The Government of Alberta recently passed Order in Council 135/2017 (the Recent Amendments) which amends the Alberta Investor Tax Credits Regulation (the Regulations) and makes the Alberta Investor Tax Credit (AITC) program significantly more appealing for Alberta small businesses seeking to benefit from the AITC program.
Recent Amendments
The Recent Amendments improve the AITC program in three significant ways. Briefly, the Recent Amendments:
- Remove the requirement to obtain shareholder approval to pay salaries and other compensation to founders, shareholders, directors and officers of Eligible Business Corporations (EBCs).
- Remove provisions which disqualified EBCs and Venture Capital Corporations (VCCs) from benefitting from the AITC program if the EBC or investee company, as applicable, had previously received funds from the Alberta Enterprise Corporation (the AEC).
- Provide guidance on provisions which disqualified companies from registering as VCCs if they had previously carried on business.
Removal of restrictions on payments to founders, directors and officers of EBCs
Prior to the Recent Amendments, Section 5(1) of the Regulations required both EBCs and VCCs applying for registration under the AITC program to have a provision in their articles of incorporation which states that "fees or remuneration of any kind to any shareholder, director or officer of the corporation, or to any affiliate or associate of those persons, are prohibited except as permitted by an annual ordinary resolution." This restriction applied to payments to founders and any employees who were also shareholders and could have resulted in the absurd circumstance where founders and "shareholder-employees" would be unable to be paid a salary.
The Recent Amendments modify Section 5(1) of the Regulations to apply only to VCCs, and not EBCs. This is a sensible approach which follows traditional corporate law where compensation decisions are made by those in management rather than the shareholders. Additionally, the procedure to amend a corporation's articles of incorporation can result in significant cost and create an administrative burden for emerging companies aiming to qualify as EBCs.
Removal of restrictions on receiving funding from AEC
The Recent Amendments also recognize that accepting funding from the AEC and receiving the benefits of the AITC program should not be mutually exclusive. Both programs are generally aimed at the same group of companies. The previous prohibition on accepting money from the AEC also created a conceptual problem for small businesses, which accepted subscriptions from venture-capital firms partially backed by the AEC. It was at least arguable that such small businesses would not be eligible for the AITC program under the old rules.
Guidance to VCCs on previously carried on business
Lastly, the Recent Amendments provide some guidance to VCCs on what prior business activities would disqualify them from the program. If a company has raised funds from investors or has made any investments, then it will be considered to have previously carried on business and will be prohibited from registering as a VCC.
For additional information about the AITC program, please refer to our previous article.
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