When choosing a name for your Canadian corporation, partnership or sole proprietorship you need to ensure that your name is distinct and different from any other registration on file federally and in all provinces and territories across Canada. In order to determine this you will need to perform a preliminary name search. Before performing a preliminary name search you should read the following information.
Aspects Required When Choosing a Name for Your Business
If you are registering a corporation, you will be required to have a legal element (explained below) but for other registrations such as sole proprietorships, business names and partnerships this will not be necessary. The information herein explains what to look for when using a name for a corporation however the principles can be applied to business names, partnerships and sole proprietorships as well.
When deciding on a name for your corporation, you should consider three aspects of the name as follows:
(1) the Distinctive Element
(2) the Descriptive Element, and
(3) the Legal Element.
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Distinctive Element of a Name – If the name you choose to register is “Crosgrey Carpentry Inc. , the distinctive element is the word “Crosgrey”, which is distinctive because it is my last name. Another example of a distinctive element in a name might be “Grenville” as in “Grenville Garden Supplies Ltd.” which is distinctive because it describes a location. “Starcross Dental Services Corp.” has the distinctive word “Starcross” in it to make it stand out from other dental service companies.
Descriptive Element of a Name – The descriptive element describes the type of business. In “Crosgrey Carpentry Inc.”, the descriptive element is “Carpentry” which describes the nature of business. In “Grenville Garden Supplies Ltd.” the descriptive element is “Garden Supplies” which describes the type of products this business sells. “Dental Services” is the descriptive element for “Starcross Dental Services Corp.”.
If you were to use the name “Starcross Ltd.” it does not describe the type of business. You can incorporate this company, if the name is available, but because it is such a short name there may already be a conflict and it would not be suggested to register such a short name. There are 1,000s of these short names registered already and most of them are already taken. Let us consider that “Starcross Inc.” has been registered. When you do a preliminary name search on the name “Starcross Ltd.” the name search report says “Starcross Ltd.” is available. This would still be a very poor choice of name since the person who owns the company registered as “Starcross Inc.” would consider your name as a conflict even though the government in some jurisdictions would allow you to register the name because it is different and not exactly the same. The onus is on you to ensure your name is distinct and different from others, not the government. In fact in some provinces such as Alberta and Ontario you can register a business name, sole proprietorship or partnership with the exact name as other registrations. This is not a requirement for them so if you do not pre-clear your name in advance they will not inform you before registering of any other names that would be a conflict. The only requirements in those provinces for distinct names would be for incorporations.
It is best to have a descriptive element in the name to avoid any future conflicts that you may not be aware of when you register your company especially if you are performing your own searches without the help of a search house. Search houses are trained to look for conflicts such as this and it is your best option to have a search house check your name. For the low cost it is worth being safe. You could be forced to change your name if a company took you to court for this issue. If they have had use of their name for many years and are highly placed in the marketplace, they might be able to force you to change your corporation’s name. This would then mean that, even though you have built up a relationship with your clients using the name you first chose, you might be forced to change it and thereby lose some of your standing in the marketplace. The loss of income and the additional expenses resulting from such a situation could be high. Therefore, it is important your corporation’s name is very distinct and different from other names of existing companies across Canada. This would include any companies registered in Canada whose home base is outside of Canada. As well, never order stationery, business cards, etc. before your company is incorporated.
Legal Element of a Name – The Legal Element is the word “Inc.” which is a mandatory ending which recognizes the name as the name of a company. In Canada you can have the following endings for your company name: “Inc.”, “Incorporated”, “Ltd.”, “Limited”, “Corp.”, “Corporation” and the French equivalents of “Ltee.” “Limitee”, “Inc.” (same in English and French) or “Incorporee”, The Legal Element distinguishes your name as a share corporation rather than a business name, sole proprietorship or non-share corporation.
It is best to consider a name that has a minimum of four words. Otherwise, you may choose a name that is too close to another existing corporation’s name.
You should always do a preliminary name search prior to obtaining a name search report or a NUANS name search report.
The distinctive element of a name can be your name, i.e. “John Smith” or it might be a group of letters, i.e. “GSA” or it might be the name of a town, “Newmarket”, etc. The more distinct the name, the more likely it will be that the name will be available for use.
The descriptive element of the name should be very broad and detailed. The more detailed your descriptive element is the more likely your name will be different than others. For instance, using the descriptive element “Services” is vague but the use of the descriptive element “Dry Cleaning Services” is broader. The descriptive element “Dry Cleaning and Clothing Repair Services” would be even better.
Choosing a Name for a Quebec Company
If you are going to carry on business in Quebec then you will need a French name,. The name can be the name of the company or an English named company with a French business name. If you chose you can have an English and a French name in your articles. You will need two NUANS reports when incorporating. One for the English version of the name and one for the French version of the name.
Which Provinces Accept a NUANS report versus a Specific Province Name Clearance Report?
The province and territories which accept the NUANS report are: Alberta, Ontario, New Brunswick, Federal, Nova Scotia, Prince Edward Island and Yukon. All other jurisdictions in Canada will require a name search report specific to that province or territory.
In Alberta and Ontario you are not required to provide a name search report of any type for sole proprietorships, business names or partnerships, however, it is still advisable to perform a preliminary name search since the onus is on you to ensure the name has not been taken by any other business. If you are ordering a name search report or a name search specific to a province as required by the type of registration you are wanting, our service automatically includes preliminary name searches. The only time you would order a preliminary name search would be if you are registering a business name, sole proprietorship or partnership in a province that does not require a name search report such as Alberta or Ontario.
Name search reports and NUANS name search reports all provide the same kind of information. They determine whether a proposed name has been used by any other business across Canada and also provide a list of similar names already registered. Be advised that these reports are specific to the province they are ordered for. For instance a Federal NUANS report cannot be used for an Ontario company.
A name search report compares the name of a proposed business to all other names already registered across Canada.
A NUANS report is specific to certain provinces and is a seven-page report which is generated from the search system which compares a proposed name or trade-mark with the database of existing names that have been registered anywhere across Canada.
What Information is Provided by a Name Search Report or a NUANS Report
By comparing the proposed name against the NUANS name search system or a name granting system in a province or territory, any similarity existing between the proposed name and the names in the database, will show up on the name search report. This will allow you to determine whether you are planning on using a name for your company that is too similar to another name. It is important for your name to be as distinct as possible. If you are ordering a name search for a province that does not accept the NUANS you will be provided with a name search that compares names to other names in that particular province or territory but the name search report will also look at similar names in other provinces right across Canada that may be a conflict.
What is A NUANS Search System
The NUANS search system is a computerized search system which contains a list of all of the company names, sole proprietorships, partnerships, business names and trade-marks registered in the federal, provincial and territorial jurisdictions in Canada. The purpose of the system is to keep track of all names registered across Canada.
Even if a province or territory has its own name search system in place, the NUANS system will pick up those names in its database and therefore when performing a preliminary name search the search system is the best way to get a pre-clearance of your name.
Only search houses can perform preliminary name searches or full NUANS name searches through the NUANS system with the exception of the federal government’s site which provides limited access to doing searches.
The federal website’s preliminary name search system is limited in that it does not allow for broad searches and it is not workable if ordering a Federal NUANS and it is limited with respect to doing preliminary name searches for other provinces and territories. In order to effectively do a preliminary name search on your proposed business you must have an experienced search house perform the search.
