these rights. It’s not necessarily typical, but each class of shares can contain series w/ different voting rights in different situations attached to them – the rights w/in the series should be identical.

Can be par or no-par, 1 or more classes, or series BCBCA 52 No par- s 24(1) [non-assessable (shares issued by a corp are non-assessable and the holders are not liable to the

corp or to its creditors in respect thereof – s 25(2) ] Can be classes CBCA 24(4) BCBCA 59:

o Presumption of 1 class: If a company doesn’t provide in the notice of articles different classes of shares, the default is a single class of shares: BCBCA 59(2)

o Presumption all = BCBCA 59(3) o Within class generally same unless special series rights: each share in a class must have the same rights

and restrictions as the rest in that class: BCBCA 59(4)(6)o No guarantee able to use special rights BCBCA 59(5)

SERIES MATTERS BCBCA 60 Can be special rights for series- but no differences w/in series BCBCA 60(4) No difference w/in class as to dividends or return of capital BCBCA 60(6) No guarantee able to use special rights BCBCA 60(5) When a corp only has 1 class of shares, and therefore no series of shares, they will all be = w/ respect to these 3

rights: (a) the right to vote at any meeting of the SHs, (b) the right to receive any dividends declared to the corp, (c) to receive the remaining property of the corporation on dissolution (CBCA 23(4))

Can be series CBCA 27 No special rights w/in class as to dividends or return of capital CBCA 27(3)

WANT TO CHANGE AUTHORISED SHARE STRUCTURE? The company can change its authorized share structure in accordance with this section by changing its notice of

articles or articles, if necessary, and if not, either by a resolution specified by the articles or a special resolution (2/3 of the voting shares) if nothing is specified: BCBCA 54 CBCA 173(1)(h)

ISSUING SHARES Under both statutes, issuance of shares is one of the directors’ main duties. They can decide how, when, and to

whom these shares are issues. Directors are required to ensure that they get paid fair market value for the shares – they will be personally liable under the BCBCA to the corp and the SHs if the shares are issued at a value that is too low. They are personally liable under the CBCA to the corp

Incorporators must have min of 1 share each BCBCA 10 (no = in CBCA) When to issue? Directors can determine when and to whom to issue shares, subject to 64/28, articles, by-laws,

USAs: BCBCA 62, CBCA 25(1) Price? The issue price for non-par value shares must be set according to the articles or by a directors resolution:

BCBCA 63(1); The issue price for par value shares must be A) set by directors’ resolution and B) can’t be issued at less than par value: BCBCA 63(2)

o Directors decide CBCA 25(1) Payment: Shares must not be issued until they are fully paid: BCBCA 64(2), CBCA 25(3) and is fully paid when consideration

of past services, property or $ is provided to the company and the value of consideration = or exceeds the issue price: BCBCA 64(3) (limitation: cannot be for FUTURE services; no IOU’s)

o In satisfying themselves of whether the aggregate value of considerations equals or exceeds the issue price, directors must not attribute a value that exceeds fair market value of those considerations: BCBCA 64(4)

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Directors may take into account reasonable charges and expenses that have been incurred by the person providing the consideration and are reasonably expected to benefit the company; must be for past services, $ or property, cannot be for future services: BCBCA 64(5), CBCA 25(4)

BCBCA 154(2): Directors’ joint and several liable to corp or SH for losses from breach of s BCBCA 63(2) or BCBCA 64

CBCA 118(1): Directors’ joint and several liable to account corp for breach of CBCA 25 Subject to its charter, a company can declare a dividend and pay that dividend by issuing shares and in property,

including $, but must not declare or pay a dividend if the company is insolvent or paying the dividend would render the company insolvent: BCBCA 70; dividends permitted; SH’s have access to funds only through dividends CBCA 43

o THIRD PARTY PROTECTION: a dividend is not invalid merely because it is declared or paid in contravention of this section: BCBCA 70

WHAT ARE THE FORMS OF SHARES? A share can be certificated or, in the case of an unlimited liability company, be uncertificated: BCBCA 107

o CBCA describes only securities certificate CBCA 43RECORD OF SH’S

A company must maintain a central securities register in which is registers the shares issued by the company and lists the required infoas set out in BCBCA 111 (this registry can be important b/c it tells you who can vote – must be kept as up to date as possible and will be frozen for certain purposes at certain times; corp must mainatain a securities register CBCA 50

A list of SHs must be maintained – names/last known addresses and the # of shares of each class held by them – but can only be requested for limited reasons: BCBCA 49

o Any person can apply for names, addresses and #s BCBCA 49(1) CBCA 21(3)(4)o Affidavit IDing applicant and promising not to abuse BCBCA 49(2) CBCA 21(7)o How can use: to influence votes, to try to buy shares, to reorganize corp, to organize mtg BCBCA 49(3)o How can use: to influence votes, to try to buy shares, for any other matter related to corp CBCA 21(9)

RESTRICTIONS ON THE TRANSFER OF SHARES Difference btwn a transfer+ transmission of shares. Transfer of shares: where the holder voluntarily transfers the

shares to another person. Transmission of shares: (non-voluntary) when the law, causes those shares to be transferred to someone else (ex. if the SH goes bankrupt or dies). Transfer or transmission can be seen as a limitation that qualifies the rights of a SH to alienate their interest in a corp

IN SUM: If you have property issued to you, its yours; you do not have to pay anymore; but you cannot necessarily do anything with it; there may be certain restrictions (dividends, voting); there may be agreements on how you sell the shares or vote using your shares; to the extent hat there is a K involved, ensure that a remedy is drafted appropriately; it is possible that the by-laws/articles stipulate that the directors have discretion to refuse in good faith which runs the risk that the buyer cannot register their share and therefore do not have access to dividends or voting

WHY ARE RESTRICTIVE PROVISIONS NEEDED? Prevent intrusion of undesirable business associations; Preserve the relative interests of the owners; Resolve

deadlock; Comply with the definition of a private company in legislation; Anticipate and prevent unnecessary conflict; Ensure continuity of the business; Provide a market at an acceptable price for the shares. BUT: you cannot freeze shares forever (via restrictions).

WHAT ARE THE TYPES OF RESTRICTIONS? Absolute prohibition on share transfer unlimited in time : though it would be advantageous, it is always invalid –

may be valid if it is limited in time; joint venture corp most likely user Consent restrictions : require up to 100% of approval by directors and SH for transfer to be valid. Adopted

universally b/c it appears in the Table A articles (CBCA) the main advantage is that the remaining SHs can prevent the sale of shares to an undesirable

outsider w/out tying up their own capital to purchase such shares First option restriction : it is the best and most equitable inter vivos restriction – it balance the positions of the

buying and selling SHs since the seller is no longer at the mercy of the SHs Disadvantage to the remaining SHs is that they have to produce the necessary cash to purchase the

shares within normally 90 days Mechanics of Russian Roulette: X offers to buy Y's shares for a certain price. Y then has the choice

of accepting the offer or buying X's shares at the same price. The restricted auction eliminates some of the risk inherent in such a plan by providing that all the shares shall be sold at an auction w/the present SHs being the only allowable bidders

Event options : an extension of the ‘first option’ – when a special time or event triggers an option Buy out arrangements : contingent on the same events as listed above (ex. bankruptcy can trigger both event options

and buy out arrangements)36

Buy/sell agreement : an agreement btwn all SHs which provides that on the death of the SH, his executors are obliged to sell his shares to the remaining SHs at a specified price and the remaining SHs are obliged to purchase said shares when offered

WHERE DO RESTRICTIONS NEED TO BE SET OUT? You have to set out on the certificate what restrictions on transfer exist on a share BCBCA 57(3) CBCA 49(8) Articles of company must set out rights and restrictions on shares of corporation BCA 11(h) A distributing company shall not have a restriction on the transfer or ownership of its shares, except by way of 174

(49(9)). Note: the BCA does not have any such restrictionsWHAT NEEDS TO BE SHOWN WHEN IMPOSING A RESTRICTION? Here, the directors had the absolute discretion to refuse to register shares (per the articles). But the court held that

directors must act bona fide (this is not a FD) the directors have to show that there are good business reasons why they impose that particular restriction on the transfer of shares/ must show they were acting in good faith in imposing the restrictions (remember that the business judgment rule will apply in these situations) Re Smith & Fawcett Ltd

o They must exercise discretion bona fide in what they consider-not what a court may consider- to be in the interest of the company, and not for any collateral purpose

o They must have regard to those considerations, and those considerations only, which the articles upon their true construction permits them to take into consideration

o In cases where articles are framed with some such limitation on the discretionary power of refusal, it follows on plain principle that, if they go outside the matters which the articles say are to be the only matters to which they are to have regard, the directors will have exceed their powers

WHAT HAPPENS IF YOU TRANSFER/SELL A SHARE? If you do transfer/sell a share, directors do not have to register the transfer (another constraint)

o However, only registered owner has voting right (Common where company doesn’t want SHs selling shares to an outsider)

Case v Edmonton Country Club o Once you have the share, you have the share, and continuance of being a SH requires no further fees o The share is now a piece of property you own, but that right can be restrained

VOTING RIGHTS The right to vote is a fundamental right of SHs and is one that distinguishes them from creditors Under CBCA, shares may be created with no voting rights at all Two categories of votes:

o The approval of SHs are needed in response to proposals by the directorso The SHs want something done that isn’t be doing (rare and usually hostile)

Proxy battle: a dissident SH attempts to replace management by securing the proxies of SHs and using these proxies to vote for an alternate slate of directors nominated by the dissidents

o 5 key criteria that must be satisfied in order to have effective SH proxy: 1) investors must be in a position to make an informed decision 2) the rules of the voting system must be sufficiently explained to SHs 3) an investor's vote must have full weight at the SH meeting 4) votes attached to securities must be cast by those who have an economic interest attached to the security 5) the system must be transparent enough to inspire confidence

2 responses to the dangers of abuse that arise from the un= distribution of voting rights: 1. mandatorily enfranchise shares that would not otherwise carry the right to vote (this is done in the CBCA in connection w/ an amalgamation, sale, lease, or exchange of all or substantially all the assets of the corp and continuance in another jurisdiction) 2. the requirement that certain fundament transactions be approved separately by every class of SHs, whether or not the class would otherwise carry the right to vote

