Canada: Good Reasons To Incorporate In British Columbia

There are many good reasons to incorporate under British Columbia's Business Corporations Act (BCA), which came into force in March 2004. Although the BC BCA has some similarities to the Canada Business Corporations Act (CBCA), it also includes a number of unique features and contains flexibility not found in the CBCA or other Canadian provincial corporate statutes.

The following are a few of the reasons to consider incorporating your company in British Columbia:

1. Director Residency and Privacy

Under the CBCA, at least 25 per cent of a corporation's directors must be residents of Canada. This often puts foreign businesses with Canadian subsidiaries in the uncomfortable position of having to choose between elevating an otherwise unqualified Canadian-resident employee to the position of director or asking their lawyer to act, which many lawyers are hesitant to do. The residential address of each director of a CBCA corporation must be set forth in the forms that are filed and publicly available under the CBCA.

The BC BCA does not contain any residency requirements for directors. In addition, under the BC BCA, directors are afforded privacy of their residential address as they may use their office address rather than their residential address in publicly searchable databases.

2. Flexibility in Tax Planning

The BC BCA provides flexibility in corporate and tax planning by:

  • permitting par value shares;
  • permitting companies to hold their own shares and permitting subsidiaries to hold shares of their parent company;
  • permitting fractional shares;
  • providing for optional court approval for amalgamations (which may be advantageous in qualifying for United States securities registration exceptions); and
  • providing for inter-jurisdictional amalgamations.

3. Flexibility in Alterations

Under the CBCA, the majority required to pass a special resolution is fixed at two-thirds. The BC BCA allows companies to choose any level of majority between two-thirds and three-quarters. Also, under the BC BCA, a company's articles may give the directors the power to effect capital alterations and amendments to the articles without shareholder approval. Finally, the BC BCA permits share rights that are accessible only to particular shareholders of a class of shares. For example, a share may have ten votes when held by one shareholder — but only one vote when held by another shareholder. These are powerful tools to consider when structuring the share capital of a company that will have more than one shareholder.

4. Unlimited Liability Corporations

British Columbia is one of only three Canadian jurisdictions that provide for unlimited liability corporations (ULCs), the other two being Alberta and Nova Scotia. ULCs have been used by United States-based companies for tax advantages. Recent amendments to the Canada-United States tax treaty have largely eliminated these advantages, as discussed in an article in our August 2009 issue and in another article of the Business Law Quarterly. However, to the extent that ULCs remain a useful vehicle, there are several reasons that the BC BCA is preferable to the other statutes, including low annual fees for ULCs and flexibility regarding directors' residency and corporate reorganization.

5. Waiver of AGMs and Financial Statements

The BC BCA allows companies to waive, by unanimous resolution of the shareholders, the requirement to hold an annual general meeting or any previous annual general meeting. Moreover, under the BC BCA, companies are not required to file financial statements with the registrar (though they are required to keep them in the records office) and private companies may waive, by unanimous resolution, the requirement to produce and publish financial statements.

Broad Powers of Rectification

Both the CBCA and the BC BCA provide for the rectification of errors in a company's records by court order or application to the applicable corporate registration. However, the BC BCA also provides for a broad remedial power under which a court may correct "corporate mistakes" — a broader power to correct errors in the conduct of a company's business or affairs. The BC BCA also provides for the correction, by unanimous resolution, of errors in the creation, allotment or issuance of shares. This simple method of confirming the issued and outstanding share capital can save thousands of dollars in court costs in the event a serious error is discovered.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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