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Every person who has incorporated a company under the Business Corporations Act (British Columbia) (the “BCBCA”), and in particular any director or shareholder of that company, should be familiar with and ensure compliance with post-incorporation corporate records and corporate maintenance obligations.
Too often, incorporation is handled as a simple on-line fill in the forms and pay the fee process. Entrepreneurs, family business owners and start-ups see the official incorporation certificate and consider it a job done - without any knowledge or regard to the corporate statute that establishes that company as a going concern; the corporate law that has refined the corporate duties of the incorporators, directors and controlling shareholders behind any company; and the expectations and potential claims of the banks, taxing authorities, employees, suppliers, vendors, lenders, investors, customers and other interested parties who may (over time) have legal relationships with the company.
Ignoring the formalities of incorporating a business can have significant consequences in terms of administration, liabilities and value - or at the very least can prove an expensive exercise to remedy down the road.
Post Incorporation Organization
Once a British Columbia company is registered and officially incorporated, it must be organized so as to carry on business and this process, usually done in the context of the first resolutions of the shareholder(s)/ incorporator(s) and the director(s) of the company will include matters such as:
establishing the company's record book;
confirmation of the record office and determination of record office policy as it relates to the inspection and copying of the company's records;
confirmation of the incorporator's original shares and/ or transfer of those shares issuance of new shares to any new subscribers;
appointment of a company bank;
appointment or waiver of an auditor; and/or
appointment of the directors listed in the notice of articles, consents for those directors as well as the appointment of officers, if any.
The BCBCA (and other corporate statutes across Canada) specifically requires that all companies prepare and maintain, among other things, certain documents and registers at their record office and further requires corporate records to be kept in a prescribed form (traditionally of binder referred to as a “records book” but more commonly now maintained in the form of an electronic records). While each corporate statute may prescribe certain offences and liabilities for failing to maintain such records, recent implementation of beneficial shareholder or "transparency" registers - in connection with money laundering and foreign ownership regulations - has significantly increased the potential offences and liabilities for failing to maintain proper records (for example, under the BCBCA it is an offence for private B.C. companies to fail to take reasonable steps to comply with new regulations establishing transparency records of beneficial owners who have direct or indirect control of the company or its shares and it also an offence for (a) any director or officer of a private company to authorize, permit or acquiesce to any such non-compliance; or (b) a shareholder to send information to the company that is false or misleading. Any person who commits any of these offences risks penalties of up to $50,000 for individuals and $100,000 for other persons (ie. the company, other corporations and/or partnerships)). These new regulations, now almost universally adopted in major corporate jurisdictions in Canada, has made corporate records and record keeping a very current, and important, feature of maintaining a company. That said, corporate records have always been an important element of incorporation whether to facilitate tax audits and other tax matters; facilitate lending and investment arrangements; or facilitate the eventual sale or other corporate restructuring of a business.
Every British Columbia company must have a registered office and a records office (which can, but not always need to be, the same) and this would have formed part of the public record in the initial notice of articles filed with the BC Corporate Registry.
A company's registered office is the location where legal documents can be served and the specified delivery address must be for a location in British Columbia that is accessible to the public between 9 a.m. and 4 p.m. on regular business days for the service of documents. More often than not this should not be an apartment or your home address for obvious reasons (the address is public). The specified mailing address is the address where the Corporate Registry will send important information to the company and, if different from the delivery address, must be a postal address in British Columbia.
A company's records office is the location where all the records for the company are kept and where directors, shareholders, regulators and the public can inspect and take copies of prescribed records (to each, a different class of records and in certain circumstances upon certain conditions). The delivery address again must be for a location in British Columbia that is accessible to the public between 9 a.m. and 4 p.m. on regular business days for the inspection of records. This again may make an apartment or home address less than ideal for this purpose. The mailing address, if different from the delivery address, must be a postal address in British Columbia. It has been common, albeit it is not technically required, that a lawyer's office act as both the registered and records office.