What is a Name Search Report and NUANS Report Used For
A NUANS name search report must accompany articles of incorporation when incorporating a company in the federal, Alberta, Ontario, New Brunswick, Prince Edward Island and Yukon jurisdictions of Canada.
NUANS reports are also required in some provinces for registration of business names and partnerships. In Ontario and Alberta you are not required to provide any form of name search when registering a sole proprietorship or partnership.
Do All Provinces and Territories Accept the NUANS Name Search
Some provinces and territories have their own name search system and they do not except the NUANS name search report. Those provinces and territories will require a name search specific to that jurisdiction. The jurisdictions in Canada that do not accept the NUANS report are British Columbia, Manitoba, Saskatchewan, Nunavut and Northwest Territories.
If you are registering a sole proprietorship, business name or partnership in a province or territory where a name search or NUANS report is not required (such as Ontario or Alberta), it is a good idea to perform a preliminary name search to ensure the name is available but a full name search report or NUANS report would not be necessary. All you need to do is ensure the name is available before you register your sole proprietorship or partnership.
Even though not all provinces and territories accept a NUANS report since all names registered in those jurisdictions are recorded in the NUANS database, it is still advisable to do a preliminary name search through the NUANS system to ensure the name is available. Resources for Canadian Business Owners can provide you with a preliminary name search for situations for situations when a full NUANS report is not required.
If you require a name search report or NUANS name search report to register your company, business name, sole proprietorship or partnership, Resources for Canadian Business Resources Inc. will provide you with unlimited free preliminary name searches when a name search report or NUANS report is ordered through us.
How Does the NUANS Name Search System Capture the Names from the Other Name Search Systems in Canada
The governments which do not accept reports from the NUANS name search system provide a list of any names that have been registered in their province or territory to the NUANS name search system and these names are added to the NUANS system database on a regular basis.
Why is a Name Search or NUANS Report Necessary
You cannot incorporate a company with a name that is exactly the same as another name already registered. It does not matter whether you are registering a company in PEI and the duplicate name is in BC, you will not be able to register an exact name.
When you go to incorporate a company the government must first know if that name has been taken. In order for the government to ensure that the name is free to use it needs to see a NUANS name search report or similar name search report depending on the jurisdiction.
The report will show the government whether there is an exact name already registered for the proposed name you wish to use. The name search report is also your way of determining whether there are additional conflicts to your name. The onus will be on you to look over the entire report and make sure you are not proposing to use a name that is even close to another corporate name or trade-mark since the owner of the name could still have a claim against you if your name is too similar and his or her company name has had a large presence in the marketplace for many years. Order a NUANS name search now.
How Do You Ensure Your Proposed Business Name is Distinct
Refer to the section on name guidelines for more information on how to ensure you have picked a distinct and descriptive name for your company that will not be challenged by the government or another company.
Are There Different Types of NUANS Name Search Reports
Each jurisdiction that accepts the NUANS Name search report will have its own form of NUANS report. If you are incorporating an Ontario company you will be required to obtain an Ontario NUANS Name Search report. If you are incorporating a federal company you will be required to obtain a federal NUANS name search report. If you are incorporating an Alberta company you will be required to obtain an Alberta NUANS Name Search report. Despite the fact that each of these reports is different, all reports will search the NUANS database system for similar names right across Canada.
Why Are Federal Name searches different from Alberta Name Searches, Ontario NUANS, PEI and NB Name Searches
An Ontario company can be incorporated with any name which is different in any regard, even if it is only a few letters in the name. A federal company differs however because when the federal government reviews articles of incorporation together with a Canada NUANS it will not allow any name which is similar to another company in many regards. When you are submitting incorporation documents for a federal company ensure your name is as different as possible from any other company name being used in Canada. Be prepared that the government may also disallow your proposed name if it sounds the same as another existing company even if the spelling is substantially different. You should be prepared that your name might not be accepted. Each time you submit articles for review you will need to submit a new NUANS report. If the first name you pick is too close to others on record, then you will have to buy another federal NUANS and submit again. A qualified search house will be able to assist you with having a better chance of your NUANS report being accepted the first time. Resources for Canadian Business Owners has experience in having proposed names accepted even after they have been rejected. However, some times additional searches must be performed to rule out conflicting companies and there can be an additional cost here. It is possible to obtain an advance Name Decision report from Industry Canada before you submit your articles for filing. Resources for Canadian Business Owners will be glad to submit a request for a Name Decision for your federal incorporation. This will also include as many preliminary name searches as you require without further cost. We are experienced in reviewing preliminary name search results through the NUANS system to help increase your chances of being accepted the first time round when you are submitting articles of incorporation for companies in the federal jurisdiction.
Why Does It Matter if I use a Name Similar to a Name in Another Province
It may seem that if you are registering a company in Ontario and another company in the Northwest Territories has a similar name, that this should not be a problem. With technology as it is today, companies are conducting business across Canada, if not across the World. You will have no idea whether the company with the name that you are proposing may at some time in the future be conducting business in the very province you wish to register in and then there would be a conflict. Further, the Canadian government provides that any company that is registered in any province or territory in Canada can apply to be registered to carry on business in another province or territory. It is therefore very important that your proposed name is distinct and descriptive. This is called an extra-provincial registration.
Is a NUANS Report Required for a Business Name or Sole Proprietorship Registration
A NUANS Report is not required in Ontario and Alberta, and some other provinces when registering business names, sole proprietorships and partnerships. In Ontario and Alberta anyone can register the exact same business name or sole proprietorship as one registered already. However, it is advisable that you do a preliminary NUANS name search before you register to ensure no one else is using the name regardless. This is the one time when you should pay for a preliminary name search for your business name. There is no need to purchase a full NUANS report or other name search report for a business name, sole proprietorship or partnership being registered in Alberta and Ontario. All that is required is to do a preliminary name search just to ensure you are picking a name that is different. It is always advisable not to use a name that is too similar to another name since this would be a conflict for your business in the long run. Some business names such as “Bell Canada” have a high standing in the marketplace because of the number of years the name has been registered and the number of people who know the name.
You should be aware that there is no such thing as a Federal Business Name registration, Federal partnership registration or Federal Sole Proprietorship registration. Business names, partnerships and sole proprietorships are governed by the provincial and territorial jurisdictions in Canada.
What is a Preliminary NUAN Name Search
If you purchase a NUANS Name Search Report and the name you wish to use for your incorporation is on the report as registered for another company or business, you will not be allowed to incorporate with that name. It is therefore important that you do a preliminary NUANS name search first in order to ensure before hand that the name is free. Otherwise, if you do not first ensure a pre-check of the name is done and you order a full NUANS report or other form of name search report, your registration could be rejected if the name is too similar or the same as another name registered.
Please note however that preliminary NUANS Name Searches are not fool proof and there is always a chance a conflict will show up on the full NUANS Name Search or other name search report that did not come up during the Preliminary NUANS Name Search.
You can keep buying full NUANS Name Search reports but it will become costly. It is better that you check the name first with a Preliminary NUANS Name search. Resources for Canadian Business Owners provides FREE UNLIMITED preliminary name searches with the purchase of a NUANS or Name Search Report. We will make great efforts to pre-clear your name in advance so that the odds of your proposed name being rejected are reduced.