WHAT ARE VOTING RIGHTS? Presumptive right to vote per share: Unless the articles provide otherwise, a SH has 1 vote/share and can vote in

person or by proxy: BCBCA 173(1) Record date set to determine voting SHs BCBCA 173 CBCA 135(2)

HOW TO VOTE? IN PERSON, SHOW OF HANDS

o Voting must be by poll, if demanded, or in a manner that adequately discloses the intentions of the SHs or by a show of hands: BCBCA 173(2)(C)

o Unless a poll is required or demanded, a declaration of the chair that the resolution is carried by the necessary majority or is defeated is conclusive evidence of the fact without proof of the # or proportion of votes recorded: BCBCA 173(3)

BCA is in person- poll ; CBCA is ballot

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o Voting must be by poll, if demanded, or in a manner that adequately discloses the intentions of the SHs or by a show of hands: BCBCA 173(2)(b)

o At any mtg of SHs at which a resolution is submitted, a SH or proxy holder entitled to vote at the myg may, before or promptly after the declaration of the results of a vote taken by a show of hands, demand a poll. BCBCA 173(4)

TELEPHONE/ELECTRONIC/OTHER o Subject to the articles, a SH/proxy holder can participate by phone or other communication mediums, so

long as all other SHs are able to communicate w/each other – and if they participate this way, they are deemed to be present at the meeting: BCBCA 174

The company isn’t obliged to facilitate thiso If 1 or more SHs vote at the mtg in a manner contemplated by section 174 (1), be by poll or be conducted in

any other manner that adequately discloses the intentions of the SHs BCBCA 173(2)(a) BY PROXY

o BCBCA 173(1) BY WRITTEN RESOLUTON

o See types of resolutions on “Shareholders Meetings and Unanimous and Consent Resolutions POOLNG AGREEMENT

o Permitted: 2+ SHs can agree via a written agreement to exercise voting rights according to the agreement: BCBCA 175, CBCA 145.1

A SH/proxy holder can demand a poll or inspect the ballots and the company must keep each ballot cast for at least 3 moS: BCBCA 173(4),(5)&(6)

s 173(8): default position-unless otherwise provided by statute or articles, in order for something to carry it is by ordinary resolution KNOW WHICH EXCEPTIONS THESE ARE:

o By-law changes o A company may apply for continuation out of BC so long as it is authorized by its SHs by a special resolution

BCBCA 308 o Alter articles by special resolution if nothing is specified BCBCA 257o A corp can change its restrictions BCBCA 259 o remove a director before their term is over BCBCA 128(3) o sale of the undertaing BCBCA 301(1)o special resolution for self-dealing

If a subsidiary is a SH of its BC holding corp, the subsidiary can’t vote at a SHs’ meeting: BCBCA 177 Chair will be elected BCBCA 178

QUALIFICATION/LIMITATION/ABSENCE OF VOTING RIGHT Voting shares are usually called common shares and have no special rights to dividends, whereas preferred shares

usually don’t have voting rights but have priority in receiving dividends. Might have a special right to vote for an extraordinary sale (CBCA 189(6) Unless a poll is required or demanded, a declaration of the chair that the resolution is carried by the necessary

majority or is defeated is conclusive evidence of the fact without proof of the # or proportion of votes recorded: BCBCA 173(3)

A SH/proxy holder can demand a poll or inspect the ballots and the company must keep each ballot cast for at least 3 mos: BCBCA 173(4),(5)&(6)

The rights w/in a class of shares must be equal. Various voting rights WITHIN a particular class of shares is discriminatory and illegal Jacobsen v United Canso Oil & Gas Ltd

o It is only when there is there is more than 1 class of shares that different rights, privileges, restrictions and conditions attaching to shares may arise (s 24(3))

o if you do have a share and you are not prohibited from voting, then you have the power to vote that share and are not constrained. If your share is part of the same class/series as another's, then your voting rights should be the same and any attempt to change this is presumptively invalid

Note: you may have entered into a K which affects this vote It is okay if different classes of shares carry different #s of votes. However, the same shares CANNOT carry different

#s of votes depending on the SH Bowater Canadian v RL Crain Inco Mac doesn’t seem to agree; something about the statute allowing for something that differs; referring to

voting out someone (automatic self cleansing case and amending articles)

PROCESS OF VOTING Shareholders make their decisions in a mtg

o Enough people writing can constitute a mtgo Something must be on the agenda in order to have a mtg

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You will need to determine how many votes are necessary to pass a resolution There are all sorts of names for these mtgs:

o 2 big types of the annual (certain issues have to be decided on a yearly basis) and special meetings (special issues decided)

Generally the mtgs will be called by management and they will prep the agendao Sometimes though the management don’t do what the SH's want o This is called a shareholder requisition mtg (SH must pay for all the fees of the mtg)o A court can also order a mtg to be held

Note: when you don’t have a mtg to vote, directors stay in place To decide an issue, there must be a certain # of votes in order to change something

o See chart on types of resolutions o The CBCA is fairly straightforward- defines exactly what an ordinary resolution is ; just need to figure out

what type of resolution is needed for that specific decisiono BCA is a little more complicated:

It has a consent resolution (which is to decide matters in writing rather than having an actual mtg where SHs show up and things are sorted out)

In an ordinary resolution, when there is an actual mtg you have the majority +1 or you can do this through a consent resolution so long as you have 2/3 of the votes agreeing (anyone who can vote would be included in this pool so long as the share had voting power) thereFore differs from having an actual mtg in which the only votes which count are those that are present at the mtg and decide to vote

What you need for an ordinary resolution depends on whether there is an actual mtg or consent resolution

A special resolution has a similar structure- if acting mtg, need 2/3 vote actually passed in favour but if it is through a consent resolution, you need unanimity

o If there is only 1 SH, the person can merely note to themselves- they only need a piece of paper indicating that the matter was considered and agreed in a certain way such that the matter was approved

SHALREHOLDER AGREEMENTS Pooling agreements: Right to join with other SHs to combine voting rights – agreements to vote in a particular way

(problems may arise if you forget to include remedies/consequences for breaking such agreements into the K b/c at that point, the vote will already be valid)

At CL, pooling agreements are lawful. The fact that the agreement may potentially involve detriment to the minority doesn’t render it illegal or contrary to public order: Ringuet v Bergeron

o SHs have the right to combine their interests and voting powers to secure such control of a company and to ensure that the company will be managed by certain persons in a certain manner

Agreements must be for a lawful purpose though: Motherwell v Schoof 2+ SHs can agree via a written agreement to exercise voting rights according to the agreement: BCBCA 175, CBCA

145.1– a breach of such will result in a breach of K and the remedies might be provided for in the agreement

SHAREHOLDERS’ MEETINGS Types of meetings – annual and special; called general meeting in BCA; annual meeting in CBCA Definitions: BCBCA 1(1) Note: the right to vote is attached to the share, not the SH

o Meeting of shareholders: general meeting, a class meeting, a series meeting, etco Special Resolution : a resolution passed at a general meeting where notice of the special resolution is sent

in advance to all SHs who have shares with the right to vote at AGMs – in person, must be passed by a special majority of votes cast by the SHs that voted (usually 2/3, but articles can require 3/4). In writing – by consent resolution that is unanimous resolution (all potential votes agree) (BCBCA 1(1));

Resolution passed by a majority of at least 2/3 or signed by all SHs entitled to vote on that resolution: CBCA 2(1)

o Ordinary resolution : a resolution passed by simple majority (of the votes cast by the SHs who voted) or passed in writing by at least a special majority (BCBCA 1(1)) By consent resolution that is a unanimous resolution (all potential votes agree)

A resolution passed by a majority: CBCA 2(1) s 173(8): default position-unless otherwise provided by statute or articles, in order for something

to carry it is by ordinary resolution o Exceptional Resolution : in person, if correct percentage of votes cast as required by articles. By consent

resolution that is a unanimous resolution (all potential votes agree) (BCBCA 1(1)) Rules applicable to general meetings apply to other SHs’ meetings as well: BCBCA 181

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WHEN IS AN ANNUAL MEETING HELD AND WHAT NEEDS TO BE DISCUSSED? Company must hold annual meeting (w/in 15 mos of last one) each year, and w/in 6 mos of the end of the

preceding fiscal year: CBCA 133(1)(b) BCBCA 182(1)(b) and the 1st one ever must be held w/in 18 mos of the company being recognized: CBCA 133(1)(a) BCBCA 182(1)(a)

o SHs can vote by unanimous resolution to hold the AGM later than is required, consent to all business required to be transacted at that meeting, or waive holding it at all – if it doesn’t pass, the registrar can exercise discretion to hold it later than required as well: BCBCA 182(3)

o Directors can call a special meeting any time and can apply to the court for an extension for calling an AGM: CBCA 133(3)

WHAT IS THE REQUIRED BUSINESS? Directors must provide the annual financial statements and possibly any auditor’s reports to SHs before the AGM

takes place: BCBCA 185 Appointment of auditors: BCBCA 204 At least three items of business must be transacted at the annual meeting CBCA 135(5):

o Election of directors (CBCA 106(3)) but might not occur every yr b/c a director’s term is 3 yrs, Appointment of auditors (CBCA 162(1), Presentation of financial statements and auditor’s report to SHs (CBCA 155(1))

WHO ELSE CAN CALL A MEETING? Special meetings can be called (by the directors) if important business comes up btwn annual mtgs CBCA 133(2) Holders of 5% or more of voting shares may requisition a SHs/requisition meeting CBCA 143, BCBCA 167 (sets

out how the SHs can require a mtg to be held if the directors aren’t holding one) The court can call a court-ordered meeting of SHs and give directions it considers necessary if it is impracticable

for the company to call/conduct a meeting according to the Act or its articles, if the company fails to hold the required meeting or for any other reason that court feels like – the court can also vary and waive the requirements for quorum or notice of the meeting: BCBCA 186

GENERAL MEETING RULES Shares must be traded w/in a particular time BCBCA 171 A general meeting must be held in BC or subject to the articles, in a place outside of BC if it is approved by the

registrar: BCBCA 166 A resolution is deemed to have passed when it is actually passed (duh): BCBCA 176

THE CONDUCT OF MEETINGSWHERE HELD?

