Explanatory note on proposed regulatory amendments

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Note

Modifications to this document, added on January 19, 2018, are marked in a large blue font.

Background

On September 28, 2016, Bill C-25 An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act was introduced. Some of the proposed statutory amendments, which affect distributing corporations and cooperatives, will require regulations to provide for:

  • the election of directors, which includes individual voting and voting for and against;
  • notice and access for documents, including financial statements, required for shareholder meetings;
  • disclosure of diversity amongst directors and members of senior management.

There are also proposed statutory amendments of an administrative and technical nature that will require regulations, such as retention of documents by the Director.

The regulations being affected are:

  • the Canada Business Corporations Regulation, 2001 (CBCR);
  • the Canada Cooperatives Regulations (Coop Regulations); and
  • the Canada Not-for-profit Corporations Regulations.

Objectives

The objective of these proposed regulatory amendments is to provide the provisions that would be needed to bring into force Bill C-25 should it be approved by Parliament.

Description

All proposed changes to the regulations are listed in the Annex, including technical or non-material changes. This section describes only significant changes to the regulations required by Bill C-25 amendments.

Election of directors

The Bill includes a number of changes to the process for the election of directors under the Canada Business Corporations Act and the Canada Cooperatives Act. A few of those changes require regulations, specifically:

  • election of directors of distributing corporations and distributing cooperatives are to be done on an individual basis, rather than by a slate system in which all directors are either elected or defeated in a single vote;
  • if a person fails to be elected as a director under the majority voting rules, the directors may appoint that person to the board if the person is needed to meet the corporation's requirement under the Act to have:
    •  at least 2 directors who are not officers or employees of the corporation or its affiliates; or
    • a certain percentage of the board members be Canadian residents.
  • changes to the form of proxy set in the CBCR and in the Coop Regulations will require voting "for" or "against" each director instead of voting "for" or "withholding" a vote when majority voting applies.

Notice and access

Since March 2013, provincial securities commissions have allowed corporations to use the Internet to provide meeting materials to shareholders. Corporations are able to send a streamlined set of meeting materials that includes information on how the shareholder can obtain a fuller set from the corporation's website. A streamlined package instead of the traditional proxy package lowers a corporation's costs.

Federally-incorporated corporations and cooperatives have had some difficulties using notice and access because of technical wording that restricts them. Bill C-25 proposes amendments that allow the regulations to align with the provincial securities commissions for distributing corporations.

The requirements for providing proxy circulars to shareholders under the Canada Business Corporations Act would be:

  • for a distributing corporation or cooperative using notice and access, the provincial securities rules for notice and access are followed;
  • for other corporations, the proxy circular is sent to the shareholders.

The proxy circular would still be sent to the auditor, to each director and to the corporation in the case of a dissident proxy circular.

For financial statements, Bill C-25 also amends the Canada Business Corporations Act and the Canada Cooperatives Act to allow the regulations to set out the rules for how and when financial statements are to be sent to shareholders and members.

The approach would be the following:

  • If distributing corporations and distributing cooperatives include a link to the financial statements as part of the notice and access package, they will meet the obligation to send financial statements to shareholders and members.
  • Distributing corporations and distributing cooperatives that are not using notice and access or not including a link to the financial statements in the notice and access package must send financial statements only to shareholders and members who request the statements. Moving to a request-based system will allow corporations and cooperatives to reduce printing and mailing costs while allowing their shareholders and members to obtain hard copies of statements only when they want them. This aligns with the approach taken by provincial securities and corporate regulators.
  • For non-distributing corporations and cooperatives, the rules would not change. They would still be required to send financial statements to all shareholders and members, except those who say that they do not want to receive them.