How do I Arrange to have a Preliminary Name Search
Resources for Canadian Business Owners Inc. will do as many preliminary Name Searches as you wish with the purchase of a full NUANS Name Search or other Name Search Report. If you are not required to submit a name search report with your registration Resources for Canadian Business Owners will be glad to perform a preliminary name search for you at a nominal fee. This service should only be used when a name search report is NOT required
How Long Does it Take to Get a Name Search or NUANS Report
If you are ordering a report from a province or territory that does not accept a NUANS report, it can take a few days to a week to obtain the report. If you are ordering a NUANS name search report, it takes from 40 minutes to three hours to obtain a NUANS Name Search Report. Once you order a NUANS report a confirmation email will be sent to you to let you know that we have received your request. Depending on the number of searches requested at that time it might take us 40 minutes or three hours. Be assured though you will receive the NUANS in the same day whether you order it at 6:00 a.m. in the morning or 10:00 p.m. at night. Frequently we have someone close to the computer for most of the day right up until late evening so feel free to contact us at any time of the day. We are open 7 days a week. We look forward to serving you.
How Long is a Name Search or NUANS Report in effect.
A NUANS name search report will be in effect for 90 days from the date of issue. If yuou do not use the report until after that time you will be required to order a new one and most other name search reports are also effective for a similar length period.
Name Searches for Non-Profit Corporations and Charities
We can provide you with information about registered companies, partnerships, sole proprietorships or operating trade names on the public record throughout Canada including extensive due diligence searching and reporting.
We also provide registration services for Canadian companies, sole proprietorships, partnerships and operating trade names in the provinces and territories of Canada.
Our staff has over 30 years’ experience in corporate law and we will be glad to answer your questions. We take pride in our work and will provide you with the best, fastest, accurate and reasonably priced service available.
Depending on the province or territory you wish to incorporate your non-profit corporation will depend on the type of name report that you get. There is no difference between a name search report for a not for profit corporation or charitable corporation and a share corporation. It is the province or territory that governs the report you get.
For instance, a name search report for a share company being incorporated in Ontario is the same report given to a non profit or charity corporation wishing to incorporate in Ontario, being an Ontario NUANS name search report.
NUANS Search Houses are trained on the best method of performing Preliminary NUANS Name Search reports in order to ensure that the most conflicts to your proposed names can be found prior to ordering a full NUANS Name Search Report.
If you incorporate a numbered company a NUANS name search report will not be required since the government will provide you with the next number in line. An example of a numbered Ontario company would be a corporation having a name such as 9999999 Ontario Inc.
A numbered federal company might be a corporation with a name called 9999999 Canada Inc. and an Alberta numbered company might be 2244444 Alberta Ltd. The numbers are given out consecutively. You cannot choose the number for your company.
A director is an individual who is elected by the shareholders (owners) of the company to assist with the management and supervision of the day to day affairs of the company. Frequently the directors of a company are also the owners of the company. Not just anyone can be a director of an Ontario company. In order to meet the qualifications for directors of Ontario companies reference must be made to the statute that governs Ontario companies.
How many directors can an Ontario Company Have
Ontario companies must have at least one director for private companies and at least three directors for public companies. There is no limit on the number of directors an Ontario company may have and if a private company wishes to have many directors it may do so.
Who can Qualify to Act as a Director of an Ontario Company
The following persons are disqualified from being directors of an Ontario company:
A person who is less than 18 years of age;
A person who has been found under the Substitute Decisions Act, 1992 (Ontario) or under the Mental Health Act (Ontario) to be incapable of managing property or who has been found to be incapable by a court of Canada or elsewhere;
A person who is not an individual; or
A person who has the status of bankrupt.
Director’s Consent to Act as a Director
A person cannot be appointed to be a director of an Ontario company unless that person has agreed to do so. The Act provides that after an individual is elected as a director they must consent in writing to the appointment within ten days. This written consent is inserted into the minute book for the Ontario company and maintained there for future reference.
Resident Canadian Requirement for Directors of Ontario Companies
There is a requirement for 25% of the directors of an Ontario company to be “resident Canadians”. For more information about this requirement refer to Resident Canadian Requirements for Directors of Ontario Companies.
All companies must have at least one officer. There are many officer positions and each of those positions comes with a standard set of duties and requirements, although duties can be varied. Below is a list of the most common officer positions and a description of what duties and requirements come with the position.
Officers are appointed by the directors of a corporation. There are many different officers titles and positions that can be held by individuals. The scope of this Articles is to explain the different positions and statute requirements relating to them.
For information about how to appoint, remove or resign an officer refer to appointing officers.
Officer Titles for Private Companies
A private company is a company which does not sell shares to the general public. It is a company that is owned privately by one or more individuals or corporations.
The following are the customary and standard officer titles used by private companies:
These officers titles are the most popular and are limited to just a few because private companies frequently only have a few principals. Frequently there will be one person who holds the position of sole director, officer and shareholder (owner). In this situation he or she will normally hold the positions of President and Secretary. In other cases there will be two people as principals of the company, one of which will hold the position of President and the other the position of Secretary.
The officers titles given to individuals in private companies do not always denote the functions they will handle. Sometimes these titles are given to individuals so each owner and director will also hold an officer position. For instance if there are two principals then one will be the President and the other will be the Secretary. If there are three individuals one may be the President, the other the Secretary and the third may be the Treasurer. In the case of a fourth individual, this person may be appointed to a Vice-President position.
Officers Titles in Public Companies
In public companies the officers titles can be very different. Frequently officers for public companies have more functions and duties and they may be supervising a department of a number of people. Some of the common titles for public companies are:
Chairman or Chairperson of the Board
Chief Executive Officer
Chief Financial Officer
How Many Officers Must a Company Have
All companies in all jurisdictions must have at least one officer. Normally if there is only one officer, the title that person will hold is President.
Officers Titles Can be Flexible
There is no set rule with respect to any title. A company can designate officer titles that it wishes, however, it is always good to have a President and a Secretary.
Can a Person Hold More Than One Officers Title
Yes. An individual can hold more than one officer position. However, some officer positions can only be held by one person. For instance, there is never more than one President, Chief Executive Officer, Chief Financial Officer, Secretary or Treasurer. There may be any number of Vice-Presidents and any number of Executive Vice-Presidents.
Board Appointed Officers versus Non-Board Appointed Officers
The board of directors of a company may appoint only a certain number of officer positions that are being held. For instance, three individuals may be owners of a company and all three of them have been appointed by the board of directors to hold those positions. A meeting was held to appoint them or a resolution of all of the directors was signed to appoint them. These individuals are called board appointed officers because of the manner in which they were appointed.
There may also be a General Manager or a Manager, Technology or a Manager, Office Supplies. These positions may not be officially appointed by the board yet they are officer positions. They would be considered non-appointed officer positions.
Public companies also may have non-appointed officers. The larger companies will have many departments operating different services and functions. They may appoint Vice-Presidents of those departments. There could be hundreds of Vice-Presidents appointed. The board of directors, in this case, would not appoint those Vice-Presidents.
Does an Officer Have to be a Director
In some cases there are certain officer positions which cannot be held by anyone unless that person is a director. For instance, a Chairman or Chair or Chairperson of the Board and a Managing Director (depending on what the governing statute says) must be a director to hold those positions.
Most governing corporate statutes are vague with respect to officers, however, the best way to determine whether an officer position must be held by a director is to check the statute. When a statute is silent on the issue there is no restriction.
As well, the by-laws of the corporation must also be reviewed. Some by-laws are set up to provide that certain officer positions must be held by a director and even though there may not be a statute requirement, if the by-law indicates this then the company must abide by those by-law provisions.