A general meeting must be held in BC or subject to the articles, in a place outside of BC if it is approved by the registrar: BCBCA 166

NOTICE OF MEETING Notice must be sent with date, time and location of meeting at least the prescribed # of days but not more than 2

mos before the meeting to each SH entitled to attend the meeting and to each director, but if this is accidentally not done, it doesn’t invalidate any proceedings at that meeting: BCBCA 169

Entitlement to notice can be waived, or the period of time reduced and does not need to be in writing. Further, attendance in person at a meeting is deemed to be waiver unless the person is attending expressly to object to transacting any business because the meeting was not lawfully called: BCBCA 170

Directors must provide the annual financial statements and possibly any auditor’s reports to SHs before the AGM takes place: BCBCA 185

Notice of the time and place of the mtg must be sent w/in the prescribed period to each SH able to vote, each director and the auditor – if it’s not a distributing corp, the prescribed time may be shorter according to the articles: CBCA 135(1)

o Notice of a mtg where special business (everything other than financial statements, auditor reports, election of directors/auditors) will be transacted must state the nature of business in enough detail for a SH to make a reasoned judgment and the text of any special resolution that will be submitted

CBCA 135(6) Notice of a meeting of SHS at which special business is to be transacted shall state (a) the nature of that business in sufficient detail to permit the shareholder to form a reasoned judgment thereon; and (b) the text of any special resolution to be submitted to the meeting

WHAT QUORUM MUST BE PRESENT? A quorum for the transaction of business at a mtg is whatever is established by the articles, or if none is

established, then 2 SHs entitled to vote, or if less, then all SHs entitled to vote at the mtg, whether present in person or by proxy: BCBCA 172

o Subject to the articles, if there is no quorum, SHs entitled to vote can adjourn the mtg to a set time and place, but can’t do any other business

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o If there’s only one person entitled to vote, that SH can constitute that meeting CBCA differs: Subject to the by-laws, a quorum is present if the holders of a majority of shares entitled to vote at

the mtg are present in person or by proxy; quorum is met irrespective of the # present, if the majority of the # of voting shares are present(ie if there are 1000 shares, 501 of the shares need to be present) harder under this statute: CBCA 139

o Therefore, if not enough ppl show up, the status quo is preserved and another mtg will need to be held with the amount of notice given in advance

o If there’s a quorum at the start of the mtg, the SHs can proceed with business of the mtg, subject to by laws, even if a quorum is not present throughout the mtg

o If there isn’t a quorum at the start of the mtg, the SHs can adjourn the mtg to a fixed time and place, but not any other business

o If there’s only one SH, that SH can constitute a meetingCHAIR

The chair of the meeting is any SH who is entitled to vote and who is elected by the other SHs who are entitled to vote at the meeting BCBCA 178

MINUTES Minutes must be kept for SHs’ mtgs and if purported to be signed by the chair of that mtg or the next mtg, is

evidence of the proceedings, and unless the contrary is proven, if the mins have been signed, the mtg is presumed to have been duly held/convened, the proceedings are deemed to have been duly taken, all elections and appointed are deemed to be valid: BCBCA 179

Subject to the articles, a SH/proxy holder can participate by phone or other communication mediums, so long as all other SHs are able to communicate w/ each other – and if they participate this way, they are deemed to be present at the mtg: BCBCA 174

o The company isn’t obliged to facilitate this Rules applicable to general meetings apply to other SHs’ meetings as well: BCBCA 181 A corp, SH or director can apply for a court review of an election/appointment of a director or auditor: CBCA 145

o (2) list several possibilities of what orders the court may make, but it can make any order it wantsCONDUCT

The majority is bound to listen to the opposition but it doesn’t mean that a minority bend on obstructing business and resolved on talking forever shouldn’t be stopped. The majority shouldn’t by tyrannical, but they aren’t bound to listen until everybody is tired of talking and has sat down. The majority should listen to reasonable arguments for a reasonable time: Wall v London and Northern Assets Corp

o One of the roles of the chairs to facilitate discussion, but after enough, the chair can say we have heard enough- a judgment call to know how much to hear on a particular issue or from a particular person

A corp, SH or director can apply for a court review of an election/appointment of a director or auditor: CBCA 145o (2) list several possibilities of what orders the court may make, but it can make any order it wants

UNANIMOUS AND CONSENT SHAREHOLDERS’ RESOLUTION Consent resolution : these are permitted and valid (BCBCA 180). For an ordinary resolution, a special majority is

required (usually 2/3 of potential votes). For other resolutions, a unanimous resolution is required (all potential votes agree) [written resolution – can be passed w/out a meeting (it is as if it was in a meeting)] BCBCA 1(1)

Unanimous resolution : a resolution passed in writing consented to by ALL SHs who are entitled to vote. Called a “resolution in lieu of meeting” under the CBCA BCBCA 1(1) CBCA 142(1)

o SHs can vote by unanimous resolution to hold the AGM later than is required, consent to all business required to be transacted at that meeting, or waive holding it at all – if it doesn’t pass, the registrar can exercise discretion to hold it later than required as well: BCBCA 182

o A copy of every resolution above shall be kept w/ the minutes of the meeting and, unless a ballot is demanded, an entry in the minutes declaring a resolution to be carried or defeated, is, absence evidence to the contrary, proof of the conclusion of the resolution, even w/out proof of the # or proportion of votes

o HOWEVER, CBCA 142 requires these resolutions to be in writing Could possibly be some flexibility in the statutory rule where it would create an absurdity to

require records be kept, written files, etc, but always advise your client to follow the statutory requirements – although CL could also be used to possibly get around the writing requirement

SHs can approve an ultra vires transaction and in this case, the formalities of a meeting and a resolution in writing was unnecessary b/c president/director as the sole SH and it was a foregone conclusion that he would have consented to the loan since he instigated it (evidence of consent/unanimity): Eisenberg v Bank of NS

o SHs can approve a breach of FD by director. The court said that b/c he instructed a secretary that he was going to approve this was sufficient to approve the breach (constituted both an order from director and consent resolution to approve it)

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SHAREHOLDERS’ PROPOSALS SH proposals becoming popular is Canada but most have little chance of being successfully passed since majority of

public companies are controlled by an indvl or small group, making it impossible for minority SHs to secure enough votes

Rules apply only if public company BCBCA 187(3) Four categories of proposals:

o Proposal that the articles be amended: CBCA 175(1)o That a by-law be made, amended or repealed: CBCA 103(5)o SHs holding at least 5% of shares or 5% of a class of voting shares may make nominations for the election

of directors: CBCA 137(4) support from other SHs can be counted toward meeting these eligibility requirements

(CBCA s 137(1.1)(b) WHO CAN MAKE A SH PROPOSAL?

You must be the registered holder of at least the prescribed # of shares. Support from other SHs can count towards meeting this eligibility requirements: CBCA 137(1.1)(a & b)

A registered holder or beneficial owner of shares entitled to vote at the AGM may submit notice of any proposal and can discuss the matter at the meeting: CBCA 137(1)

Residual category – proposals that do not fall into the category of business or affairs of the corp (normally managers can refuse) but they’re fine as long as they don’t violate the technical limitations in CBCA 137(5)

o Is a person who is the registered holder/beneficial owner of at least the prescribed # of shares for at least the prescribed period or must have the support of persons, who in the aggregate, meet those requirements: CBCA 137(1.1)

BCBCA 187o Proposal: a written notice setting out what the submitter wants considered at the next AGMo Qualified SH: in relation to a proposal, someone who is a registered/beneficial owner of 1+ shares that

carry the right to vote at a general meeting and has been for at least 2 consecutive yrs before the signing of the proposal

Doesn’t include someone who failed to present, w/in the last 2 yrs, in person or by proxy, at an AGM, an earlier proposal of which the person was the submitter and in response to which the company complied with 189

CONTENTS OF THE PROPOSAL CBCA 137(1.2): A proposal submitted under para (1)(a) must be accompanied by the following info:(a) the name

and address of the person and of the person’s supporters, if applicable; and (b) the # of shares held or owned by the person and the person’s supporters, if applicable, and the date the shares were acquired.

o A company can request proof of these requirements: CBCA 137(1.4) CBCA 137(3): If so requested by the person who submits a proposal, the corp shall include in the management

proxy circular or attach to it a statement in support of the proposal by the person and the name and address of the person. The statement and the proposal must together not exceed the prescribed max # of words

BCBCA 189(1)This section sets out the rights and obligations of the company to circulate the proposal in advance – they can choose not to, if the proposal falls w/in certain categories under (5). A company that receives a proposal must send the text of the proposal and the names and mailing addresses of the submitter and supporters, and the text of any accompanying statement to all persons who are entitled to notice of the AGM:

o This info must be sent either in the notice, or w/in the time for sending it, of the applicable AGM or in the company’s info circular/equivalent, sent in respect of that AGM: BCBCA 189(2)

CBCA 137(4): can be to nominate a director If it is signed by the submitter and qualified SHs who, together w/ the submitter, are registered/beneficial owners

of shares that constitutes AT LEAST 1% OF THE ISSUED SHARES (1/100) that carry the right to vote or have a fair market value in excess of the prescribed amount: BCBCA 188(1)(a)&(b)

o (c)&(d) outline the other requirements for a proposal to be valido (2)&(3) A proposal may be accompanied by 1 written statement supporting the proposal, and if it is

submitted, together with the proposal must not exceed 1000 words in length, but doesn’t include the signatures or declarations referred to previously in this section

WHEN CAN THE COMPANY/CORP REFUSE TO PROCESS/CIRCULATE THE INFO? CBCA 137(5.1), If a person who submits a proposal fails to continue to hold or own the # of shares referred to in

(1.1) up to and including the day of the mtg, the corp is not required to set out in the management proxy circular, or attach to it, any proposal submitted by that person for any mtg held within the prescribed period following the date of the mtg

No company or agent of the company will incur any liability merely b/they complied w/ 189 (i.e. if the company refuses the proposal, they will not incur liability): BCBCA 190

