March 3, 2011

Quebec company law gets a makeover

The new Quebec Business Corporations Act (the "QBCA") came into force on February 14, 2011, replacing Parts I and IA of the Quebec Companies Act (the "QCA").

The new QBCA contains several features that make it similar to its federal counterpart (the Canada Business Corporations Act), including increased minority shareholder protection, while also incorporating improvements drawn from other sources and maintaining certain advantages that previously existed in Quebec, such as the absence of a Canadian residency requirement for boards of directors.

The Act respecting the legal publicity of enterprises, which is more modern and adapted to the latest technology, came into force at the same time. This Act remains focussed on a corporation's obligation to register in the Enterprise Registrar (formerly called CIDREQ and now called MIRE) and to keep certain information up-to-date.

Effects on corporations governed by federal law or the laws of another jurisdiction

If your corporation was incorporated under the Canada Business Corporations Act, or under the legislation of another jurisdiction, you will not be directly affected by this reform to Quebec's company law.

However, your corporation will now be able to be continued as a Quebec corporation, just as corporations constituted under the QBCA can now be continued under the laws of other jurisdictions.

Effects on companies governed by Part IA of the QCA

If, like most companies governed by the QCA, your company was incorporated under Part IA, you do not need to take any steps to become subject to the new QBCA.  Under the new law and its transitional provisions, your company automatically became a corporation governed by the QBCA on February 14, and already benefits from all its innovations and improvements.

Effects on companies governed by Part I of the QCA

However, companies governed by Part I of the QCA, mining companies, insurance companies and trusts and savings companies to which Part I of the QCA applies must be continued under the QBCA within the transitional period provided for in the Act. Depending on the type of business, you have a two- or five-year period in which to do so, failing which, your corporation will automatically be dissolved, other than in a few particular cases. We strongly recommend that you consider continuing your company well before the prescribed deadline. Failure to continue within the prescribed time can have serious consequences. We will be pleased to assist you with this.

ClicSÉQUR express

With the coming into force of the Act respecting the legal publicity of enterprises, every business already registered in Quebec was given a unique access code called "ClicSÉQUR express" by the Quebec government.  This access code and the Quebec enterprise number (NEQ) provided by the Enterprise Registrar upon registration (or the TVQ number) allow you to access Revenu Québec's on-line portal, as well as the Enterprise Registrar's on-line portal. You should have already received your "ClicSÉQUR express" code, and therefore don't have to do anything to get it.

Should you make changes to your corporate documentation?

Our recommendations…

Although the adoption of the QBCA does not automatically require that you amend your corporate documentation, it might be appropriate, depending on your circumstances, to update certain documents, adjust some of your practices or take advantage of new mechanisms now provided by the QBCA. Here are a few examples:

1. By-law – Because of the changes made by the new QBCA, you may want to consider reviewing or simply replacing your former by-laws with new ones.  For example, general by-laws adopted under the QCA often contained specific provisions regarding indemnification of directors, reimbursement of their expenses and conflicts of interest; the new Act has made several changes in these areas and its provisions must be complied with. These adjustments should therefore be reflected in your by-laws at the appropriate time.
2. Unanimous shareholder agreement – Several corporations have set up a shareholder agreement governing their operations or the exercise of certain rights. Like any other important contract, it is useful to periodically review the terms of shareholder agreements. The QBCA makes terminological changes and sets out new rights and mechanisms that did not exist under the QCA. For example, under certain circumstances, each class of shares has a separate voting right for some important issues and the holders of non-voting shares are given the right to vote on a limited number of decisions submitted to the shareholders.  Also, the QBCA now gives certain additional effects to a "unanimous" shareholder agreement (i.e. one that removes or limits the powers of the board of directors), including the right of any creditor of the corporation to examine a "unanimous" shareholder agreement. After analyzing all these factors, you may wish to adjust the content of your shareholder agreement; we are prepared to look at these issues with you at your convenience. Note also that the QBCA provides that you have to declare the existence of a unanimous shareholder agreement when you file your next annual declaration to the Enterprise Registrar and, if all the powers have been withdrawn from the board of directors, you will have to indicate who is assuming those powers.
3. Articles – The Quebec government has made the necessary efforts to attempt to minimize the impact of the QBCA's coming into force on existing share capital structures. As mentioned with respect to shareholder agreements, an analysis of the new terminology, new mechanisms and new rights set up by the QBCA could indicate the need for an adjustment to the provisions of your corporation's articles, particularly if you have several shareholders and several classes of shares. The Act also provides a certain flexibility, such as being able to hold shareholders meetings outside of Quebec, provided these measures are set forth in the articles. We therefore suggest that you discuss these issues with your legal adviser.  If you have to file articles of amendment for any reason, we suggest updating your current articles at the same time.
4. Share certificates – One interesting new addition is that the board of directors can choose not to issue and re-issue share certificates to shareholders; the securities register in your minute book must therefore be carefully maintained since it confirms the identity of the shareholders and number of shares held.
5. Board of directors not required – If you are the sole owner of a corporation governed by the QBCA or if your corporation has wholly-owned Quebec subsidiaries, the QBCA now lets you streamline your corporation's internal operations. By signing a declaration of the sole shareholder withdrawing all the powers of the board of directors in favour of the sole shareholder, you can be exempt from establishing a board of directors. Also, you are no longer required to appoint an auditor for preparation of audited financial statements or to comply with the QBCA obligations regarding by-laws, shareholder meetings and board meetings. These are but a few examples that indicate how it could be advantageous to simplify your governance and record-keeping rules.

The QBCA contains a great deal of changes to the corporate framework surrounding Quebec corporations and it includes other opportunities to improve your corporation's competitive edge and to facilitate efficient internal functioning, particularly as regards tax planning and financing of corporate groups.

We also encourage you to read the Regulation to enact transitional measures for the carrying out of the Business Corporations Act, as well as the Frequently asked questions concerning transition provisions of the Business Corporations Act posted on the Ministère des Finances' website. For those who wish to be reminded of the major changes brought about by the Business Corporations Act, we encourage you to consult the Fasken Martineau bulletin, a copy of which was previously distributed in connection with this matter.

Fasken Martineau lawyers have, over the last year, given multiple conferences and presentations on this subject, certain of which you may have attended. They have prepared themselves assiduously for the coming into force of these statutes. We are prepared to help you tackle this new environment.