If a by-law provides that an officer position must be held by a director but the statute does not say it is mandatory, then the by-law can be amended. The statute will provide the method by which a by-law can be amended. For Ontario companies refer to Ontario By-laws Enactment, Amendment and Repeal.
You would be surprised at how often a minute book will be requested for review. Not every organization that wishes to see it has a right to see it but you may not be able to move forward with your company’s work if you cannot show them the proof they demand. Below are some reasons why a company needs a minute book.
Some Reasons Why a Company Needs a Minute Book
An investor’s solicitor may wish to review the minute book to assure his client that he is investing in a valid and subsisting company and may wish to ensure the documentation required to bring the investor in is documented
A bank may request to see the book to confirm the structure before agreeing to loan money to the company and the bank may wish to see the by-laws in order to determine what authority the directors and officers have to borrow money
If you wish to sell the company you will definitely be required to show that you have documented all transactions from the date of incorporation to the point of sale
Transferring the business from yourself to your family cannot be done unless the minute book is in order since ownership must be able to be approved by the family member. If there is no minute book, there is no evidence of ownership
Real estate transactions frequently result in ownership needing to be proved and without a complete minute book this cannot be done
Government offices such as the Workers Compensation Board may request your minute book to prove the percentage of ownership. If you cannot provide proof of the percentage of ownership between you and your spouse, then you may pay more tax
When the company purchases a vehicle the government office may request to see the minute book before agreeing to put the vehicle in the name of the company
If the company is audited by the government it will be requested to present its minute book
Why a Company Needs a Minute Book – Annual Returns, Initial Returns, Notices of Change
Certain returns and filings have to be done with respect to a new incorporation, on an annual basis and when changes have occurred in addresses, directors and officers. By law these must be documented and filed with the government. The professional who sets up your company knows what these are, will file them upon incorporation as required and let you know what will need to be done in the future. If these filings and returns are not maintained properly your company may be dissolved for non-compliance of the laws.
Why a Company Needs a Minute Book – Extra Costs Will be Incurred
There are many reasons why a minute book may be requested. As you can also imagine time is usually of the essence when a minute book is requested for review and that again can increase the cost of having one set up and documented. As well, if the company has been around for many years that can increase the cost of creating a new minute book.
Setting up your minute book and maintaining it as you go along will save you money and aggravation in the long run.
If you and a business associate start a company together and down the road there are problems, if there is no minute book set up and if approvals at meetings have not been documented properly, that person may be able to leave the company with more assets than he brought in because you will not be able to prove otherwise. Shareholders agreements are frequently prepared in addition to the set up of the minute book to ensure all parties are protected.
Lawsuits are in the courts every day over problems that occur amongst shareholders of companies. To protect yourself you should have a minute book set up which clearly shows ownership and it is prudent to also have a shareholders agreement prepared by a competent solicitor.
Resources for Canadian Business Owners has over 30 years’ experience in setting up, maintaining and rectifying the most complex of corporate minute books.
All Ontario companies must have at least one director and this person must be a resident Canadian as defined in the Business Corporations Act (Ontario). Director(s) are the individuals who manage and supervise the business on behalf of the owners (shareholders). The directors will also appoint officers to assist.
The Business Corporations Act (Ontario) provides for a residency requirement for directors. 25% of the directors of an Ontario company must be “resident Canadians” as defined by the Act. This means that if an Ontario company has one to four directors, at least one of them must be a resident Canadian.
Definition of Resident Canadian
A resident Canadian is defined in the Act as an individual who is (a) a Canadian citizen ordinarily resident in Canada, (b) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or (c) a permanent resident within the meaning of the Immigration and Refugee Protection Act (Canada) and ordinarily resident in Canada.
Meaning of the Definition of Resident Canadian
In lay terms, to be considered a “resident Canadian” pursuant to the Act, you must be a Canadian citizen living in Canada or a permanent resident living in Canada. Therefore, if you are a Canadian citizen not living in Canada you would not qualify to be the sole director of a company, however, you could be a director as long as there were other directors elected to the board meeting the 25% resident Canadian requirement. As well, a non-Canadian may not be the sole director of a company.
On the other hand, not all provinces and territories have the same rules. In British Columbia the Business Corporations Act (British Columbia) does not provide for a residency requirement. Therefore a non-Canadian or a Canadian citizen not living in Canada may be the sole director of a BC company. This is good news for those Canadians who wish to conduct business in Canada but also wish to live outside of Canada. As well, foreign individuals are able to set up BC companies and act as the sole director of those companies since there is no requirement for them to live in Canada. Refer to our blog page for more information about residency requirements for BC companies.
A resolution is a form of approval. It can be to approve any matter that the corporation wishes. Some examples are approval of the change of registered office address of a company, approval to amend the articles of a company, approval to enact by-laws of a company, etc.
Resolutions are Approved by Directors or Shareholders
In some cases, certain matters must be approved by the directors and in other cases it may be that shareholder approval is required. For instance if the company wishes to change its name from one alpha name to another alpha name the shareholders must approve this change before it can be implemented. If a company wishes to enter into an agreement, the directors would approve the matter. In some cases, both directors and shareholders may need to approve a resolution.
How Are Directors Resolutions and Shareholders Resolutions Approved
Resolutions can be approved at meetings of the directors or shareholders, pursuant to which every director/shareholder has been given notice of the meeting, and for which at least a quorum of those directors/shareholders showed up for the meeting. (i.e. the minimum number of directors/shareholders that can form a quorum is outlined in the company’s by-law and frequently is a majority).
Resolutions can also be approved without holding a meeting as long as all of the directors or shareholders, as the case may be, sign and approve a written resolution.
What Types of Resolutions are There
There are three types of resolutions:
Directors Resolution – This is a resolution that is either (a) passed by a quorum of directors at a meeting held to approve it, or (b) a resolution in writing signed by all of the directors.
Shareholders Resolution – This is a resolution that is either (a) passed by a quorum of shareholders at a meeting held to approve it, or (b) a resolution in writing signed by all of the shareholders entitled to vote.
Special Resolution – A special resolution means a resolution that is (a) submitted to a special meeting of the shareholders of a company duly called for the purpose of considering the resolution and passed by at least 2/3rds of the votes cast at the meeting, or (b) consented to in writing by each shareholder of the company entitled to vote.
What Does a Resolution Look Like
We have included an example of a resolution on this page. There is always a heading on the resolution and a footer which shows the signatures.
The Heading should say either (a) Resolution of the Directors, or (b) Resolution of the Shareholders, or (c) Special Resolution as the case may be.
The footer should reference that all of the directors or shareholders are signing and the name of the statute that they are relying upon.
How do You Know Whether the Directors or Shareholders Must Approve a Particular Matter
The Ontario Business Corporations Act is online and can be searched to find out what type of approval you need for a matter. For instance, let us say that you are changing the directors of a company by increasing the number. If you search “number of directors” you will find section 125(3) which indicates that the number of directors is determined by special resolution.
Canadian companies registered in the Federal jurisdiction must follow the requirements of the Canada Business Corporations Act with respect to director residency requirements.
What is a Resident Canadian as Defined by the Canada Business Corporations Act
The Canada Business Corporations Act defines “resident Canadian” as an individual who is:
a Canadian citizen ordinarily resident in Canada;
a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or
a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act and ordinarily resident in Canada, except a permanent resident who has been ordinarily resident in Canada for more than one year after the time at which he or she first became eligible to apply for Canadian citizenship.
