The Québec Business Corporations Act (QBCA) will come into force on February 14, 2011. How will this "new" statute affect companies previously incorporated under the Québec Companies Act (QCA)? The following is a summary of the principal provisions and their potential impact on your company.
Companies incorporated under Part IA of the QCA will automatically become subject to the QBCA on the date it comes into force. It will therefore not be necessary to file articles of amendment or continuance. Companies incorporated under Part I (approximately 5,000 currently exist) will have up to five years to be continued under the QBCA.
Streamlining for corporations with a sole shareholder
Shareholders of such a corporation will be able to dispense with the holding of the annual meeting, the appointment of auditors and the filing of financial statements in accordance with GAAP, thereby reducing their record-keeping costs.
A more competitive statute
While certain other Canadian provinces had amended their corporate statutes in recent years in order to attract foreign investments (such as Nova Scotia, for example, which pioneered "unlimited liability companies"), the Québec Legislature had preferred to maintain the status quo. Now, thanks to the advice of a task force which submitted its recommendations to the Québec Legislature, the latter agreed to bring together, in the new QBCA, a multitude of elements drawn from various jurisdictions, with a view to making Québec a sound choice for the incorporation of entities used in the international arena.
Greater rights for shareholders
In a manner very similar to the Canada Business Corporations Act, the QBCA now offers specific rights and recourses to shareholders (particularly minority shareholders). These include the right to have one's shares repurchased (right of dissent), the ability to institute derivative actions in the corporation's name, the right to seek the rectification of abuse of power or iniquity (oppression remedy) and the requirement of prior shareholder approval when a corporation sells more than two thirds of its assets.
How will this affect you?
Although continuance under the QBCA will be automatic, certain changes may require you to amend important corporate documents. The following are some items you should consider:
- the obligation to declare to Québec's enterprise registrar, in the annual declaration, the existence of a unanimous shareholders' agreement, namely an agreement designed to limit or withdraw the powers of the board of directors. The QBCA provides that any creditor of a corporation will henceforth be entitled to obtain a copy of the unanimous shareholders' agreement. It will therefore be highly desirable, for strategic reasons and for purposes of confidentiality, to split existing agreements so as to have one agreement containing the provisions that withdraw the powers of the board of directors and another separate and confidential agreement containing the provisions relating to shareholders' dealings among themselves.
- bearer shares will have to be replaced with registered shares.
- the possibility of creating separate classes of shares, even if they have identical characteristics. This will be particularly useful for certain tax planning strategies involving income splitting.
- the possibility for a QBCA corporation to be continued under another statute and the possibility for a corporation incorporated under another statute to be continued under the QBCA, an option which may prove highly practical for corporate reorganizations in which amalgamations are being considered.
- the abolition of the accounting and solvency tests when a corporation grants financial assistance to a shareholder.
- the absence of a residential requirement for directors has not been changed.
- the review of the corporation's by-laws[NOTE DE LA TRADUCTRICE : J'ai enlevé le texte en parenthèses, car en anglais "by-laws" est utilisé pour traduire "règlement intérieur" ainsi que "règlements généraux", de sorte que le texte entre parenthèses n'est pas applicable en anglais.] so as to adapt to the new provisions of the QBCA and benefit therefrom.
The coming into force of the QBCA will have a positive impact on the vast majority of corporations incorporated under Québec law. However, since certain characteristics of the QBCA will have a direct impact on your company, in the short or medium term, we invite you to contact a member of our Business Law Group in order to determine the exact nature of this impact and how we can help you.