Disclosure of diversity

Bill C-25 requires certain corporations to provide shareholders with information on the corporation’s policies related to diversity on the board of directors and within senior management.  The regulations will specify that:

  • distributing corporations will have the obligation to disclose this information;
  • distributing corporations will need to disclose the same information as required under provincial securities rules in Items 10 to 15 of Form 58-101F1 entitled Disclosure of Corporate Governance Practices, as amended from time to time, with “members of designated groups” replacing “women” in Items 11 to 15;
  • “designated groups” will be defined to include, but not be limited to, designated groups as defined by the Employment Equity Act.  The designated groups in the Employment Equity Act are women, aboriginal peoples, persons with disabilities and members of visible minorities; and
  • “senior management” will have the same definition as “executive officers” as set out in subsection 1.1(1) of provincial securities rules National Instrument 51-102 entitled Continuous Disclosure Obligations.

Keeping and producing documents by the Director

Bill C-25 allows the Canada Business Corporations Act, the Canada Cooperatives Act and the Canada Not-for-profit Corporations Act regulations to change the time periods related to keeping and producing documents that were received and accepted by the Director appointed under that legislation. Some documents will be kept indefinitely to meet the needs of the legal and business community. Other documents will not be required to be produced by the Director after the retention period has lapsed. The retention periods are the following:

Document retention period
Retention period Types of documents
Indefinite
  • articles and certificates, letters patent, supplementary letters patent, charters and surrender of charters
  • list of directors
  • registered office address
  • by-laws
Two years after receipt or issuance by the Director
  • annual returns
  • proxy circulars
  • letters of satisfaction
Three years after receipt
  • financial statements
Six years after receipt
  • exemption applications
Summary table of regulatory content to the Canada Business Corporations Act (CBCA) and the Canada Corporations Act (Coop Act)
Statute Provision Content of regulation
  • CBCA
  • Coop Act
 Prescribe corporations for individual voting for directors. The prescribed corporations are distributing corporations and cooperatives.
  • CBCA
  • Coop Act
 Prescribe the circumstances where the directors can appoint a person who has failed to receive a majority of votes cast in their favour. The prescribed circumstances are that the person is needed to meet:
  • the requirements in subsection 102(2) of the Act for at least 2 directors who are not officers or employees of the corporation or its affiliates; or
  • the Canadian residency requirements in section 105 of the Act.
  • CBCA
  • Coop Act
 Form of proxy changes to:
  • require individual voting for directors; and
  • vote for or against each director.
 Amend CBCR section 54 and Coop Regulations section 24 to require the form of proxy to allow shareholders to vote for directors individually and to vote for or against each director if the corporation is using majority voting.
  • CBCA
 Prescribe the manner of making proxy circular available to shareholders. The prescribed manner is either:
  • for distributing corporations using provincial securities rules on notice and access, the proxy circular is provided as part of notice and access;
  • for other corporations, no change. The proxy circular is sent to the shareholders.
  • CBCA
  • Coop Act
 Prescribe the documents intermediaries are required to send to beneficial owners to facilitate the use of notice and access under provincial securities law. For the purpose of CBCA subsection 153(1) and Coop Act subsection 169(1), the documents are:
  • for distributing corporations using provincial securities rules on notice and access, the documents sent to shareholders as part of notice and access;
  • for other corporations, no change. The current list of documents is:
    • notice of meeting;
    • financial statements if the solicitation is done by management;
    • management or dissident's proxy circular; and
    • any other documents other than the form of proxy.
  • CBCA
  • Coop Act
 Items to be prescribe for the purpose of sending financial statements to shareholders. For the purpose of CBCA subsection 159(1) and Coop Act section 251, the requirements related to financial statements are:
  • for a distributing corporation or cooperative using notice and access to send financial statements, include a link to the financial statements as part of the notice and access package;
  • for a distributing corporation or cooperative not using notice and access or not including a link to the financial statements in the notice and access package, send the financial statements to shareholders and members who request them; and
  • for a non-distributing corporation or cooperative, send the financial statements to all shareholders except those that request not to receive them.
CBCA Prescribe:
  • corporations for disclosure of diversity; and
  • the information to be disclosed.
 Distributing corporations are required to disclose the same information as required under provincial securities rules in Items 10 to 15 of Form 58-101F1 entitled Disclosure of Corporate Governance Practices, as amended from time to time, with “members of designated groups” replacing “women” in Items 11 to 15.