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If the company doesn’t intend to process the proposal in accordance w/189 b/c 189(5) applies, they must send a written notice of the refusal and a written explanation for its decision, w/specific reference to the provision in 189 that the company is relying on within 21 days to the submitter: BCBCA 191(1)

A notice of refusal must, w/in the prescribed period, be sent in writing to the person who submitted it and give reasons for the refusal: CBCA 137(7)

CBCA 137(9) The corp or any person claiming to be aggrieved by a proposal may apply to a court for an order permitting the corp to omit the proposal from the management proxy circular, and the court, if it is satisfied that subsection (5) applies, may make such order as it thinks fit

WHAT ARE THE REASONS FOR REFUSING? Old provision said management could refuse SH proposals if it was primarily for the purpose of promoting general

economic, political, racial, religious, social or similar causes – it doesn’t matter that there was a more specific purpose or target, the overall purpose is what is at issue: Varity Corp v Jesuit Fathers

NOTE: The company would have had to do argue this very carefully in BC since BCBCA does have the same enumeration of “economic, political, racial, religious, social or similar causes” (i.e. make sure you phrase it in a way that relates to the business or affairs of the corporation)

BCBCA 189(5)(d) makes it clear that if the primary purpose is one of those listed, however commendable either the specific or general purpose may be, the company cannot be compelled to pay for taking the first step towards achieving it

BCBCA 189(5) outlines circumstances in which the company doesn’t need to process a proposal: (a) if came in too late, (b) if not valid under 188(1) or exceeds max. length, (c) if substantially the same as another proposal submitted earlier, (d) if it does not relate in a significant way to the business/affairs of the company, (e) if the primary purpose is securing publicity or redressing a personal grievance, (f) if the proposal has already been substantially implemented, (g) if the proposal, if implemented, would cause the company to commit an offence, (h) if the proposal deals w/matters beyond the company’s power to implement. CBCA 137(5) equivalent

A) too late B) personal grievance B.1) allows management to omit a proposal that does not relate in a significant way to the business

or affairs of the corp C) no show at previous mtg D) repeat business E) publicity motive

o The submitter can apply to the court to review the company’s decision: BCBCA 191(2), CBCA 137(8) and the court can make orders according to (3)&(4) or whatever it thinks is appropriate

o An applicant must give the Directors notice of the application to the court: CBCA 137(10)WHAT OBLIGATIONS DOES THE COMPANY HAVE?

A company must allow the submitter to present the proposal, in person or by proxy, at the AGM, as long as the submitter is a qualified SH at the time of that meeting: BCBCA 189(3)

If the company receives more than 1 proposal for the same AGM dealing w/substantially the same thing, the company must comply with (1)-(3) for the 1st proposal received and not the other ones: BCBCA 189(4)

ARE SH PROPOSALS BINDING ON MANAGEMENT? Depends on the proposal (ex: if it is a nomination for directors -a nomination is just that, nothing more and nothing

less) CBCA doesn’t explicitly deal with the effect of SH proposals dealing w/articles, but CBCA 175(2) suggests by clear

implication that a properly passed proposal to amend the articles is binding o In a private company, there is no mechanism for SH proposals; so you have to ask nicely or go through the

special procedure of calling a special mtg- a requisition mtg; IF YOU ARE A PRIVATE COMPANY OR THE DIRECTORS WONT PUT IT ON THE AGENDA, YOU WILL HAVE TO CALL A SPECIAL MTG Varity Corp v Jesuit Fathers

o CBCA does not have an = rule

REQUISITIONED AND COURT-ORDERED MEETINGSRequisitioned meetings usually occur when SH proposals are rejected (better to go the route of proposals than requisitioned meetings b/c you don't want to run the risk of bearing the costs and expenses of the meeting).

Note: the directors can call these special meetings whenever they want; these provisions only apply to SHs who wish to have their proposals approved.

WHEN CAN REQUISITION OCCUR? SH may requisition directors to call meetings under the CBCA 143(1), BCBCA 167. This right is limited to SH OF

5% (1/20) OR MORE OF THE ISSUED SHARES. BCBCA 167(2) These meetings are often used in hostile takeovers to remove management, particularly when the acquirer

cannot afford to wait until the next annual meeting.

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For any purpose as for general meeting BCBCA 167(1) A mtg of SHs (CBCA 143(3)(b), similar to BCBCA 167(7)(a)) entails a mtg at which a requisitioners’ business may

be considered. Amendments to articles CAN be the subject of requisition mtgs. Even if the directors correctly do not call the mtg under an exemption, the requisitioning SHs can call it themselves – might not be the case under BCBCA b/c calling a mtg is subject to exemptions that are not included in the CBCA: Air Industry Revitalization Co v Air Canada

o A requisitioned mtg is always available by SHs. It is simpler for a SH to present a motion at an already established mtg rather than call their own mtg. But if it is controversial or requires a lot of informational background then it may be better to requisition

WHAT NEEDS TO BE INCLUDED? Info statement- 100 words, signed, address, etc BCBCA 167(3) The requisition referred to in(1), which may consist of several documents of like form each signed by one or more

SHs, shall state the business to be transacted at the mtg and shall be sent to each director and to the registered office of the corp CBCA 143(2)

WHAT HAPPENS WHEN THE REQUISITON IS RECEIVED? When the requisition is received, the directors must call a SHs meeting as soon as possible – CBCA 143(3) (some

exemptions apply) – w/in 4 months of the requisition being received: BCBCA 167(5)(6) (if 7 n/a) o If the meeting is not called w/in 21 days, the SH that signed the requisition or anyone holding more than

1/40 of the issued shares may call the meeting: BCBCA 167(8), 143(4) CBCA similar but with 1 important diff: s 143(4): if w/in 21 days they do not call the mtg then any

SH can call the mtg (easier under this statues to force the issue) So though you need 5% to get the process started, if turned down, you only need 1 SH of those 5%

to go ahead anyways If they call the meetings themselves, they must go ahead with it BCBCA 167(9) If the directors call the meeting, the corp pays the costs

WHAT ARE THE LIMITATIONS TO THESE MEETINGS? The business that can be conducted at the SH meeting is limited in the same way as SH proposals are (CBCA 102) Directors don’t have to call a meeting if… (same as BCBCA 189(5) requirements) BCBCA 167(7)

o Mtg already called; repeat business; outside business of company; publicity motive; personal grievance motive; already done; would be an offence; ultra vires

o Directors must call a mtg unless (143(3)): A) mtg already called B) personal grievance; B.1) allows management to omit a proposal that does not relate in a significant way to the business or affairs of the corp; C) no show at previous mtg; D) repeat business; E) publicity motive

HOW TO AVOID COSTS OF MEETING? Company reimburses expenses unless resolution against BCBCA 167(10) Corp reimburses expenses unless ordinary resolution against 143(6) As a SH, you want the issues to be decided by the mtg, but for you, the SH, not to have to pay the costs of the mtg be

held. You can do that by (a) getting the proposal put on the agenda, or by (b) requisitioning a meeting because if the proposal then passes, the costs will be borne by the corp and not the SH who requisitioned a mtg. If you go through this requisition procedure and the proposal is not approved, you can still go ahead and hold a mtg but it is likely that you would have to bear the costs yourself. Air Industry Revitalization Co v Air Canada

COURT-ORDERED MEETING The court, by application, can order a mtg be called/held/conducted if it would be impracticable to call the mtg

w/in the time or in the manner in which those mtgs are supposed to be called, if it is impracticable to conduct the mtg in the manner required by this Act or by-laws or if the court thinks the mtg should be handled w/in the time or in the manner the court directs. The court can also vary and waive the requirements for quorum or notice of the mt: CBCA 144 BCBCA 186 (CBCA diff as court cannot do it on its own motion, must be requested)

o Why wouldn’t you just do this instead of worrying about possibly having to pay for a mtg? Courts are becoming reluctant to agree when other procedures are available

REMOVAL OF DIRECTORS A company can remove a director before their term is over by a) special resolution or b) according to the method

or resolution specified in the articles: BCBCA 128(3)o Replacement as per BCBCA 131o If there is a vacancy b/c a director has been removed , it can be filled by the SHs at a SH meeting, or not

filled by the SHs, then by the SHs or by the remaining directors: BCBCA 131(a) Can be a class/series vote: If the right to elect/appoint 1+ directors is exclusive to a certain class or series of

shares, then a director so appointed/elected can only be removed by a special resolution of those SHs or if the

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articles provide that such a director can be removed by a majority vote of less than that required for a special resolution, or removed by some other method, then by that resolution or method specified: BCBCA 128(4)

SHs can remove directors by ordinary resolution at a special meeting or if the right to elect is held exclusively by a certain class of shares, then at a meeting of that class of shares: CBCA 109(1)

o Can be a class/series vote CBCA 109(2)o Replacement as per CBCA 109(3)

Shareholders’ Remedies and Relief Derivative: where all SHs are affected equally by the impugned conduct and the real plaintiff is the corp (allows

indvls to bring a claim in the name of the corp, and the remedy will be granted to the corp, not to the indvls) Personal: when certain SHs have some grievance that is peculiar to themselves (seeking an indvlremedy) Oppression: SH can commence an action of either a personal or derivative nature under the oppression remedy

The statutory remedies codify the DA and OR. The general assumption is that you cannot opt to use the CL versions; BUT in BC, since this is not explicitly stated AND the basis for the formation of your company is a K, why can’t you use the CL?

THE DERIVATIVE ACTION Easier under the CBCA than under the BCA

WHAT IS THE PURPOSE? Can go to court and take over capacity of corporation for specific litigation purposes Often the wrongdoing is attributable to management (directors and officers) and therefore not redressed – for this

reason, derivative actions are a tool of accountability. The traditional hallmark of a derivative action is that all SHs are affected by the complained-of conduct equally, and

all are affected indirectly Ex: if the managers are alleged to have overpaid themselves, that affects all SHs both co-equally and indirectly Pros = accountability and remedial instrument. Cons = litigation costs, procedural costs, minimal gains sought for

large action. For example: The litigation itself could hurt the company and cause potential lost opportunity. The mechanism can potentially be abused.