This means that a resident Canadian is a Canadian citizen or a permanent resident who lives in Canada.
How Many Directors of a Canadian Federal Company must be Resident Canadians
25% of the number of elected directors must be considered to be “resident Canadians”. This means that there must be one resident Canadian when the corporation has from one to four elected directors. If a director at some point can no longer be considered a resident Canadian because for instance, he or she moves out of the country, then his or her status as a resident Canadian no longer applies. A new director may need to be appointed to ensure the company is in compliance with the statute requirements.
What do You Need to Know About the Residency Requirement for Directors elected to Federal Companies
Let’s take the example of a permanent resident as defined in the Immigration and Refugee Protection Act (Canada) who is living in Canada. This individual comes to Canada and is legally classed as a permanent resident. This person registers a Canadian federal company and becomes the sole director of the company. Since he is a permanent resident and he also lives in Canada, he is classified as a “resident Canadian” pursuant to the Canada Business Corporations Act and can be the sole director of a federal company.
Down the road this individual becomes eligible to become a Canadian citizen and does not apply to become one within one year after the time in which he was eligible to do so. At that point he is no longer classed as a “resident Canadian” and his company is no longer following the statute requirements to have 25% of the directors be resident Canadians and that company could be dissolved by Corporations Canada.
Let’s also take a look at another example with a different scenario. A Canadian citizen living in Canada sets up a company with three other directors. The other three directors do not live in Canada. He is elected a director along with the other three directors and is the “resident Canadian” director. The federal Canadian company is in compliance with the Canada Business Corporations Act because 25% of the number of elected directors are resident Canadians. The resident Canadian director decides to permanently move to Cuba. He is still a Canadian citizen but he no longer lives permanently in Canada and therefore the company is no longer in compliance with the statute and another director will need to be elected to replace him.
Every BC company must have at least one director. A director is a person who has been appointed by the owners (shareholders) of the BC company to handle the business and affairs of the company on behalf of those owners. Very often the directors of a BC company are also the owners, who have appointed themselves to the role of director. In order for a person to act as a director he or she must meet the qualifications of directors of British Columbia companies.
Is there any Limit on the Number of Directors a BC Company May Have
The Business Corporations Act (British Columbia) which governs BC companies provides that every private BC company must have at least one director and every public BC company must have a minimum of three directors, although all BC companies can have as many directors as they wish.
Persons Disqualified to Act as Directors of a BC Company
If the individual who wishes to act as a director of a BC company falls under any of the following restrictions that person cannot act as a director of a BC company:
Is under the age of 18 years;
Has been found by a court, in Canada or elsewhere, to be incapable of managing the individual’s own affairs;
Is an undischarged bankrupt; or
Has been convicted in or out of BC of an offence in connection with the promotion, formation or management of a corporation or unincorporated business, or of an offence involving fraud.
Section 124 of the Act does provide for some exemptions with respect to these restrictions for those who may be interested.
Resident Canadian Requirement Does not apply to Directors of BC Companies – Directors do not Need to Live in Canada
Many provinces and territories in Canada have a resident Canadian requirement which provides that a certain number of directors of a company must be “resident Canadians”.
The requirement for a director of a BC company to be a resident Canadian does not exist. This is good news for Canadians who live abroad and wish to maintain a business in Canada. It is also good news for those individuals who are living outside of Canada and wish to open a business in Canada but would not be able to move to Canada.
Does a BC Director Need to be a Shareholder
A BC director can be a shareholder but there is no legal requirement for him to hold shares in the company.
BC Directors Must Consent to Act
The BC incorporation statute provides that all directors must consent to act as directors of a BC company. The directors of a BC company must consent either in advance of or at the same time of their election to the board.
By-laws are the rules pursuant to which a corporation conducts business. Many of those rules will be the same as outlined in the statute governing the company. However, in some cases the statute may provide that the by-laws can override certain standard statute provisions. Ontario operating by-laws are the main rules for the corporation.
Ontario Operating By-law
The Ontario operating by-law is the first by-law to be enacted by a company upon incorporation and every company must have an operating by-law. The rules outlined in the operating by-law are with respect to the number of directors, directors’ duties and meeting requirements, the appointment of officers and the rules relating to shareholders including meeting requirements, how many shareholders must be in attendance for it to be a valid meeting, etc. These are just a few of the provisions outlined in a standard Ontario operating by-law.
“(1) Unless the articles, the by-laws or a unanimous shareholders agreement otherwise provide, the directors may, by resolution, make, amend or repeal any by-laws that regulate the business or affairs of a corporation.
(2) Where the directors make, amend or repeal a by-law under subsection (1), they shall submit the by-law amendment or repeal to the shareholders at the next meeting of shareholders, and the shareholders may confirm, reject or amend the by-law, amendment or repeal.
(3) Where a by-law is made, amended or repealed under subsection (1), the by-law, amendment or repeal is effective from the date of the resolution of the directors until it is confirmed, confirmed as amended or rejected by the shareholders under subsection (2) or until it ceases to be effective under subsection (4) and, where the by-law is confirmed or confirmed as amended, it continues in effect in the form in which it was so confirmed.
(4) If a by-law or an amendment or repeal of a by-law is rejected by the shareholders, or if the directors do not submit the by-law, amendment or repeal to the shareholders as required under subsection (2), the by-law, amendment or repeal ceases to be effective on the date of such rejection or on the date of the meeting of shareholders at which it should have been submitted, as the case may be, and no subsequent resolution of the directors to make, amend or repeal a by-law having substantially the same purpose or effect is effective until it is confirmed or confirmed as amended by the shareholders.”
Amending or Repealing a By-Law
If the officers of an Ontario company wish to amend an Ontario operating by-law or another by-law, which has been approved by the directors and shareholders, the manner in which to approve the amendment to the by-law is to create a new by-law providing for the amendment. For instance the officers will create a new by-law no. 2 which repeals all or certain sections of operating by-law no. 1, and includes the new replacement sections to be approved. The officers would present by-law no. 2, being an amendment to by-law no. 1, to the directors for approval. If the directors approve the by-law then the directors shall present the by-law to the shareholders for approval at the very next meeting of the shareholders.
Approving a By-law
When the directors approve a by-law it is said that the by-law has been “enacted by the directors” and the shareholders of the company are said to have “confirmed the by-law”. All directors and shareholders of a corporation must have an opportunity to review the by-law and approve it for the by-law, amendment or repeal to be considered to be properly approved in accordance with the requirements under the Business Corporations Act (Ontario).
This article is about the requirement under the Business Names Act (Ontario) for a company to register under the Business Names Act when it operates under a name other than its corporate name – known as an Ontario operating trade name.
The statute indicates in section 2 that no corporation shall carry on business or identify itself to the public under a name other than its corporate name unless that name is registered by the corporation.
This legal requirement is frequently not followed correctly by small business corporations. Let us take the example of a person who incorporates a company called Trewell Landscaping Inc. He incorporates his company and wants to put a sign up on his door for the name “Trewell Landscaping”.
This is not the full name of the company and Trewell Landscaping Inc. is therefore operating under a name other than its corporate name and is in violation of the Business Names Act.
The owner of Trewell Landscaping thinks that because his corporate name and his business name are similar, that a registration is not required. However, by virtue of the owner putting up a sign on his door called Trewell Landscaping he is in violation of the legal requirements under the Business Names Act.