Contact information

Coleen Kirby
Manager, Policy Section, Corporations Canada
Innovation, Science and Economic Development Canada
ic.corporationscanada.ic@canada.ca
Tel: 1-866-333-5556

Annex

This annex includes all the changes to the regulations, including technical and non-material changes:

Changes to Canada Business Corporations Regulations, 2001
# Section of the Act Description of amendments
1 11(1) new regulation The prescribed period for reserving a corporate name will be 90 days as it currently is in the Act.
2 12(1) new regulation A corporate name that has been reserved can be used by someone else with the written consent of the person for whom it was reserved.
3 12(5) new regulation A corporation has 60 days to change its name when ordered by the Director.
4 106(3.3) new regulation The prescribed corporations that have to hold separate votes for the election of directors will be distributing corporations.
5 106(8.1) new regulation The prescribed circumstances are:
  • the requirement in subsection 102(2) of the Act for at least 2 directors who are not officers or employees of the corporation or its affiliates; or
  • the Canadian residency requirements in section 105 of the Act.
6 137(5)(a) amendment Section 49 of the Regulations will set the period for submitted a shareholder's proposal as 90 to 150 days before the anniversary of the previous annual meeting of shareholders.
7 149 amendment Regulation 54 on the form of proxy will be amended to allow:
  • voting for directors individually; and
  • voting for or against each director if the corporation is using majority voting.
7A 150 new regulation The prescribed manner of making the proxy circular available to shareholders is:
  • for distributing corporations using provincial securities rules on notice and access, the documents sent to shareholders as part of notice and access;
  • for other corporations, the proxy circular would be sent to shareholders.
The proxy circular would be sent to the auditor, to each director and to the corporation in the case of a dissident proxy circular.
8 153(1) new regulation The prescribed documents that intermediaries send to beneficial owners are:
  • for distributing corporations using provincial securities rules on notice and access, the documents sent to shareholders as part of notice and access;
  • for other corporations, the current list of documents, namely:
    • notice of meeting;
    • financial statements if the solicitation is done by management;
    • management or dissident's proxy circular; and
    • any other documents other than the form of proxy.
9 159(1) new regulation The prescribed information and time period requirements for sending the information to shareholders are:
  • for a distributing corporation using provincial securities rules on notice and accessand sending information on the financial statements as part of the notice and access package, to send the financial statements as part of the notice and access package not less than 30 days before each annual meeting of shareholders;
  • for a distributing corporation not using notice and access, to send the financial statements to shareholders who request them not less than 21 days before each annual meeting of shareholders; and
  • for a non-distributing corporation, to send the financial statements to all shareholders except those that request not to receive them not less than 21 days before each annual meeting of shareholders.
10 172.1 new regulation

The prescribed corporations for disclosure of diversity will be distributing corporations.

The prescribed information that is required to be disclosed will be the same information as required under provincial securities rules in Items 10 to 15 of Form 58-101F1 entitled Disclosure of Corporate Governance Practices, as amended from time to time, with “members of designated groups” replacing “women” in Items 11 to 15.

For the purposes of this section “designated groups” must include, but not be limited to, designated groups as defined by the Employment Equity Act.

The prescribed members of senior management are the executive officers as defined by subsection 1.1(1) of provincial securities rules National Instrument 51-102 entitled Continuous Disclosure Obligations.
11 225(1) new regulation The prescribed period for a person retaining the corporate records of a dissolved corporation is 6 years from the date of dissolution.
12 258.3 amendment The prescribed circumstances for the new exemption will be the same as the circumstances for section 258.2 of the Act (known as the Single Filing Exemption).
13 267(3) new regulation

The prescribed documents to be kept by the Director indefinitely are charter documents, directors, registered office address and by-laws.