WHAT IS THE REMEDY Court can award that remedy goes to someone other than corporation

WHO CAN BRING THE ACTION? The statute (eg CBCA s 239) allows a SH (or more generally a complainant) to commence an action "in the name

and behalf of a corp"o Thus, if the directors refuse to bring an action, a SH may (w/the permission of the court pursuant to s 239)

commence the action himself TWO STEPS : (1) apply to the court for leave to bring derivative action; (2) then bring action in corporations name

DERIVATIVE ACTION – COMMON LAW – THE RULE IN FOSS V HARBOTTLE There’s little reason to expect that SHs of widely held corps will examine ratification issues (of a breach of duty by

the board or indvl directors) any more closely than other corp actions requiring their approval. The value of ratification, especially when it is in the form of a bare SH majority, is suspect

THE RULE ( FOSS V HARBOTTLE ) : The corp itself is the proper complainant and it is up to the SHs at a general meeting to determine whether to bring

suit (goes back to the idea that a corp is a separate legal entity (Salomon) and a duty is only owed to the corp, not to 3rd parties – which is why a SH can not bring a claim in their personal capacity)

if a majority of SHs either had ratified a corp wrong, or might at some point in the future ratify the wrong, than an indvl SH has no standing to assert any breach of FD – they can NOT bring a CL derivative action – this has been OVERTURNED BY BCA 233(6)

Usually, majority rules and the internal affairs were the responsibility of the majority – the decision whether or not to bring suit in the company name belongs, at CL, to the general meeting where majority rules

4 EXCEPTIONS TO “MAJORITY RULES” – TO PREVENT THE MAJORITY FROM ‘STEAMROLLING’ THE MINORITY: Edwards v Halliwell

Where an act is ultra vires: the transaction can't be confirmed by the majority (confirmed by statute) Fraud on the minority: a very narrow exception – benefitting the majority at the expense of the minority, usually a

proprietary wrong Special majorities: an indvl could sue if the matter was something that could only be properly done with the assent

of some special majority (when the majority allows something to go ahead even though it required a more stringent agreement)

Personal rights: where the personal and indvl rights of membership of the P have been invaded – majority rules has no application

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A ratification is valid if it is supported by a mere majority of SHs and its adoption not brought about by unfair or improper means; not illegal or fraudulent or oppressive towards opposing SHs (fraud on the minority exception to Foss). Subject to the articles, directors are not precluded from also acting as SHs and voting regarding the ratification: North-West Transportation v Beatty

o The BC statute preserves the position that as long as SHs approve of what has happened, then the breach of the FD goes away.

o The CBCA however is more in sync with modern law: The SHs are not the corp (they are NOT one and the same) – if the directors owe their duty to the corps, who are the SHs to be voting on these issues?

So in the CL, the derivative action was very limited. The corp itself was required to bring an action, but only directors can direct the corp to do so. The statutory DA was instituted to address this specific problem, and to address other issues.-If there is a stat remedy available that looks like it is covering the same thing as CL (ie oppression) whether you have to bring that claim within the stat version in the oppression remedy or you can bring it through CL? CL doesn’t have the same procedural restrictions as the stat restrictions; case prob stronger in BC that you can bring CL remedy

THE STATUTORY DERIVATIVE ACTIONWHO ARE THE COMPLAINANTS? Under the BCBCA, the list of complaints is narrower than the CBCA.

Complainant under BCBCA 232(1) is a SH, director, beneficial owner of a share or the company or any other person whom the court considers an appropriate person

Complainant under the CBCA 238 a current or former registered holder/beneficial owner of a security of the corp or any of its affiliates, a current or former director or officer of a corp or any of its affiliates, the director or any other person the court deems a proper person to make an application

o a bond or debenture holder can complain ; don’t have to be a SH or security holder of the corp itself you can be of a subsidiary

HOW TO COMMENCE A DERIVATIVE ACTION- leave/consent of the court is required Generally, the BCBCA is more management friendly than the CBCA. Under the CBCA, it is easier to commence a DA.

Under the BCBCA, it is more difficult to get the court to grant the SH leave to bring a DA b/c the SH has to meet all 4 requirements. Even if they are met, the court has wide discretion to still refuse leave. Under the CBCA, it is easier to get the court to grant leave b/c there are only 3 requirements and when they are met the court often feels as though it should grant leave to bring the DA

BCBCA 232(2): A C may, w/ leave of the court, prosecute a legal proceeding in the name and on behalf of a company, (a) to enforce a right, duty or obligation owed to the company that could be enforced by the company itself, or, (b) to obtain damages for any breach of a right, duty or obligation referred to in paragraph (a)

o BCBCA 232(4): With leave of the court, a C may, in the name and on behalf of a company, defend a legal proceeding brought against the company

CBCA 239(1) Subject to s(2), a C may apply to a court for leave to bring an action in the name and on behalf of a corp or any of its subsidiaries, or intervene in an action to which any such body corporate is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the body corporate

FACTORS FOR COURT TO CONSIDER (FOR ALLOWING ACTION TO COMMENCE) CBCA 239(2) allows a C to apply to a court for leave to bring an action in the name and on behalf of a corporation

o A) Complainant must 1st give directors notice of intent to apply to the court at least 14 days before application is made

o B) complainant must be acting in good faitho C) bringing of the action must appear to be in the best interests of the corporation

BCBCA 233 (1): criteria to bring an action include: a) the C has made reasonable efforts to cause the directors of the company to prosecute or defend the legal proceeding, (b) notice of the application for leave has been given to the company and to any other person the court may order, (c) the C is acting in good faith, and (d) it appears to the court that it is in the best interests of the company for the legal proceeding to be prosecuted or defended; even if all 4 met the court still has discretion to grant leave

Court has a large degree of judicial discretion Possible relevance of the SH vote CBCA 242(1) BCBCA 233(6):

o CAN SH APPROVAL (VIA A SH RESOLUTION) PREVENT A DA FROM BEING BROUGHT ? No; not on its own. Evidence of SH approval should not be the sole reason for staying or dismissing a DA: CBCA 242(1) DAs require a prima facie case that there was a breach of a duty that is the subject matter of a valid

complaint – under BCBCA 233(6): No application for a DA can be stayed or dismissed merely b/c the transaction was approved by SH resolution; the court may consider the evidence of a SH

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resolution when making its order NB: statute does not contemplate SH approval being an excuse for oppression

WHAT POWERS DOES THE COURT HAVE TO MAKE ORDERS? (ALSO IN REGARDS TO LEGAL FEES) General ability to make orders: The court can make whatever order it wants to w/ a DA, including, an order

authorizing the C to control the conduct of the act; an order giving directions for the action; an order that any amount payable by the D should go directly to any present and former security holders; and an order requiring the corp or subsidiary pay reasonable legal fees incurred by the C: CBCA 240 BCBCA 233(4) (these orders can be applied when the action is pending or on final disposition – this is different from the BCBCA)

Directions and control of action: BCBCA 233(3)(a) CBCA 241(a)(b): various orders how leave is going to happen (who prosecutes or defends in the name of the corp)

Payment to security holders: CBCA 240(c) BCBCA 233(4) (not set out in BCBCA) Orders regarding costs and expenses: BCBCA 233(3)(b) may cover legal fees and disbursements. BCBCA 233(4)

on final disposition, the court can make any order it considers appropriate (included paying back individuals for costs – but remember Turner).

o CBCA 240(d): can require to pay reasonable legal fees incurred by the C o The court can order the corp or its subsidiary to pay the complainant interim costs, including legal fees and

disbursements, but the C may be held accountable for those on final disposition of the action: CBCA 242(4) BCBCA 233(5) CBCA 242(2) say that legal proceedings via a DA cannot be settled or dismissed w/out court

approval. o Why? B/c this action is claiming that there is an internal wrong in the corp and the court doesn’t want to

allow the corp room to commit another wrong in the form of a “sweetheart deal” where the complainants are convinced to discontinue the action

WHAT DOES THE APPLICANT NEED TO SHOW The A must be able to show some evidence which prima facie shows that it’s in the best interest of the corp – don’t

have to prove or give evidence of a prima facie case (on basis of E that is reasonably available to you, that there is something about this that requires an investigation and there is a strong possibility that something happened that should involve some sort of litigation): Re North West Forest Products Ltd

o The notice that must be given to the corp to start a DA must be particular and outline what went wrong and what it is that you want the corp to do to fix it

o The requirement of good faith is usually obvious and therefore, often combined with the 3rd requirement that it appear to be in the best interests of the corp (can show that the corp has a legal interest of some sort, and that the decision of the management is depriving the corp of this interest)

o Remember (before you begin this action) that it is quite difficult to establish evidence that the management has been incompetent

o Under BC you need to tell directors exactly what you doing (nature of your complaint and suggest hat they take this sort of action, unless you actually told them this info there is a very good chance you will have failed one of the pre reqs to take reasonable step to get the director to bring the action)

The Court merely has to be satisfied that it appears to be in the best interest of the corp, not necessarily that the DA itself will succeed. An arguable case must exist and discretion is broad – the court can use CL logic.: Re Bellman and Western Approaches

o CBCA 239(2)(a): Reasonable notice does not require every possible CoA to be included – the failure to specify all possible CoA will not of itself invalidate the notice as a whole

o CBCA 239(2)(c) (best interest): what is sufficient at this stage is that an arguable case be shown to subsist; quite different from the rules at CL; one must first look to the decision of the directors who, having been given reasonable notice by a C in good faith, decide not to asset a corp right of action (refused in this case)

o Even though directors sought outsider advice this shouldn’t have been taken behind closed doors, even if right decision it would still lead rumours and suspicions amongst SHs that it was inappropriate

o Court can order investigations to gather more info on the actions of the management where there is suspicion. In these cases, the SHs would require the courts help in order to allow access to info that otherwise might be kept internal.

