Part 5 Corporate Finance (clauses 13-16)

The principal amendment proposed in this Part is the repeal of the current financial assistance provisions (s. 44), together with consequential amendments necessary to give effect to this change.

Other amendments include the following:

• The provision relating to stated capital account would be amended to provide for more flexibility in the adjustment of the stated capital account in respect of arm's length transactions (s. 26).
• The section pertaining to the issuance of shares in series (s. 27) would be clarified to provide that the articles may authorize the issue of any class of shares in one or more series and also fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series.
• Amendments providing a number of limited exceptions to the general rule prohibiting subsidiaries from acquiring shares of the parent corporation (s. 31(3) to (6)).
• The addition of a new provision prohibiting a corporation which holds shares in itself or in its holding body corporate to vote or permit those shares to be voted, subject to certain conditions.
• An amendment clarifying the financial tests relating to payments to shareholders by way of dividends, acquisition of shares and reduction of stated capital (ss. 35(3) and 36(2)), in order to avoid double counting as a result of changes to section 3860 of the CICA Handbook.
• A number of technical changes are proposed to update and clarify the wording of the Part and to reconcile the English and French versions of the Act.

Briefing Book
An Act to amend the Canada Business Corporations Act and the Canada Cooperatives Act

Bill Clause No. : 13
CBCA Section No.: 25(5)
Topic  : Corporate Finance(Technical Amendment)

Sources of Proposed Law
N/A

Changes From Present Law 
Amend subs. 25(5) to clarify that only promissory notes and promises to pay made by the person to whom shares are issued or a person not dealing at arm's length from such person are to be excluded from the definition of property in s. 25 (and are therefore not valid consideration in determining whether shares are fully paid for).

Purpose of Change 
The term "property" is used in subs. 25(3), which prohibits the issuance of a share until the consideration for it is fully paid "in money or in property or in past services that are not less in value than the fair equivalent of the money that the corporation would have received if the share had been issued for money". Subsection 25(4) gives certain directions in the determination of what is a fair equivalent and subs. 118(1) imposes liability on the directors to make good any amount by which the consideration is less than the fair equivalent.

The intention behind subs. 25(5) is not to exclude all promissory notes or promises to pay. However, in some circumstances, such "property" may constitute valid and valuable consideration for shares issued by the corporation. The proposed amendment would not affect the obligation of directors to ensure that the property received as consideration is the fair equivalent of the money that the corporation would have received if the share had been issued for money (subs. 25(3) and subs. 118(1)).

Similar Provincial Laws 
Business Corporations Act (Ontario)

Current Wording 
25. (5) For the purposes of this section, "property" does not include a promissory
note or a promise to pay.

Proposed Wording 
25. (5) For the purposes of this section, "property" does not include a promissory note, or a promise to pay, that is made by a person to whom a share is issued, or a person who does not deal at arm's length, within the meaning of that expression in the Income Tax Act, with a person to whom a share is issued.

Bill Clause No.: 14
CBCA Section No. : 26(3) and (9)
Topic :Corporate Finance (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law 
The reference to subsection 25(3) in subsection 26(3) is deleted.

Paragraph 26(3)(a) is amended by adding a new clause (iii) to add flexibility in the adjustment of the stated capital account in respect of arm's length transactions.

Paragraph 26(3)(b) is amended by inserting the preposition "or" between "(c)" and "to".

The reference in subsection 26(9) to subsection 44(1) is removed

Purpose of Change 
The principle found in subsection 25(3) is that shares should be fully paid for at the time of their issue. Even if commercial and tax practice favours that the full consideration not be added to the stated capital account, shareholder protection requires that this should not take away from the obligation to ensure that full consideration is received for the shares. The current wording, "notwithstanding subsection 25(3)" found in s. 26(3) might appear to imply that full payment need not be made before the share is issued in a non-arm's length transaction.

New clause 26(3)(a)(iii) would add flexibility in the adjustment of the stated capital account in respect of arm's length transactions.

Inserting in par. 26(3)(b) the preposition "or" adds flexibility in the adjustment of stated capital in respect of ordinary amalgamations and would bring the CBCA into line with provincial statutes

Similar Provincial Laws 
Business Corporation Act (Ontario)

Current Wording 
26. (3) Notwithstanding subsection 25(3) and subsection (2), where a corporation issues shares

(a) in exchange for

(i) property of a person who immediately before the exchange did not deal with the corporation at arm's length within the meaning of that term in the Income Tax Act, or

(ii) shares of a body corporate that immediately before the exchange or that, because of the exchange, did not deal with the corporation at arm's length within the meaning of that term in the Income Tax Act, or

(b) pursuant to an agreement referred to in subsection 182(1) or an arrangement referred to in paragraph 192(1)(b) or (c) to shareholders of an amalgamating body corporate who receive the shares in addition to or instead of securities of the amalgamated body corporate,

the corporation may, subject to subsection (4), add to the stated capital accounts maintained for the shares of the classes or series issued the whole or any part of the amount of the consideration it received in the exchange.