Other Post Incorporation Considerations
Other matters of significance may require consideration post-incorporation including, but not limited to:
assignment of intellectual property or pre-incorporation contracts;
if a company wants to carry on business in another jurisdiction outside British Columbia (including another province of Canada), obtaining a licence or registration in the new jurisdiction and comply with that jurisdiction's laws (this applies as well to federal corporations seeking to do business in British Columbia);
registration and compliance with the Canada Revenue Agency regarding corporate tax, payroll taxes and goods and services taxes (among others and as applicable) as well as any provincial sales or other tax requirements;
compliance with provincial regulatory requirements (for example, in BC mortgage brokers, security services providers, real estate agents, insurance providers, (among a number of other professional designations and other services) are regulated and require licensing or other qualifications before being offered in British Columbia;
compliance with any municipal licensing, permitting and zoning requirements;
trademark or trade name registration since incorporation, including acceptance by the BC Registrar of a corporate name, does not give trademark protection or guarantee that the name does not conflict with a Canadian trademark or the name of a company incorporated in another Canadian jurisdiction;
compliance with foreign ownership regulation since non-Canadians who wish to establish a new Canadian business (or who acquire control of an existing Canadian business) are, subject to certain exemptions, required to comply with the Investment Canada Act (Canada), and they must submit either a Notification or an Application for Review; and/or
as an employer or potential employer, even in terms of founders or contract service providers, registration under the Workers’ Compensation Act (British Columbia) is likely required.
The list above is not exhaustive.
Annual Maintenance
During the course of its existence, the BCBCA prescribes a number of circumstances in which a timely filing with the BC Registrar is required such as if there are any changes to the directors of a company; any changes to the registered and/or records office of a company; and changes to the authorized share capital of a company.
A company is also required to hold its first annual general meeting not more than 18 months after the date of incorporation. Thereafter, the annual general meeting must be held at least once in every calendar year and not more than 15 months after the last annual general meeting. Alternatively, if all the shareholders consent in writing to the business to be transacted, a meeting need not be held.
Unless the prescribed waiver is obtained, the BCBCA requires that the director(s) of a company must approve, sign, produce and publish financial statements in accordance with the relevant regulations, on or before each annual reference date. The form, content and technicalities of financial statement requirements, and any waiver from these requirements, are somewhat complex or at least easily misunderstood and have resulted at times in shareholder disputes and potential oppression remedies.
Unless the prescribed waiver is obtained, the BCBCA requires that any company must have an auditor appointed and that the financial statements above be audited. Again, waivers from this requirement are available but need careful attention.
Further, every year within two months after the anniversary date of a company’s incorporation, the company must file with the Corporate Registry an Annual Report in the form established by the BC Registrar and pay an annual fee. Any failure to timely file an Annual Report may result in the company ceasing to be in good standing and ill due course result in the BC Registrar issuing a notice of commencement of dissolution. If a company is dissolved by the registrar for failure to file, the BCBCA provides that the liability of every director, officer, liquidator and shareholder of a company that is dissolved shall continue, and may be enforced as if the company had not been dissolved. In addition, if the company owns certain assets, particularly land, when it ceases to exist, those assets will become the property of the provincial government. There are a number of other consequences, related to legal proceedings, tax obligations and other rights and remedies that in any particular circumstance should be considered.
A company’s Articles of Incorporation may also specify additional annual requirements and should be reviewed.
Without a doubt, one of the most common issues Endeavor Law has consulted upon with small and family businesses and, to some extent, start-ups is poorly or improperly kept corporate records and/or improper or non-existent corporate maintenance. This almost always has resulted in significantly more time and legal fees spent on reconstructing or resurrecting corporate records or past corporate proceedings relating to director resignations and appointments; share issuances and transfers; dividend declarations; approval of shareholder loans, guarantees or other financial assistance; approvals of material contracts and any other corporate actions that should be properly documented in the company’s records. Some time and expense may be the least troublesome outcome of poor record keeping or maintenance. A failed lending arrangement; failed equity investment; failed business combination or failed divestiture (or at least a diminished value for such) are all potentially significant outcomes for what is otherwise a simple matter to address with legal counsel from the start.
Endeavor Law can assist founders, entrepreneurs, family and small business owners and start-ups with incorporation and post-incorporation services to provide the right start and continued best practices for your business. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.
Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.