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.