For lawyers. “forum shopping” usually means locating a lawsuit in a jurisdiction or with a court that may be sympathetic to your position. There is forum shopping as well for corporations, and some changes to the Canada Business Corporations Act this year will have an impact on that.
A well-known example of corporate forum shopping is using the state of Delaware in the United States. A disproportionate number of companies are incorporated in that state. Without putting too fine a point on it, Delaware’s corporate legislation is friendly to companies and shareholders through things like lesser disclosure requirements.
Theoretically, Canadian corporations could choose different provinces for their home jurisdiction, but the benefits are fewer. For one thing, almost every province uses a Business Corporations Act which is based on the same model. There are more similarities than differences, so there is little legal difference between incorporating in, say, Saskatchewan as opposed to Manitoba.
Also, there is a federal Business Corporations Act in Canada. Again, it is similar to most provinces. While you might think that a business with national scope might automatically elect to register federally, that is often not the case. Even federal corporations have to register in each province where they have a permanent establishment, so there is not much of a federal benefit. If a particular province has something in its legislation that is attractive, there is little restriction in using that province.
One “advantage” which the Canada Business Corporations Act has enjoyed is a relatively laissez faire attitude to disclosure of such things as shareholders and directors. Even when disclosure is mandated, the requirements were often ignored, so there can be relatively little information available to stakeholders and others who are trying to determine the principals behind a corporation.
That will change in June, 2019 when new rules are proclaimed regarding CBCA corporations. It will be of particular concern to directors, officers and shareholders, who will now have legal liability if disclosure is not sufficient.
In brief, a CBCA corporation will need to prepare and maintain a register that not only includes the shareholdings of the corporation, but information identifying the individuals with significant control. For those individuals with significant control, information like name, date of birth, address, their residence for tax purposes, the day each individual became or ceased to be an individual with significant control and a description of how each individual is an individual with significant control will be needed. Other information may be prescribed in the regulations as well.
This information must be gathered annually by the corporation. Unfortunately, “reasonable steps” is not defined in the CBCA, although information on the steps taken must be identified.
Directors and officers may be personally liable if they knowingly authorize, permit or acquiesce the corporation recording false or misleading information in the register or failing to maintain the required register. As well, a shareholder who knowingly contravenes its obligation to reply accurately and completely to a request for information from the corporation commits an offence. Conviction can result in a fine of up to $200,000, imprisonment for up to 6 months, or both.
The maximum penalties are unlikely, of course, but the biggest difference will be to raise the curtain on what has traditionally been a flimsy definition of disclosure under the CBCA. Corporations subject to that Act will need to start gathering additional information, and should begin now.
This article is of a general nature only. It is based upon laws and policies in effect as of the date published, which may change. It is not intended to be relied upon or taken as legal advice or opinion. You should consult with your lawyer to confirm the current state of the law and obtain advice specific to your situation.