SHOULD THE COST OF THE C BE COVERED? The purpose of DA is not to benefit the P more than the company – litigation costs shouldn’t be recovered for

personal matters: Turner v Mailhot o Financial inability to carry on an action would weigh heavily in favour of a grant of indemnityo Should the cost of the indvl C be covered? Should the court make that order? Court says not automatic, you

need to convict the court. Certain presumption you will get the costs but you are not guaranteed o Costs are usually awarded at the end, but the court will also look at what extent the Cs who bore the cost

will benefit from any awards granted to the corp. If it’s a “white knight,” then costs will likely be entirely

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reimbursed. However, if the SHs who launch the action will be the primary beneficiaries if the corp is successful then courts likely won’t give complete indemnity. D’s may be forced to pay the costs

JEFFERY MACINTOSH, “BCE AND THE PEOPLE’S CORPORATE LAW: LEARNING TO LIVE ON QUICKSAND”

Until Peoples and BCE, derivative actions defined as SHs hurt co-equally and indirectlyo Reflective of “the corporation” meaning SHs – since it was brought on behalf of the corporation

In contrast, personal actions arise when single SH or subset of SHs injured However, after BCE corpo was not to be confused with any single subset of stakeholders

o How can one demonstrate injury to corporation then?o It was obviously not enough show injury to one constituency

What evidence must be adduced to show harm to the corporation? Which constituencies and how many of them?o Not answered clearly in BCE

THE PERSONAL ACTION REMEDY = DAMAGESThe personal action: where somebody feels personally aggrieved, they can claim against the company or against whoever owed that person the duty at issue. SHs often join their personal actions in class actions. Successful personal actions are often the basis for derivative actions as well. Most often now brought under oppression remedy.

A personal action traditionally lies when a SH(s) have some complaint that is not shared by all the other SHs Ex: the wrongful refusal of the directors to allow certain SHs to vote their shares in a corp election (that is a wrong that

is unique to the complaining SHs) personal rights examples: right to receive timely and informative notice of company mtgs, the right to vote, the

right to have a properly executed proxy accepted and the right to inspect certain of the corp's records The fictional legal entity is viewed by the courts as an unbreachable barrier behind which the directors are safe

from personal SH attack – but directors act in a variety of capacities Directors can act improperly not just in a breach of duty by the agent, but in causing the company to perform a corporate act in an improper or irregular manner to the direct detriment of the SHs

A breach of the DoC can found a personal action – where a legal wrong is done to SHs by directors or other SHs, the injured SH can bring a personal action: Goldex Mines

o If the injury is not incidental to an injury to the corp, an indvl CoA exists not arising simply b/c the corp itself has been damaged, and as a consequence of the damage to it, its SHs have been injured

o The circulation of an annual report to SHs, accompanied by a solicitation on behalf of the directors of the SHs' proxies, is a wrong to SHs as such, affecting their own personal rights (not DA)

o If you are a 3rd party stakeholder, and you wish to bring a personal action, you need to show that the duty breached was also owed to you personally

o In Goldex Mines, the Ps failed to show that the duty was also owed to them personally, and were therefore prevented from bring a personal action

Auditors had no DoC to individual SHs, and this loss from the correct preparation of financial statements was an action only the corp could bring – where, however, a separate and distinct claim can be raised w/ respect to a wrong done to a SH, a personal action could exist simultaneously: Hercules Management

o Can the SH complain personally to bring action against auditors who allowed the statements to be prepared that they were negligently prepared? the court said no -they were prepared confident way for benefit of the corp and the statements are owed to the corp to prepare in a non negligent way so SH not allowed personal claim

THE STATUTORY OPPRESSION REMEDYWHO USES THE OR?

Used most successfully for closely held corps (Ferguson) probably b/c the expectations here are higher. In a widely held corp, it’s easier to get lost in the crowd. Note, BCE was a widely held corp and the argument wasn't successful.

o Claims are generally brought w/respect to private, closely held corps where 1 person is being targeted. They can be brought against public corps, but are generally unsuccessfully due to the leeway granted to directors.

the OR has a broader substantive trigger (in essence fairness) and broader remedies, and is therefore more P friendly

FD is owed to the corp but nonetheless a breach of FD may well be the K for the statutory oppression claim that is personal. This is a form of personal action, as it is brought in the name of the SH and not the corp

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The OR has, in the eyes of some, overwhelmed other actions, including personal actions (intentional) and derivative claims (unintentional).

Statute picked up on the “fraud on the minority” exception from Foss and Harbottle and has expanded it to focus on the general protection of minority interests from the majority benefiting at their expense

WHEN IS IT APPROPRIATE TO USE?1) controlling directors unreasonably refuse to register transfers of the minority's holdings to force a reduced sale price for them to take advantage of; 2) where directors award themselves excessive remuneration that diminishes the funds avail for distribution dividends; 3) to prevent the issuing of shares to directors and others on special or advantageous terms; 4) to prevent the refusal to declare non-cumulative preference dividends on shares held by the minorityWHAT ARE POSSIBLE APPLICATIONS UNDER THE OR?

Steps to squeeze out SHs - often by other SH not directors etc. Failure to provide info or allow access - particularly when one SH (or class) is singled out Clear differentiation/discrimination between SH - particularly when majority are benefitting at expense of minority

(where the share structure doesn’t allow for it) Directors’ bad faith that has negative consequences for SHs In context of takeover bid – failure to set up arms length mechanism for making particular decisions (outside

committee etc.) – SH might argue oppression if not done. Greed - someone being paid too much or taking assets “fraud on the minority” Oppression remedy is swallowing up the law of fiduciary duties:

o Any breach of fiduciary duty is almost certain to be characterized as oppressiono Oppression remedy offers a broader substantive cause of actiono Remedies available under oppression remedy are broadero Courts have allowed derivative type actions to proceed under oppression remedy

Conduct of officers not explicitly countenance by the oppression provision, but it does embrace any conduct of the corp that is oppressive (acts of senior officers are acts of the corporation)

o Acts of officers that are breaches of fiduciary duty are also drawn into the oppression remedyWHO CAN SEEK THE REMEDY?

Complainant under BCBCA 227(1) is a SH, director, beneficial owner of a share or the company or any other person whom the court considers an appropriate person

Under the CBCA 238 a current or former registered holder/beneficial owner of a security of the corp or any of its affiliates, a current or former director or officer of a corp or any of its affiliates, the director or any other person the court deems a proper person to make an application

HOW TO BEGIN THE ACTION? CBCA 241(1) BCBCA 227(2) A C may apply to the court for an order under this section

WERE YOU OPPRESSED?1. Look to the principles underlying the OR, and in particular the concept of reasonable expectations. Does the evidence support the reasonable expectation asserted by the C?

BCBCA 227(2): offers protection from threatened acts, but doesn’t list the ground of “unfairly disregards” and is arguably narrower in scope, you have to base your claim in that the conduct was either:

A) Oppressive (company or director’s action (past or present, NOT future) oppressive to the SH(s)- including applicant)

o Person complaining has to be one of the people affectedb) Unfairly prejudicial (past or future act of company or SH resolution is unfairly prejudicial to SH(s) -including applicant)

o Since this is an act of the company, its much more likely that the company will be the defendant. CBCA 241(2): Applies to isolated acts and does not require continuing course of conduct A) any act or omission of

the corp or any of its affiliates effects a result,(b) the business or affairs of the corp or any of its affiliates are or have been carried on or conducted in a manner, or (c) the powers of the directors of the corp or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer

o POSSIBLE RELEVANCE OF SH VOTE: Evidence of SH approval should not be the sole reason for staying or dismissing a derivative action: CBCA 242(2)

Comparing CBCA 241 and BCBCA 227: CBCA is easier to get protection (unfairly disregarded is a low threshold), and the CBCA case law merges the oppressive, unfairly prejudicial, and unfairly disregarded into 1 category. This is not the case under the BCA (all separate categories) (See Re BCE). Also, in BCA people have to go through the extra step of being “the appropriate person to bring a claim,” not the case in the CBCA.

CL CONSIDERATIONS Basis of claim is unfairness Consider reasonable expectations (having both subjective and objective components) of party or class and

whether action done or not done unfairly infringes those expectations

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Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms of a relevant interest?: Re BCE Inc

Case appears to merge the 3 categories in the CBCA into one sense of inappropriate conduct, called “The Breach of Reasonable Expectations.” The question becomes, would this be appropriate in the context of the BCA? Unlikely

You don’t have to in order to claim to point to a specific right or duty outside the remedy; reasonable expectation is enough to trigger the OR

o The fact that a corp fails to comply w/the requirements of the CBCA does not on its own constitute oppression (Mennillo)

What may trigger the reedy is conduct that frustrates reasonable expectations, not simply conduct that is contrary to the CBCA

Need to point to specific action (cannot make broad/general claims) that is prej; if what happens fulfills/consistent with your expectations or what you said you wanted/how you wanted to be treated, CANNOT you claim oppression

They jumped the gun but they weren’t doing anything wrong b/c it was what you wanted, not a breach if it something you said you wanted ; also true that there is a procedure that should be followed (it wasn’t followed and this is what the dissent says)

He could have changed his mind (Mac not as content with the majority saying this is a technicality and the corp was fulfilling your expectations; do we know these were for sure his expectations b/c the SH didn’t trigger the mechanism for the buyout)

Directors’/officers’ FD is owed to the corp- nonethelsss breach of FD may well be context for statutory oppression claim that is personal Re BCE Inc

o Remember that directors need to keep the reasonable expectation in mind when exercising their FD to the corp

IS LEAVE/CONSENT OF THE COURT REQUIRED? To end action: BC does not have one; CBCA 242(2)

WHAT ARE THE POSSIBLE ORDERS? The remedies available are very broad - there is very little that can be accomplished w/a derivative claim that

cannot be done with an oppression claim. o The saving grace for the DA used to be that certain things had to be claimed in this way (such as breach of a

FD). But the shift in the jurisprudence requiring the consideration of SH interests w/in the FD has undermined this barrier. The DA will not completely disappear as it still has some advantages, but it has been displaced to some extent.