The owner of Trewell Landscaping Inc. has two options. He can register an operating trade name called “Trewell Landscaping” and obtain a Master Business License for this name. This would mean that Trewell Landscaping Inc. would then be legally operating under the trade name “Trewell Landscaping” and the above sign is completely correct and legal.
If he does not wish to incur any further expense he can include the word “Inc.” at the end of the name “Trewell Landscaping” in very small letters after the name on his sign.
Below is an example of the Master Business Licence that is issued by the Ontario Ministry of Government Services when a company registers a business name. This example illustrates how the name is registered without the “Inc.” in the name which allows the corporation to now operate under Trewell Landscaping.
The BC government has name granting procedures and policies that differ from some of the other provinces. The BC government considers any similar BC name already registered and as well looks at the nature of business of the proposed business when granting names. This article outlines some of those requirements and provides tips as to how to get a name approved and obtain a BC Name Search Report for a proposed business name registration.
Three Name Choices When Submitting a Request for a Proposed BC Name Search Report
The British Columbia Corporate Registry allows you to submit three proposed names for their review when requesting a BC Name Search Report. This is the only province that does this. It is very important to take advantage of this opportunity since the examiners have personal views and even though a name may appear to be clear, the examiner may feel it is not for a variety of reasons. If you give them three choices you will have a better chance of approval.
As indicated above, the examiners also consider the business purpose of a company as well when they make decisions on which names can be used for a BC business. It is not possible for you to determine which registered businesses have a similar business purpose to your proposed business name. It is therefore important to choose names that are distinct and different from all other names registered across Canada, regardless of the business purpose, and take advantage of the three choices option.
Why Use a Search House to Pre-Clear Your Names and Submit a Name Clearance Request to the BC Government on your Behalf
The BC Registry does have a free pre-clearance program in place. However, it is very limited and will not bring up all conflicts to any proposed names. If you use this service there is a very high chance that your proposed name will be rejected even if it appears to be clear because the BC name clearing program does not provide enough broad matches. The only way to do a broad pre-clearance of your proposed BC business name is to have a search house check the name through the NUANS system since it allows for broad matches.
A Canadian search house has access to all of the names registered across Canada. Not only will they be able to clear your name for use in BC, they will also be able to confirm that your proposed name can be used anywhere in Canada. Many businesses now conduct business right across Canada so it is important to pre-clear your name throughout. The BC government’s pre-clearance program does not search conflicts outside of British Columbia.
Single Word Names
The BC Ministry does not normally approve single word names. An example of a single word name for a company would be “Doe Inc.” or in the case of a business name, proprietorship name or partnership name, the word “Doe” would not be acceptable. The only time a single word name will be accepted for a proposed business is if the name is a coined name and it has been trademarked first.
Distinct Elements of a Name
The BC Ministry takes the distinct elements of a name very seriously when it considers whether a BC Reservation Report will be provided. Therefore, if you wish your name to be approved it is a good idea to following the name granting rules. There are three elements of a share company name and two elements for operating names, proprietorships and partnerships.
Distinctive Element – This element is the first one or two words of the name and it can be any noun, a street name, a city name, a coined name (which is a name that has been made up), a colour, an object, etc. The more different and distinct this element is will make it easier for you to obtain approval for your proposed name(s).
Descriptive Element – This element is in the middle of the name. It should describe the nature of business. The BC Ministry insists this element forms part of the name. An example might be online store, marina, knitting supplies, etc.
Legal Element – As indicated below, there must be a legal element at the end of a name for a BC company such as “Limited”, “Incorporated”, “Corporation”, “Ltd.”, “Inc.” or “Corp.” See a more detailed description of the requirements for legal elements under Corporate Designations for BC Business Names outlined below.[margin_10t][margin_10t]
The BC Ministry recommends that the use of special characters for corporate and business names be avoided. Some characters are not recognizable by the system and may not be allowed because of that. The symbol for the cent sign is not allowed. To avoid refusal to obtain a favourable BC Name Search Report it is best to avoid symbols. Feel free to contact us if you wish to know if a particular symbol might be acceptable.
Legal Designations for BC Business Names
There are a number of different types of business registrations in the province of British Columbia and each one has to be set out in accordance with the statute requirements for that type of business. Below is a summary of the legal designations for the various types of business registrations:
BC Incorporated Company– The last word of the corporate name must have one of the following legal designations: “Limited”, “Incorporated” or “Corporation”. You can also use the short form versions of the words as follows: “Ltd.”, “Inc.” or “Corp.” If you are choosing a French name then the legal designation would need to be Limitee, Ltee., Incorporee, Inc. or Corp.
BC Partnerships and Sole Proprietorships do not have a legal ending such as Limited, Ltd., Incorporated, Inc. or Corp. however, they may use the following: Company or Co.
BC Cooperativesmust use the word “Cooperative” in their name and may also use “Society”, “Union”, “Association” or “Exchange”.
BC Societies must have the designation “Association” or “Society” as the last word in the business name.
BC Limited Partnerships must use “Limited Partnership” at the end of the name.
BC Limited Liability Partnerships must use the words “Limited Liability Partnership” or “LLP” at the end of the business name.
BC Business Names Cannot Suggest a Government Connection
Certain words that may imply that the proposed business will be connected to the government are not accepted. Specifically the following words must be avoided: “government”, “ministry”, “bureau”, Secretariat”, “commission” or “certified”.
The use of the word “BC” or “British Columbia” as a distinctive part of the name (i.e. at the beginning of the proposed name) is considered in the eyes of the BC government to imply a connection to the government. In cases such as this, in order to use such a name you would need to obtain the approval of the government. You can, however, use these words at the end of a name and before the corporate designation (legal element) of the name. An example would be Veener Shipping of British Columbia Inc.
BC Business Names Must Not Suggest a Connection to the Crown
Any request for a BC Name Search Report for a proposed BC business name registration that implies any type of connection to the Royal Family or the Crown is not allowed including any reference to any living member of the Royal family, or endorsement by the Crown or Royal family. An example of this would be Prince Charles Coffee Shop Limited. You are allowed to use words that relate to places such as Prince George or Prince Rupert.
Using Personal Names in a BC Business Name
Personal names are allowed as part of incorporated BC companies. For instance, if you wish to use a name such as John Doe Inc. or Doe & Brown Inc. this would be acceptable.
Numbered Company Names
It is possible to register a numbered company with the province of BC. If you choose to do this the BC government will assign a specific number to your new incorporation. It will look similar to 999999 B.C. Ltd.
Number names differ from a numbered BC company name. Numerals may be used in company names in the distinctive portion of the name (the first one or two words of a name). An example would be 13457 Enterprises Ltd. or Atlantic Enterprises (1998) Ltd.
Resources for Canadian Business Owners Inc. is a registered search house.
Below is an detailed explanation of what goes in a minute book. When a new company is incorporated there is a three step process: (1) obtaining a Certificate of Incorporation, (2) setting up a minute book and, in some cases, (3) filing an Initial Return.
Many new business owners do not want to pay to set up a minute book for their company. Since they are able to open up a bank account without showing a minute book they will forego having a book prepared. This can be problematic in the future. For more information refer to Why a Company Needs a Minute Book.