The prescribed information that is required to be disclosed will be the same information as required under provincial securities rules in Items 10 to 15 of Form 58-101F1 entitled Disclosure of Corporate Governance Practices, as amended from time to time, with “members of designated groups” replacing “women” in Items 11 to 15.

For the purposes of this section “designated groups” must include, but not be limited to, designated groups as defined by the Employment Equity Act.

The prescribed members of senior management are the executive officers as defined by subsection 1.1(1) of provincial securities rules National Instrument 51-102 entitled Continuous Disclosure Obligations.
Changes to Canada Cooperatives Regulations
# Section of the Act Description of amendments
1 22 new regulation The prescribed period for reserving a corporate name will be 90 days as it currently is in the Act.
2 23 new regulation A corporate name that has been reserved can be used by someone else with written consent of the person for whom it was reserved.
3 24(2) new regulation A corporation has 60 days to change its name when ordered by the Director.
4 58(4)(a) amendment Regulation 23.7(4) will set the period for submitting a shareholder's proposal as 90 to 150 days before the anniversary of the previous annual meeting of shareholders.
5 83(12) new regulation The prescribed cooperatives that have to hold separate votes for the election of directors will be distributing cooperatives.
6 83(13) new regulation The prescribed circumstances are:
  • the requirement in section 77 of the Act that at least two-thirds of directors to be members;
  • the requirement in subsection 78(3) of the Act that a majority of directors not be full-time officers or employees of the corporation; or
  • the Canadian residency requirements in subsection 78(4) of the Act.
7 165(1) amendment Regulation 24 on the form of proxy will be amended to allow:
  • voting for directors individually; and
  • voting for or against each director.
8 169(1) new regulation The prescribed documents that intermediaries send to beneficial owners are:
  • for a distributing cooperative using provincial securities rules on notice and access, the documents sent as part of notice and access;
  • for other corporations, the current list of documents, namely:
    • notice of meeting;
    • financial statements if the solicitation is done by management;
    • management or dissident's proxy circular; and
    • any other documents other than the form of proxy.
9 251 new regulation The prescribed information and time period requirements for sending the information to members and shareholders are:
  • for a distributing cooperative using provincial securities rules on notice and access and sending information on the financial statements as part of the notice and access package, to send the financial statements as part of the notice and access package not less than 30 days before each annual meeting of members and shareholders;
  • for a distributing cooperative not using notice and access, to send the financial statements to members and shareholders who request them not less than 21 days before each annual meeting of shareholders; and
  • for a non-distributing cooperative, to send the financial statements to all members and shareholders except those that request not to receive them not less than 21 days before each annual meeting of shareholders.
10 325 new regulation The prescribed period for a person retaining the corporate records of a dissolved cooperative is 6 years from the date of dissolution.
11 369.1 new regulation The prescribed circumstances are that the exemption does not prejudice any of the members, shareholders or the public.
12 378(3) new regulation The prescribed documents to be kept by the Director indefinitely are charter documents, directors, registered office address and by-laws.

The prescribed periods for other documents to be kept by the Director are:

  • 2 years after receipt for annual returns, proxy documents and after issuance by the Director of letters of satisfaction;
  • 3 years after receipt for financial statements; and
  • 6 years after receipt for exemption applications.
Changes to Canada Not-for-profit Corporations Regulations
# Section of the Act Description of amendments
1 238 amendment Regulation 38 will set the prescribed period for a person retaining the corporate records of a dissolved cooperative to be 6 years from the date of dissolution.
2 283(3) new regulation The prescribed documents to be kept by the Director indefinitely are charter documents, directors, registered office address and by-laws.

The prescribed periods for other documents to be kept by the Director are:

  • 2 years after receipt for annual returns, proxy documents and after issuance by the Director of letters of satisfaction;
  • 3 years after receipt for financial statements; and
  • 6 years after receipt for exemption applications.
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