Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to drafting or reviewing Articles of Incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto business lawyers registered on the website who can answer your questions or help you draft and submit articles of incorporation for Ontario or Federal corporations.
In this blog, I’ll be discussing articles of incorporation for Federal corporations, which are governed by the Canada Business Corporations Act. Not many people realize this, but corporations are creatures of statutes. The theory is that citizens vote in politicians, who in turn create legislation, which is then used by citizens to create corporations to limit their liability, gain access to capital, expand their business, etc.
“Articles of Incorporation” is the name of the document that must be submitted to the Federal Government to create a corporation. A corporation is a separate and distinct legal entity from its incorporators and from its owners, managers, employees, etc. A corporation has its own rights and obligations; must file its own taxes (at both the provincial and federal levels); has its own income, assets, and liabilities; and can be sued and sue other parties. These things being said, a corporation must act through other parties (e.g. owners, managers, employees, directors, etc.), who can in turn be held liable for their actions (e.g. negligence, breach of contract, etc.), although the corporation will likely be sued in these circumstances because of things like vicarious liability, insurance, and its otherwise deep pockets.
The Articles of Incorporation must provide the following information to be valid (s. 6 of the Act):
- The name of the corporation;
- The province in Canada where the head office of the Corporation is to be situated;
- The classes and any maximum number of shares that the corporation is authorized to issue (and the characteristics of such shares);
- If the issue, transfer or ownership of shares of the corporation is to be restricted, a statement to that effect and a statement as to the nature of such restrictions;
- The number of directors or the minimum and maximum number of directors of the corporation; and
- Any restrictions on the businesses that the corporation may carry on.
The Articles of Incorporation may also set out additional provisions permitted by the Act or by law to be set out in the corporate by-laws (for the purpose of this blog, I won’t get into this here).
With respect to the different classes of shares, it’s always best to keep things simple: most small private companies have two classes of shares (one preferred and one common) and have the ability to issue an unlimited number of shares, but only issue common shares. The preferred shares are left for estate freezes and other tax-savings structures for the shareholders (which I won’t get into here).
Typically, the Articles of Incorporation of a small private corporation will not impose any restrictions on the business of the corporation (otherwise, if the corporation engages in such business later on, liability could arise for breaching the Articles of Incorporation). Also, amending the Articles of Incorporation is not easy if there are many shareholders (because two-thirds of the votes cast by the shareholders entitled to vote is required): s. 173.
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