Navigating the Changes: Canada's (New) Business Corporations Regulations

The Canada Business Corporations Act (CBCA) has undergone significant changes in recent years, impacting how businesses operate and maintain compliance. As of June 2024, corporations governed by the CBCA must comply with new regulations aimed at improving transparency and corporate governance. As a small business owner in Canada, it's essential to stay informed about these updates to ensure your corporation remains compliant and avoids potential penalties.

Overview of the Changes

The CBCA regulations have been amended to improve transparency, enhance corporate governance, and simplify certain processes. Some key changes include:

• Increased disclosure requirements: As of June 2023, corporations are required to maintain a register of individuals with significant control (ISCs) over the corporation. This register must be updated annually and made available to shareholders and directors.
• Enhanced identity verification: As of January 2024, directors, officers, and ISCs must provide identification and proof of identity to the corporation. This aims to prevent identity theft and ensure accurate record-keeping.
• Electronic meetings and record-keeping: As of 2022, corporations can now hold electronic meetings and maintain electronic records, providing more flexibility in corporate governance.

Impact on Small Businesses

These changes may require small businesses to adapt their internal processes and record-keeping practices. Some potential implications include:

• Additional administrative tasks: Maintaining the ISC register and verifying identities may add to the administrative burden on small businesses.
• Increased transparency: The ISC register will provide greater transparency into the ownership and control structure of corporations, which may impact relationships with stakeholders.
• Compliance risks: Failure to comply with the new regulations may result in penalties, fines, or even dissolution of the corporation.

Best Practices for Compliance

To navigate these changes effectively, small businesses should consider the following best practices:

• Review and update governance documents: Ensure articles of incorporation, bylaws, and shareholder agreements reflect the new requirements.
• Implement procedures for ISC register maintenance: Develop processes for identifying, verifying, and recording ISCs, and ensure annual updates.
• Verify identities: Establish procedures for verifying the identities of directors, officers, and ISCs.
• Maintain accurate records: Ensure all corporate records, including meeting minutes and resolutions, are accurate and up-to-date.

Conclusion

Canada's new business corporations regulations aim to enhance transparency and corporate governance. By understanding the changes and implementing best practices, small businesses can maintain compliance and avoid potential penalties. Failure to comply may result in significant consequences, including fines of up to $200,000 or dissolution of the corporation.

To ensure your corporation remains compliant, we recommend reviewing your governance documents and procedures. If you need assistance with compliance or have questions about the new regulations, consider consulting with a corporate compliance expert. Take proactive steps today to protect your business and maintain good standing with regulatory authorities.

5 Reasons to Keep Your Minute Book up to Date

One of the many requirements of a corporation is to maintain a minute book. This is the official record of all of your company’s business dealings. Often it falls to the responsibility of the “recording secretary” of the corporation to keep the minute book up to date. Why is this important? Here are the top five reasons to keep your corporate minute book up to date.

1)      Detailed History

If for no other reason, the minute book becomes the written history of your corporation from its inception up to the last board meeting. This “open book” allows the many potential owners and their lawyers the opportunity to review all the actions taken by the corporation. It also establishes important financial milestones which will come in handy when it is time to report taxes and expenses.

2)      Supports the Corporate Structure

A current minute book record will clearly show how decisions were made and voted on. This might come into play when a minority shareholder or director questions the actions of the board. In extreme cases, a government agency might want to review how certain decisions were made. The minute report clearly lays out the corporate structure at any given time. By doing so, the authority to make those decisions shouldn’t come into question.

3)      Legal Backing

The bigger the corporation the bigger the chance that a legal opinion will have to be written to support a decision made by the board. With this record, your company’s attorneys will be able to build their opinions on a solid foundation of facts. This type of opinion could be written when a business is looking for investors and needs to establish the various banking relationships of the parent company. A corporation’s minute book can also serve as evidence in any dispute.

4)      Stock Records

The minute book should have a section that keeps track of all the company’s stock records. It’s vital that this is always kept up to date so as to establish the current ownership. In fact, a corporation’s ownership principals are only officially recorded in the minute book. This record should also keep track of stock transfers and who the original holders of the stock certificates are.

5)      Dividend Records

Just as it is important to trace ownership, it is equally important to keep track of dividend and compensation payments. A corporation cannot provide a clear financial portrait without access to these kinds of numbers. In fact, all company expenditures should be included in the minute record.