Setting Up Your Minute Book
The very first documents that are included in the minute book are called the “organizational documents of the company”. The documents that will be prepared and inserted in the minute book will be:
General Operating By-law – A by-law is a list of rules. Some of the things that you will find in a by-law are:
How many people must attend at directors and shareholders meetings for the meeting to be validly called
What the procedure is for calling directors and shareholders meetings to ensure it is a valid legal meeting
How many votes are required to approve an item of business at a directors or shareholders meeting
Which directors and officers can sign agreements on behalf of the company and obligate and bind the company under those agreements
What is the procedure for removing a director or officer of a company
How is an officer or director replaced or new officers and directors appointed
Who can borrow money upon the credit of the company
A general operating by-law in most cases sets out the provisions of the statute governing the company but some of those provisions can be varied for the particular circumstances.
All companies must have a general operating by-law which is enacted by the directors and confirmed by the shareholders. If you obtain a general operating by-law for your company you will be able to determine how to conduct business properly.
If meetings are held that violate the legal requirements for a meeting you could have issues with this in the future and in particular, in the case where a director or shareholder is objecting to an approval that was put through. If the approval at a meeting was not documented or documented incorrectly it could invalidate that approval and you may be forced to set aside that resolution.
In some provinces the general operating by-law provisions are included as part of the Articles of the company in a document called a Memorandum of Association.
Borrowing By-law – This by-law provides who has authority to borrow on behalf of the company and normally provides for the directors and officers to have this right. Banks frequently wish to see this by-law if the company wishes to borrow money.
First Directors Resolutions – The individuals who agreed to be the first directors on the articles of incorporation have a legal obligation to approve certain things right after incorporation including:
Appointing the officers
Allotting shares and confirming the amount paid for those shares
Enacting the general operating by-law
Once the first director has approved these matters he can then resign if he wishes or he can continue as a director of the company.
First Shareholders Meetings – There cannot be a first shareholders meeting until the shares have been allotted. As indicated above the first directors allot the shares to the shareholders. A shareholder (owner of a company) does not have to be a director and a director does not have to be a shareholder, however, frequently the owners of a company also wish to manage the company so they will be both a shareholder and a director. Some of the items approved at the first shareholders meeting are:
Determine how many directors there will be
Appoint the Auditor or the Accountant
Accept any resignations of the first directors and confirms the appointment of all directors
Consent to Act of directors – Directors need to consent to act as directors and this consent must be signed and inserted into the minute book of the company. This ensures that a director is not elected to the board of directors and his name is not put on the public record without his or her consent.
Exemption from Appointment of an Auditor– Most private companies are not required to have audited books. However, in many cases the statute governing the Canadian company will require that the shareholders approve an audit not being performed.
Registers – All statutes have a requirement that registers be prepared for a company. The registers you will find in a minute book are:
Directors Register – lists the dates of appointment and resignation of each of the directors and their addresses
Officer Register – lists the dates of appointment and resignation of each of the officers, the positions they hold in the company (i.e. President, Secretary, Vice-President) and their addresses
Shareholder Register – lists all of the individuals or companies that hold shares in the company, the number of shares they own and the date they received those shares. It also records when shares are returned to the company or transferred to other individuals or companies
Shareholder Ledgers – Each shareholder will have a ledger showing the date upon which he or it received shares, how many shares were allotted and the reason why those shares were allotted. It will also show when those shares are transferred to others, if applicable.
Forms – All companies must file returns with the particular Canadian government under which they are incorporated. When changes to directors and officers occur the government will expect you to provide them with an amended form showing all current addresses. This section of the minute book contains a record of all filings made to the government. It does not typically contain tax returns but you can store any documents you wish in a minute book.
Share Certificates – Every shareholder has a right to a share certificate. This certificate evidences ownership. If you have not set up a minute book for your company you will not have any proof of ownership.
Maintaining a Minute Book for a Company
After the initial “organization of the company” there may be circumstances where there may have to be changes to the structure. Some of the circumstances where changes may occur are:
A new by-law may need to be enacted such as a by-law to vary the borrowing rights of the company
New investors may be needed to move the company forward and those investors may wish to hold shares in the company
A director may resign and a replacement may need to be elected or new directors may be brought on because a new shareholder wants to be a director as well
The company may wish to enter into a major transaction and the directors may need to approve the form of agreement respecting same
A shareholder may wish to leave the company and will want to transfer his shares back to treasury or transfer the shares to the other shareholders on a prorated basis
The company may wish to conduct business in other jurisdictions in Canada or countries outside of Canada and those governments may request the directors to approve the registration
We all like bargains. There are services on the market which claim to provide you with a completed minute book for a reduced price. What you are given is a book with a number of blank resolutions, blank registers and blank share certificates.
In some cases you will be provided with the resolutions and the by-law but they will not be filled out and you will be left with trying to figure out how to complete them properly. In many cases there will be no instructions for this.
When you purchase a minute book be sure to ask what you are getting. The organization and set up of a company does cost a bit of money because it takes a number of hours to put together. The questions you should ask are:
Will there be a by-law?
Are there resolutions in the package which will show the actual names of the directors or officers or do the resolutions have blanks in them for insertion of the names?
Are you provided with a questionnaire which asks (1) who will the officers be, (2) who will the shareholders be and how many shares will be held which would indicate the company is setting up the company properly?
Will the registers be filled in with the proper individuals’ names?
If the resolutions will have blanks for names and numbers of shares will there be an instruction sheet included?
Depending on what you feel confident about doing, price shopping should be considered to ensure that the product you are receiving warrants the price paid in comparison to the different types of packages you can buy. i.e. the price of a blank minute book should be much lower than the price of a personally completed minute book.
If you are provided with no by-law and no resolution templates then you will need to understand how to complete the documents from scratch.
If you are provided with a by-law and resolutions with blank spaces for names, then you will need to be confident enough to fill in those blanks.
In the long run it is easier to have someone skilled at completing the documents for you.
There are two methods of describing share capital. There is Authorized Share Capital and there is Issued Share Capital.
What is Authorized Share Capital
A definition of authorized share capital would be the number and class of shares for which an incorporated company is authorized to issue. When a company is incorporated it must set out in its Articles of Incorporation what shares the company will be authorized to issue. A company cannot issue shares of a specific class unless its Articles indicate so.
Examples of Authorized Share Capital as Outlined in Articles
Examples of the wording in the Articles relating to authorized capital would be “an unlimited number of common shares”. This means that there is no limit as to how many common shares can be issued.
Another example of authorized share capital would be 1,000 Class A preference shares. If a company’s Articles indicate 1,000 Class A preference shares as part of the authorized capital, this means that the company can only issue 1,000 shares of that class.
Where a corporation has share capital consisting of one class of shares those shares are normally called common shares.
What is Issued Share Capital
Ownership of a company is divided into shares which is sometimes called stock. The issued share capital of a Corporation is the total of the corporation’s shares that are held by shareholders. Shares can only be issued up to the full amount of the authorized share capital. When a shareholder wishes to buy shares in a company, it is said to be subscribing for shares.
An example would be a 50/50 ownership where one person is allotted 50 common shares for $1.00 per share and the other person is allotted 50 common shares for $1.00 per share, creating an equal ownership in the company. The issued share capital would be 100 common shares.
Another example would be:
John Doe 51 voting common shares
Susan Doe 49 voting common shares
John Doe would be said to be the majority shareholder because he holds more than 51% of the issued and outstanding common shares and the issued share capital consists of 100 common shares.