Any order court thinks fit: BCBCA 227(3) CBCA 241(3) Various listed possibilities: compensation, restraint, buy-out, liquidation, rectification of records, receivership,

variation of transactions, appointing/removing directors BCBCA 227(3) lists them all o The court can order the corp or its subsidiary to pay the C interim costs, including legal fees and

disbursements, but the C may be held accountable for those on final disposition of the action: CBCA 242(4) Certain constraints relating to financial health of corp: BCBCA 227(5)(6) CBCA 241(6) CL considerations: order should remedy the oppression/unfairness and no more; court should bear in mind

reasonable expectations of various parties Naneffo Ferguson v Imax Systems Corp:o Couples created corp; corp succeeded; husbands had voting shares; wives had preferential (access to

dividends if declared); one gets divorce – wife actively involved in success of corpo (her and 3 husbands); the husbands ganged up on her during divorce – instituting resolution requiring her to divest shares in corp

o She was integral and had an expectation to continue in this way in the corp; expected not to be squeezed out or deprived of financial interests. Court decided her interest were unfairly disregarded and prejudiced. The appropriate remedy was to try and remain involved in the corp – she did not want to be bought out and that was not what she expected. :. The court ordered an injunction

o What the expectations might be; what went wrong; sorting out appropriate remedy the 3 things you should look for/ consider when determining what remedy to use. The court looks at the expectation the SH has and what remedy would be best suited to remedy these expectations or the harm done as a result Naneff + Ferguson illustrate this

Attempt to use liquidation: Oppression is not simply a codification of the CL standard – it is broader and should be interpreted as such in an enabling manner. Each case turns on its own facts – what is oppressive or unfairly prejudicial in one case may not necessarily be so in the slightly different setting of another. The relationship btwn the parties is important (can also apply in closely held corps), and court should bear in mind the reasonable expectations of various parties (Naneff v Con-Crete Holdings Ltd) – look to the history of transactions, is the impugned corp action bona fide?:

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o A man, 2 sons who held shares and were involved in management functions of corp – father had final word though; 1 son entered into relationship w/employee of corp; father did not approve; insisted relationship end; when he didn't, took steps to squeeze him out of the operation of the business

o Lower court ordered liquidation. Upper court overturned this. It was always known that the father had most of the control. Liquidating would step on the expectations of others in the company. Instead, the court said that the son should be bought out.

Oppression is an equitable remedy – it gives a court broad, equitable jurisdiction to enforce not just what is legal, but what is fair: Wright v Donald s Montgomery Holdings Ltd. What is just and equitable is judged by the reasonable expectations of stakeholders in the context and in regard to the relationships at play – it is fact specific.

The “just and equitable” provision enables the courts to subject the exercise of legal rights to equitable considerations of a personal nature arising btwn 2 indvls if these equitable considerations would make it unjust to insist on legal rights or to exercise them in a particular way. Ebrahimi v Westbourne Galleries Ltd

o SHs may owe each other equitable duties, these duties are grounded in SH expectations and our subsequent Canadian case law says said these need to be reasonable.

o In certain corps the relationship will be akin to a partnership in its nature (ex w/3 people going into a business of a common enterprise with = say). Though you’re dealing with a corp not a partnership, those characteristics of a partnership should somehow be reserved, this helps in arguing the statutory oppressing remedy, b/c although not a partnership, your expectation was that you would be treated as if you were a partner with the others and not somehow be excluded

Wording grants the court a broad power to do justice and equity in the circumstances, where a person, who otherwise would not be a “complainant” ought to be permitted to bring an action.

o 2 possible reasons to allow creditors standing (not exhaustive): 1) The act/conduct of management constitutes using the corp as a vehicle to commit fraud on the applicant, 2) The Act/conduct of management constitutes a breach of underlying expectation arising from the circumstances of the applicant’s relationship (like the BCE test) – must be a registered or secured creditor – the oppression remedy is broad, but not meant to be available to everyone: First Edmonton Place Ltd

o no reason why landlord couldn’t have reasonable expectations of the tenant ; court took generous approach of proper person; court generally open to people being proper persons First Edmonton Place Ltd

Bury v Bell – USA agreement context o USA where there was an investment corp. If someone wanted to be an investment advisor, they had to be a

SH of the corp and you couldn't be an advisor of another :. You had to be bought out to move to another corp. USA said that you might have to wait up to a year to be bought out.

o Court held oppression here. This is despite the fact that he signed onto the USA. B/c the way it was implemented, in this context, it was oppressive.

COMPLIANCE AND RESTRAINING ORDERS (INJUNCTIONS) The compliance remedy is limited merely to mechanistic provisions (not intended to provide a quick procedural or

summary method for the type of questions that are meant to be decided under larger actions, this is mean to remedy smaller matters): Goldhar v Quebec

To the extent that the statute sets out the basis for this, this is really the CL. What is significant is that the statute allows for the court to make any other order that it thinks appropriate, including a and b (the usual orders that you would get for an injunction) in BCA, but CBCA is similarly worded. Thus, in the same context of seeking an injunction, you can ask the court for more – but courts usually won’t let you bring a case somewhere if you are really claiming something else (beyond injunction)

WHO CAN SEEK THE REMEDY? BCBCA 228(1) defines complainant: SH or appropriate person CBCA 247 BCBCA 228(2); allows a director, officer, employee, agent, auditor, receiver, trustee, liquidator to seek a compliance or restraining order against a variety of persons relating to abrogations of the statute,

regulations, articles, by-laws, or a USA The compliance provision does not confer any alternative, concurrent, or complimentary rights to those contained

in the DA – if the corp is the proper entity to be bringing the action, then the compliance provision can’t be used and a DA must be sought.

TEMPORAL CONSIDERATIONS Existing actions: BCBCA 228(c) CBCA 247 Future actions: BCBCA 228(2) probably implicit in CBCA 247 If a company or any director, officer, SH employee, agent, auditor, trustee, receiver, receiver manager or liquidator

of a company contravenes or is about to contravene this Act, articles, regulations, etc, a C may also apply to the court for an order that the person contravening comply with or refrain from contravening: BCBCA 228

COURT ORDERS Any appropriate order: BCBCA 228(3) CBCA 247

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Declaration of contravention: BCBCA 228(2); CBCA not set out Restraint order: BCBCA 228(2), 3(a) CBCA 247 Compliance order: BCBCA 228(3)(a) CBCA 247 Prohibitory injunction: BCBCA 228(3)(b) CBCA 247 Compensation paid in ultra vires K context: BCBCA 228(3)(c); CBCA n/a

CORRECTION OF MISTAKE WHEN?

Omission, defect, error or irregularity Relating to conduct of the business Causing statutory breach, default in compliance, or ineffective procedure BCBCA 229 allows for the correction of a corp mistake – court may make an order to correct an omission, defect,

error or irregularity in the conduct of the company that leads to a breach of the Act, causes non-compliance w/ the memoranda or articles or renders ineffective a SHs’ or directors’ meeting – court has wide powers to rectify such a mistake; NOTE NOT IN THE CBCA

o Broadest remedy that you can ask for in BC WHAT CAN THE COURT DO?

Correct, negative, or modify the consequences; Validate actions; Give directions Despite any other provision of this statute , the court either on its own motion or on the application of any

interested person, (nothing here about being a SH to an appropriate party) can go to court and the court can make an order to correct/modify etc. a corp mistake OR can also validate said corp mistake: BCBCA 229(2)

The effect that the order might have on the company and on its directors, officers, creditors and SJs and on the beneficial owners of its shares: BCBCA 229(3)

Unless the court orders otherwise, these orders should not prejudice 3rd parties who acquire rights for valuable consideration and without notice of the corp mistake: BCBCA 229(4)

THE APPRAISAL REMEDY (DISSENT PROCEEDINGS)- ONLY FOR SH OBVIOUSLY Certain types of decisions are made in the context of the corp; might go to the heart of the nature of the business or

the things its involved in. If you don't agree, you should not be required to remain a SH in that corp; you should be able to be bought out.

o If your shares are the type that can be sold on the market, you can just go out and sell them; Thus, in practice, it is used for private companies or closely held corps. This is thus a mechanism for creating a market for you when one doesn't actually exist

The CBCA says that for these types of decisions, all SHs get a vote. Under the BCA, you are not given a vote, but you are allowed to dissent For these matters all SHs get notice OR if decided by consent resolution OR if the decisions has already been taken (although it shouldn't), you are given the ability to dissent after the fact. If you are going to dissent, under BCA you have to dissent completely – that is you must be bought out entirely. Under the CBCA, you have to indicate which class of your shares you are dissenting and then w/respect w/that class of shares you have to be bought out entirely.

WHAT IS IT/THE PURPOSE? The right of a SH to require the company to purchase his shares at an appraised price if the company takes certain

“triggering” actions from which he dissents This works as a device to reconcile the majority's need to adjust to changing economic conditions with the right of

the members of the minority to refuse to participate in ventures beyond their initial contemplation Intended to avoid the CL difficulties of trying to restrict an abuse of power detrimental to minority SHs by the

directors or by majority SHs where SH approval is required As a rule, it will only arise in situations involving major structural changes, often described as fundamental changes,

and while the enterprise is continuingo Private company SHs can only sell to the majority and public SHs have the market

Serves as a check on management to force the insiders to tailor their plans to minimize the number of dissenters by getting the best deal possible

Most difficult task is to define the appropriate class of triggering events Critiques: it ill-serves the SH who uses it since the legal technique is laborious, slow, technical and expensive and

the awards unpredictable; it creates a drain on cash flow at a critical time (but if the remedy is slow then the award will likely be made after the enterprise survives its critical period), it frightens creditors and suppliers (no evidence to support this) and uncertainty is created by the unknown number of dissenters

WHO CAN BRING THIS CLAIM? Narrow group of people: the only person who can claim that your share be brought back is the SH BCBCA 237 (1): Dissenter: shareholder who is entitled to do so, sends a notice of dissent as per 242

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CBCA 190Holder of shares WHAT CONTEXT CAN THE DISSENT OCCUR IN?

Specified corp, decisions, actions, proceedings: BCBCA 237(2) (applies to any right of dissent exercisable by a SH)

o A SH of a company, even if they don’t have voting shares, is entitled to dissent as per BCBCA 238(1) For example: amalgamation, continuing in another jurisdiction, or altering the articles

o A shareholder may dissent in the scenarios outlined in CBCA 190(1) For example: amend its articles, be continued, or amalgamate (big decisions)

A SH can’t waive their right to dissent generally, but can, in writing, waive the right to dissent to a particular corp action: BCBCA 239(1)

No partial dissent: o A beneficial owner who wants to dissent must dissent w/all their shares where they are both the registered

and beneficial owner and cause each person who is the registered owner of their beneficial shares to also dissent w/ those shares: BCBCA 238(3)

o CBCA190(4) have to dissent with respect to the class of shares No dissent if vote in favour of matter:

o CBCA 190(1); BCBCA 246(g) WHAT IS THE BCBCA PROCEDURE?