 

How to Remove a Poorly Performing Director from the Board

Any type of corporation will have a board of directors established to develop strategies, policies and implement those ideas. The board is beholden to the shareholders in the sense that it is their job is to increase the profits which are paid out as dividends. It falls under the responsibility of the board to make sure that all of the members are living up to the standards of excellence that have been established for that company to succeed.

Just because someone has been named to an executive board is no guarantee that they’ll be up to the task. In certain circumstances it might become apparent to all that a particular board member needs to be removed. Usually the reasons are that they have become ineffective or are having difficulty working with the other board members.

When it is obvious that a move needs to be made, the board of directors will be restricted by the guidelines they have established in their bylaws. Here are some examples of bylaw clauses which can determine how a poorly performing director is removed from a board.

Term Limits

A majority of corporations have built in term limits for their board of directors. Typically, a director might serve out a three-year term and then be rotated out. In some cases a board member proves to be extremely valuable. For them to outlive their term limit a special vote would have to be conducted.

On the other hand, if a board director that has been targeted for removal has only a few months left on their term it might make sense to let them simply retire as opposed to creating a potential “dust-up” in the company.

Asking for a Resignation

Often the targeted board member might not have any idea they are being looked at to step aside. This would require a personal intervention from the chairman to this director. In the meeting, the chairman would spell out the areas of concern and ask for that person’s resignation.

On many levels, this is a “face saving” gesture. It allows for a smooth transition and doesn’t automatically tarnish the reputation of the board or the member being asked to leave. To insure this is all above board, it is advisable that the company’s lawyer be present during the discussion.

Impeachment

Impeachment is the formal process by which an executive board can remove a member. The process should be clearly spelled out in the bylaws including all the specific reasons for dismissal. For an impeachment to pass you will need a 2/3 majority of the board.

It is important that any such action like the removal of a board member be supported by a unified front. A bad press report can drive the price of a company’s stock down. Board shake-ups would certainly qualify as bad news.

That is why it’s best if the company can get out in front of the story with a definitive press release explaining the transition. The goal is to insure the shareholders and the stock traders that business will proceed as normal.

Getting Incorporated: Tips on Incorporating a Business

There has been a lot of talk recently about whether or not a corporation can be considered a person. While pundits debate those points, the courts have already decided: a corporation is a legal entity that can enter into lawsuits, be taxed and buy land just as any individual will. As a small business owner you might soon discover there is very little space between you as a person and your corporation. The biggest advantage of incorporating is that it can protect your personal assets. Those should always be kept separate from your corporate umbrella.

The following are tips to follow as you head down the road of incorporating your company.

1)      Decide Where You’ll Incorporate

The three options for business incorporation would be within your own state or province, within your own country or in a foreign country. Most small businesses start out by keeping it simple and incorporating within their own region. However, it is worth exploring other options if for no other reason than the possible tax breaks you might receive. Once you are incorporated all the general laws will apply no matter where your company chooses to file the paperwork.

2)      Decide Your Board of Directors

The next step is to create a pre-incorporation agreement. This agreement will establish who will be on your board of directors and in what position. It will also have you establish the value of your company stock. Note that these stock shares have more to do with position than actual trading. For instance, when Facebook started up, investors and employees were offered stock options as part of their compensation. Years later, Facebook is finally going to go public and those original stock options will hold true value based on what the market decides.

3)      Decide Your Company Name

You’ll next have to file an official registration name for your corporation. Before doing this, you’ll have to research your name to make sure no other corporations that have the same title. You could simply file without the research but if your company name is rejected then you’ll have to start all over again.

4)      Decide on Your Articles of Incorporation

This will become the bulk of your incorporation paperwork and is not something you’ll be able to handle without a corporate lawyer. The procedures for creating these articles will be based on the rules and regulations that have been established in the region where you’ll be incorporating. When these articles have been filed, you’ll be sent an official certificate of incorporation. Once you sign that, you’re an official, fully recognized corporation.

Along every step of the way, there will be filing fees and legal costs you’ll have to pay out. There are some law firms that specialize in filing incorporation papers and offer affordable packages for start-up business. After you’ve completed all of these incorporation steps, you’ll need to hold your first board meeting and set up your own bylaws.