How are Shares Issued
Shares can be issued for cash, in exchange for property or in exchange for services, however, the consideration for the allotment of shares must be paid at the time the shares are issued. Shares cannot be issued for a promise to pay.
Different Names for Authorized Share Capital
Below is a more detailed list of some of the different types of shares that can form the authorized share capital:
In the case where a class of shares has multiple subclasses of the same class of shares you may see the following types of shares included in the authorized share capital:
Class A common, Class B common, Class C common
Class A special, Class B special, Class C special
Class A preference, Class B preference, Class C preference
There is no set rule for naming different classes of shares. Above are some of the standard names that are used.
Different classes of shares can be created for many reasons. Each class of shares has its own share attributes. Those attributes are created to provide that when a person/business subscribes for a specific class of shares of a company, those shares will have certain rights and conditions attached to them that the corporation is obligated by law to honour.
The authorized capital of a corporation and the attributes for the authorized shares can be amended upon occasion by filing articles of amendment.
The attributes of a class of shares are the rights, privileges, restrictions and conditions attaching to a class of shares.
For instance, one class of shares may have the right to one vote per share, while another class of shares may have the right to vote where the shareholder would have 100 votes per share, and still another might have a restriction on voting and have may have no voting rights at all.
Depending on what the person/business’s relationship will be with the company will govern what type of shares will be issued to that person.
Standard Share Attributes
If a corporation has only one class of shares those shares are normally designated as common shares. In this case, those common shares automatically have the following three rights:
The right to vote – The standard voting provisions, unless varied in the Articles, is one vote per share. Therefore, if one person holds 100 common shares and another shareholder holds 50 common shares, the person that holds 100 common shares has more voting power.
The right to the remaining assets upon dissolution – This means that if a company is going to wind up and dissolve, when it disburses the remaining assets of the Corporation, the common shareholders will receive this property, if any, in proportion to the number of shares owned in the Corporation.
The right to discretionary dividends – If a company wishes to declare a dividend, the common shareholders shall have a right to receive such monetary dividend equally with all other common shareholders in proportion to the number of shares held.
In the case of one class of shares and depending on the legislation of the particular jurisdiction (i.e. province, country, state, etc.), the Articles do not actually have to outline those three rights because they are “understood” rights. If a corporation were to outline the standard common share rights in the Articles, the language would be as follows:
Dividends – Common Shares – The holders of the common shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the board of directors of the Corporation out of the moneys of the Corporation properly applicable to the payment of dividends, such non‑cumulative dividends as the directors may from time to time determine.
Participation in Assets on Dissolution- Common Shares – The holders of the common shares shall be entitled to receive the remaining property of the Corporation upon dissolution of the Corporation.
Voting Rights – Common Shares – The common shares shall entitle the holders thereof to one (1) vote in respect of each common share held at all meetings of the shareholders of the Corporation.
When a Company has more than One Class of Shares
If a corporation has more than one class of shares then these rights can be varied and additional rights can be added since special or preference shares frequently have additional rights in addition to the three rights given to common shareholders. In the case of a corporation that has more than one class of shares those attributes and rights must be clearly set out in the Articles of Incorporation and/or Articles of Amendment for the corporation. There are many attributes and conditions that can be attached to shares. As well, different priority rights can be given to one class of shares over another. However, below is a summary of some of the common share attributes given to special or preference shares.
Right to Redemption by the Corporation – Redeemable shares are shares that can be repurchased by the Corporation from the shareholder who owns the shares. Usually redeemable share attributes will specify the amount per share which the shareholder will be paid when the shares are redeemed and the method pursuant to which the corporation may request the shares be redeemed. The corporation has the right to take these shares back regardless of whether the shareholder wishes to have its shares redeemed. Common shares are not redeemable. Once those shares are redeemed by the corporation, that shareholder no longer has any rights to those shares.
Right to Retraction by Shareholder – In a case where a shareholder holds special or preference shares, if the shares have the right to be retracted, the shareholder will have the right to request the corporation to redeem (or buy back) his or her shares and to pay that shareholder the amount each share is worth as outlined in the Articles. The corporation cannot refuse to buy back the shares if it is requested to do so. Common shares are never retractable.
Rights to Voting and Non-Voting – Shares can be either voting or non-voting. Non-voting shares limit the manner in which a class of shares can be involved in a company’s day to day business. In certain cases a person/business may not wish to have voting rights or the current owners of a company may not wish the person/business investing in the company to have voting rights.
Purchase for Cancellation – Redemption and retraction provisions in Articles give a company or the person who owns the shares the right to trigger a purchase or sale of the shares at a share price that is specifically outlined in the Articles. Sometimes a company may wish to repurchase shares owned by a shareholder at a price that is different from the redeemable or retractable price. The corporation has the right by legislation to purchase issued shares for cancellation.
Right to Convert Shares of One Class into Another Class of Shares – Sometimes there may be a provision in the Articles that provides for a specific class of shares to be able to convert their shares into another class of shares under certain circumstances.
These are only a few of the share attributes that can be given to a class of shares.
What Evidence Does a Person have when He or She Buys Shares of a Company
When a person/business is issued shares in a company, the company will issue that person a share certificate. It is not always mandatory that a share certificate be issued. Sometimes shares are issued electronically. However, if a person/business wishes to have a share certificate issued then the shareholder has a right to receive a share certificate except in the case where a public company has electronic shares.
Who Has the Right to Own Shares in a Corporation
Shares of a corporation can be issued to a person, to another corporation, to a trust, to a partnership, etc.
An Alberta NUANS Search is required when incorporating an Alberta company. The Alberta NUANS search report is used by the Alberta government to confirm that your proposed name is available for use.
The Alberta NUANS Search will show all business names registered in Alberta which are similar to your proposed name and also all names registered in all of the other provinces and territories in Canada which may be a conflict to your proposed Alberta name.
The Alberta NUANS Search Report will also show similar named trademarks that have been registered. [margin_25t]
Preliminary Name Search Prior to Ordering Alberta NUANS Search
Prior to obtaining a NUANS Search for Alberta it is advantageous to perform a preliminary name search. If you were to pick a name and order the Alberta NUANS Search, without the preliminary name searches, you would not know in advance if that name is available.
Having in hand a NUANS Search for Alberta is no guarantee that your name will be accepted. If an exact name is showing on the Alberta NUANS search, being a name already used to register another company, your request for use of that name will be rejected.
The only way you will know if there is an exact name already registered for the proposed name is by having preliminary name searches done. If your Alberta NUANS search is rejected you will need to start over and obtain another Alberta NUANS search. Preliminary name searches help to prevent this happening.
Alberta is more lenient with name approval than other provinces. For instance, if you wish to register Joe Clothing Store Inc. and there is a company already registered as Joe Clothing Sales Store Inc., the Alberta government will allow you to register the name Joe Clothing Store Inc. and your Alberta NUANS search will be accepted by them. This does not mean you should use that name.
This would be a clear conflict and the owners of Joe Clothing Sales Store Inc. would not be too happy to see another company registered with such a similar name. Legal action could be taken and you may need to change your company’s name.
When you have a search house perform preliminary name searches prior to ordering your Alberta NUANS Search 90% of any conflicts will come to light and you can then choose another name for your Alberta company if the name is not available. You should be aware that the preliminary name searches do not pick up all conflicts and there is a slight chance there may be additional conflicts showing on the full NUANS search for Alberta but performing preliminary name searches does assist greatly.