(9) For the purposes of subsection 34(2), sections 38 and 42, subsection 44(1) and paragraph 185(2)(a), when a body corporate is continued under this Act its stated capital is deemed to include the amount that would have been included in stated capital if the body corporate had been incorporated under this Act.

Proposed Wording 
26. (3) Despite subsection (2), a corporation may, subject to subsection (4), add to the stated capital accounts maintained for the shares of classes or series the whole or any part of the amount of the consideration that it receives in an exchange if the corporation issues shares

(a) in exchange for

(i) property of a person who immediately before the exchange did not deal with the corporation at arm's length within the meaning of that expression in the Income Tax Act,

(ii) shares of, or another interest in, a body corporate that immediately before the exchange, or that because of the exchange, did not deal with the corporation at arm's length within the meaning of that expression in the Income Tax Act, or

(iii) property of a person who, immediately before the exchange, dealt with the corporation at arm's length within the meaning of that expression in the Income Tax Act, if the person, the corporation and all the holders of shares in the class or series of shares so issued consent to the exchange; or

(b) pursuant to an agreement referred to in subsection 182(1) or an arrangement referred to in paragraph 192(1)(b) or (c) or to shareholders of an amalgamating body corporate who receive the shares in addition to or instead of securities of the amalgamated body corporate.

(9) For the purposes of subsection 34(2), sections 38 and 42, and paragraph 185(2)(a), when a body corporate is continued under this Act its stated capital is deemed to include the amount that would have been included in stated capital if the body corporate had been incorporated under this Act.

Bill Clause No. : 15
CBCA Section No. : 27(1) and (4)
Topic :Corporate Finance(Technical Amendment)

Sources of Proposed Law
N/A

Changes From Present Law 
Amend s. 27 to clarify that articles may not only authorize the issue of any class of shares in one or more series, but also fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series.

Purpose of Change 
Section 27 states that the articles may "authorize" the issue of shares in a series and may "authorize" the directors to fix the number and determine the designation, rights, privileges, restrictions etc. attaching to each share in a series. Subsection 27(4) requires that before a corporation issues shares in series the directors must send to the CBCA Director articles of amendment to designate the series of shares.

This amendment would clarify that a corporation may designate a series of shares in its articles at the time of incorporation. In that regard, the ability of the incorporators of a corporation to designate shares in series in the original articles has been questioned because of the wording of subs. 27(4). It has been suggested that the current provision prohibits the designating of a series of shares at the time of incorporation

Similar Provincial Laws 
N/A

Current Wording 
27. (1) The articles may authorize the issue of any class of shares in one or more series and may authorize the directors to fix the number of shares in and to determine the designation, rights, privileges, restrictions and conditions attaching to, the shares of each series, subject to the limitations set out in the articles.

(4) Before the issue of shares of a series authorized under this section, the directors shall send to the Director articles of amendment in prescribed form to designate a series of shares.

Proposed Wording 
27. (1) The articles may authorize, subject to any limitations set out in them, the issue of any class of shares in one or more series and may do either or both of the following:

(a) fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of, each series; or

(b) authorize the directors to fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of, each series.

(4) If the directors exercise their authority under paragraph (1)(b), they shall, before the issue of shares of the series, send, in the form that the Director fixes, articles of amendment to the Director to designate a series of shares.

Bill Clause No. : 16
CBCA Section No. :29(1)
Topic  :Corporate Finance(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law 
Replace in the French version the word "délivrer" with "émettre".

Purpose of Change 
This technical change clarifies the wording and application of the Act.

Similar Provincial Laws 
N/A

Current Wording 
29. (1) La société peut délivrer des titres, notamment des certificats, constatant des privilèges de conversion, ainsi que des options ou des droits d'acquérir des valeurs mobilières de celle-ci, aux conditions qu'elle énonce:

Proposed Wording 
29. (1) La société peut émettre des titres, notamment des certificats, constatant des privilèges de conversion, ainsi que des options ou des droits d'acquérir des valeurs mobilières de celle-ci, aux conditions qu'elle énonce :