Managing Office Politics in a Small Business Setting

Simply put, you can’t maintain an office without office politics. Even a small business with just a handful of staff members won’t be able to totally hide from it. But just because office politics are part of doing business doesn’t mean they should become a distraction. Whether you are an employee, a manager or an owner, you need to keep your finger on the pulse of the staff in order to avoid potential blow-ups that can result with office politics gone awry. When left unchecked these matters can bring productivity to a screeching halt. Here are some issues to consider when confronting office politics:

Stay focused on goals

Office politics most often concern jockeying for position. Workers feel that need to always be the “number one” pick of their supervisors. The theory goes that if they become the “go-to person” then they are aligning themselves for advancement within the company. Unfortunately, this might mean advancement at the expense of other workers through gossip and back-stabbing. None of this has anything to do with achieving the goals set forth by the upper management.

As a staff member your best course of action is to complete the assigned tasks to the best of your ability. Simply by doing that you’ll automatically become the “go-to person.” If you’re in the role of supervisor, it is your responsibility to nip any gossip in the bud by asking the question, “What does this have to do with getting the job done?” Unless there is a compelling answer for that question, any rumor or gossip is just a distraction.

Avoid taking sides

The best way to confront distracting office politics is to adopt a position of neutrality. This can be a challenge, especially if you are working in a small business and are called in to judge a conflict between two staff members. In those cases, you need to deal with the facts at hand. This is where getting it in writing matters. For instance, if you are in a position to hand out an assignment, make sure everyone within the staff circle understands what their responsibility will be for that project. This isn’t an issue of picking favorites, but of utilizing the most qualified member of the staff for the assignment. By including everyone in these decisions, no one can argue with the intent. 

Keep it professional

There is no way to 100% avoid personality conflicts among staff members. No matter how thorough you conduct an employee interview, sometimes you just can anticipate how well co-workers will get along. Accept that not everyone has to like everyone, as long as they can work together and move on. Sometimes this might mean forgoing socializing with workers after hours, especially if this socializing is going to involve spreading malicious gossip. A small business tends to bond more easily than a large corporation. However, team-building outside of work is one thing, but gripe sessions don’t accomplish anything. There should be a specified chain of command in the management structure to handle any personality complaints.

Prepare your Shareholders Agreement

Protect the future of your corporation with a Shareholders Agreement*

One of the first steps after forming your corporation is to decide how your business will be operated and managed. For corporations that have 2 or more shareholders, ground rules should be laid out from the start to ensure that your business maintains good corporate governance. These rules are generally set with a Shareholders Agreement.

So, from November 9th to the 11th CorporationCentre.ca is reducing the price of our Shareholders Agreement from $99 to $50 for our valued customers.

Visit our Contracts Page from 9 am on November 9th to 5 pm on November 11th to get your Shareholders Agreement for only $50. The agreement is prepared through our online Easy Contracts system, which builds the document based on the information entered by you. It’s quick, easy and all online!

Click here for a detailed checklist of the information you’ll need to prepare your Shareholders Agreement. Make sure you have all the necessary information to complete the agreement before you begin.

If you have any questions please feel free to call us at 1-866-906-2677, we’d be happy to help.

* Please note that the Shareholders Agreement provided through our system is not intended to replace the services an attorney who can review your particular circumstances and advise you accordingly. We are not a law firm and do not offer legal advice or legal services. This Shareholder Agreement should not be taken to be appropriate for all circumstances. Please note that this Shareholder Agreement cannot replace a lawyer or their advice, particularly in complex or intricate situations or where opposing interests may exist. Contracts are in English only.

How to Talk to Your Board

Knowing how to manage a large corporation is not enough for a top executive. It is also crucial to know how to work with your board.

Before entering the boardroom, know who is sitting there and what their expectations are. The way board members think or grasp a particular situation may differ from yours. When you live a company daily, your appreciation of its subtleties, or your comprehension of its needs, will differ from those of someone who knows the company from afar. Therefore, learn who your board members are and present reports to them in the way that they want to hear them. Meet them on their terms.

Don't try to impress the board with fancy numbers, terms, and analyses. They know that you know all this. They want to know the bottom line without a lot of hype. However, don't underestimate their expectations. Present the risks and challenges that the company faces. Your job, after all, is to guide the company through these. They want to know how and how much.

Presenting confidence is vital. You are their person at the helm. When you exude confidence, the board feels comfortable that the company is in strong hands. When possible, don't go into the boardroom "cold turkey." Plan your presentation in advance. Know what you want to say and how to say it best. Also, prepare yourself for tough questions. The board expects you to have all the answers at your fingertips. Therefore, the more you prepare, the better you will appear.

As you make your presentation, keep an eye on your audience. Learn to read body language. Whatever it takes, avoid a bored board. If attention starts waning, it is time to switch gears and get their attention back. Work with them and they will work with you.

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