1. A SH wanting to dissent must prepare a separate notice of dissent for themselves and each person who beneficially owns shares registered in the SH’s name and on whose behalf the SH is dissent: BCBCA 238(2)

2. After notice is given about the matter giving rise to right to dissent (BCA, s 240) in advance; then SH intending to dissent must send notice of dissent (BCA, s 242) If a resolution is one which a SH is entitled to dissent, the company must, at least the prescribed # of days

before the meeting, send to all the SHs, regardless of right to vote, a copy of the proposed resolution and a notice of the mtg containing a statement advising of the right to send a notice of dissent: BCBCA 240(1)

If the resolution is to be passed as a consent resolution or as a resolution of directors and the earliest possible date it could be passed is specified in the resolution, the company may, at least 21 days before the specified date, send to all the SHs, regardless of right to vote, a copy of the proposed resolution and a statement advising of the right to send a notice of dissent: BCBCA 240(2)

o If a resolution was or is to be passed as a resolution of SHs or directors and didn’t comply w/ 1) or 2), the company must, before or w/in 14 days after the passing of the resolution, send to all the SHs who didn’t consent or vote in favour, regardless of right to vote, a copy of the resolution, a statement advising right to dissent and if the resolution passed, notification of that and the date it passed: BCBCA 240(3)

3. Company sends notice that it has proceeded notwithstanding BCBCA 2434. Dissenting SH gives notice of completion of dissent BCBCA 244

o If a dissenter receives a notice under 243 and intends to proceed w/ the dissent, they must send to the company, w/in a month after the date of the notice, a written notice that the dissenter wants to company to buy all its notice shares, the certificates of those shares: BCBCA 244

o If they do this, the dissenter is deemed to have sold their notice shares and the company is deemed to have purchased those shares BCBCA 244(3)

5. Company and dissenter agree on payment BCBCA 245(1)OR:

1. Application to court to determine value BCBCA 245(2)2. Company must pay promptly BCBCA 245(3)

If they don’t agree on the payout value, the company may apply to the court to determine the amount and then the company must promptly pay that amount or if (5), send a notice to the dissenter that the company is unable lawfully to pay dissenters for their shares: BCBCA 245(2)&(3)

3. Exception if company insolvent BCBCA 245(5)Note: procedure between the two are same. WHAT IS THE CBCA PROCEDURE?

1. SH sends notice objecting to resolution CBCA 190(5)2. Corp sends notice that reolustion has been adopted notwithstanding

The corp must send the dissenting SH notice that the resolution has been adopted w/in 10 days of its adoption, unless those SHs voted for the resolution or withdrew their objection: CBCA 190(6)

3. SH demands payment for shares: W/in 21 days of receiving a notice under (6) or of learning of the adoption if there was no notice, a dissenting SH must send the corp a written notice w/their name and address, the # and class of shares that they dissent w/ and a demand for payment of fair value: CBCA 190(7); you have to demand payment ie a complete dissent

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4. Corp sends offer : No later than 7 days after the action approved by the resolution is effective or when they receive notice from (7), send to each dissenting SH who sent a notice a written offer to pay for their shares in an amount the directors consider to be fair value, with an explanation of how that value was determined, or a notification that it can’t pay for their shares if (26) applies: CBCA 190(12)

5. SH accepts and corp pays CBCA 190(14)OR:

1. If no offer sent or no acceptance, court application CBCA 190(15)(16)(20)2. Exception if solvency concerns for corp CBCA 190(26)

WHAT IS THE VALUE OF THE DISSENTING SH’S SHARES? Domglas Inc v Jarislowsky, Fraser & Co: four approaches to valuation:

o Market value – market priceo Assets approach – analyzes the fair market value of the net assets of the corporationo Earnings or investment value approach – expected earnings of the corporationo Mix of each

Smeenk v Dexleigh Corp: valuation principles:o The court must itself value the shares – no onus on the applicantso The court must proceed on the basis of evidence offered by the parties

1. however, any party who asserts a proposition must prove it on the BoPo Valuation of shares under s190 of the CBCA is a matter of assessment in accordance with the facts of the

particular case (whether the corp is publicly traded and at what volume, the ease of asset valuation, and the likelihood of liquidation)

ii. The advantages of hindsight are not available to the court or the applicantsiii. The applicants are not entitled to obtain the benefits of the amalgamation, having dissented from

the transactionHOW DOES COURT DETERMINE THE VALUATION METHOD TO USE?

Court has discretion to select a valuation method to use: Can only proceed on the evidence offered (though you aren’t required to bring evidence, it could be advantageous)

Definitions: BCBCA 237b. Dissenter: shareholder who is entitled to do so, sends a notice of dissent as per 242c. Notice shares: the shares in respect of which dissent is being exercised under the notice of dissentd. Payout value (unless the court orders otherwise, remember they have discretion):

i. Dissent of a resolution: fair value that notice shares had immediately before the resolution passedii. Dissent of an arrangement approved by court order under 291(2)(c): fair value that the notice

shares had immediately before the resolution passed adopting the arrangementiii. Dissent of an arrangement approved by any other court order: fair value that the notice shares had

at the time specified by the court order1. Doesn’t include appreciation or depreciation in anticipation of the corp action approved or

authorized by the resolution/court order, unless exclusion would be inequitableiv. A dissenting SH is entitled to be paid by the corp the fair value of the shares determined as of the

close of business on the day before the resolution was adopted or the order was made: CBCA 190(3)

WHAT EVENTS CAUSE A LOSS OF RIGHT TO DISSENT? BCBCA 246 lists them all

e. Shareholders are entitled to the return of their shares and rights in the various scenarios in BCBCA 247

** S 234:, if there is a legal proceeding against a director/ officer and court finds that person might be in breach of duty, the court can take into account all of the circumstances and decide that the person had acted fairly and reasonably. Thus, this can be used to make the problem go away. This is not a remedy available to a SH, but instead gives an excuse or relief to someone who is accused of doing something wrong.

INVESTIGATIONS CBCA easier than BCBCA Effective exercise of SH remedies (DA, OR) requires possessing the relevant info and presenting it in court Statutory aid: court-ordered investigation of the corp’s affairs where the SH-applicant can satisfy the court that

there are circumstances that warrant the court ordero Should be distinguished from the SH-appointed investigations which are mounted by a SHs’ resolution

Main role of an inspector is to discover facts (duh) Courts have been reluctant to order an investigation, especially where it appears that some other source of info is

available

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An investigation may be authorized in connection with an oppression action: CBCA 241(3)(m) The court may, on application of 1+ SHs who together hold at least 20% (1/5) of the issued shares of a company,

appoint an inspector and determine the manner and extent of the investigation: BCBCA 248(1) A security holder or the Director may apply to a court having jurisdiction where the corp has its registered office for

an order for an investigation of the corp or any of its affiliates: CBCA 229(1)o The reasons for which the court may make this order are outlined in BCBCA 248(3), CBCA 229(2)

Oppressive, unfair situations to shareholders, fraud, CCC, where CCC’s are connected in a manner contrary to the community purposes

o The court can order whatever it thinks fit including those outlined in CBCA 230(1) Order to investigate, authorizing inspector to enter any premises, require any person to produce

documents to the inspector, etc. A court ordered inspector must make a report for the court and send a copy to the company and whoever else the

court orders: BCBCA 253o CBCA 230(2) just requires it be sent to the Director

An inspector’s report is admissible in any legal proceedings as evidence of the opinion of the inspector: BCBCA 254

WINDING-UP Statutes provide for liquidation and winding-up to take place either voluntarily by a SHs’ resolution OR

involuntarily by court order A court can order even a solvent corp to be wound up – this is usually done in the context of the OR “Just and equitable rule” – each case must be decided on its facts and is construed liberally as it is an equitable

remedyo No general rule can be laid down as to when winding-up is ordered

Well-recognized reluctance on the part of the courts to interfere in the internal affairs of a corp – business judgment rule, etc – unless its conduct is so gross as to shock the conscience of the court

What circumstances constitute “just and equitable grounds” for winding-up?o Loss of substratum: Re German Date Coffee Company – a complete failure of the corporate objects o Justifiable lack of confidence: Loch v John Blackwood – there must lie a justifiable lack of confidence in

the conduct and management of the company’s affairs – lack of confidence must be grounded on the conduct of the directors in regard to the company’s business

o Deadlock: Re Yenidje Tobacco Co Ltd - a complete deadlock btwn the 2 parties, that the corpo could not continue to function

o The Partnership Analogy: Re Yenidje Tobacco Co Ltd – where the relationship btwn the parties to a corp is essentially that of a partnership, the principles for dissolution of a partnership should apply

A company, SH, beneficial share owner, director or any other person, including a creditor, that the court considers to be an appropriate person, may make an application and the court may order the company be liquidated and dissolved if an event occurs that, BCBCA 324:

o 1) The articles states leads to the company being liquidated (corp did what it was supposed to do) o 2) Dissolved or the court otherwise considers it just and equitable : iscussed in Ebrahimi – closely

connected with CL oppressiono What is just and equitable?

Closely connected with oppression :. Fairly rare for this one to be used; probably use oppression because you might get it wound up plus another remedy

o Usually use it if there is a stalemate/ deadlock in management (nobody is making a decision; cant or wont decide)

CBCA 214 is not limited to the “just and equitable” ground A court may order the liquidation and dissolution of a corp on the application of a SH if the court is satisfied any act

or omission of the corp have resulted in, the business affairs have been conducted in a manner or the powers of the directors have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer or if a USA entitles a complaining SH to demand dissolution or it is just and equitable: CBCA 214

On a winding-up application, the court is not limited to a decision btwn winding-up and doing nothing – can also order a remedy for relief as applicable under the OR

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