| The newly enacted Quebec Business Corporations Act (QBCA) (SQ 2009, c. 52) replaces the Quebec Companies Act effective after 2010. The QBCA is intended to make the Quebec law more competitive, and several provisions reflect counterparts in the CBCA and the corporate-law statutes of some other provinces and US states. Enhanced protection of shareholders' rights should promote stability in financial markets and access to capital. This article summarizes some changes relevant to private companies. Unanimous shareholders' agreement ( SA). Voting and non-voting shareholders may conclude an SA themselves or with third parties such as creditors. An SA may limit or eliminate the board of directors' powers to administer the corporation's activities and internal affairs (such as salaries, dividends, and financial undertakings) or to monitor its management. It will be interesting to see how the tax authorities and courts view the impact on corporate control of the granting of rights to third parties. The establishment or termination of an SA must be declared to the Quebec Enterprise Registrar. Financial statements. At the annual shareholders' meeting, the board must present the corporate financial statements, which include a balance sheet and income statement and may include other information usually found in audited financial statements, as well as financial information required by the articles, the bylaws, and an SA. The corporation need not prepare its financials in accordance with GAAP, and it may choose to base them on specific provisions of Canadian income tax law and commercially accepted practices (see, for example, Canderel ([1998] 1 SCR 147)). Financing. A corporation may issue shares with or without par value, fractional shares, and shares with multiple voting rights. Shares in bearer form are prohibited. Shares of several classes or series with the same rights and restrictions are expressly allowed, which should facilitate the issue of shares bearing discretionary dividends within the limits set in McClurg ([1990] 3 SCR 1020) and Neuman ([1998] 1 SCR 770). Shares may be issued for fair value consideration in money, property, or past services. Consideration does not include a promissory note or a promise to pay by the issuee or by a person who does not deal at arm's length (as defined in the Quebec Taxation Act) with him or her. If the consideration is not fair value, a director is solidarily (jointly and severally) liable unless he or she did not know or could not have reasonably known that the consideration was not fair and he or she acted prudently and with reasonable diligence in the circumstances. A corporation may issue an instrument, certificate, or other evidence of a right to exchange, option, or acquire shares. Inter alia, the legislation codifies the grant of special warrants, options, and other hybrid instruments. Solvency tests prohibiting a loan, suretyship, and other financial assistance to a shareholder or subsidiary are eliminated. If shares are issued without full payment, any unpaid amount is a debt due by the shareholder; in the event of default, the shareholder loses voting rights and the shares may be confiscated. Paid-up capital. The corporation must maintain an issued and paid-up share capital account by class and series of shares. Except for shares with nominal value, the total consideration paid must be remitted. A lesser sum may by remitted in non-arm's-length transactions. The QBCA provides when and how issued and paid-up share capital accounts are credited and debited, with the objective of facilitating the application of the income tax PUC rules. Dividends. A corporation cannot declare a dividend if there are reasonable grounds to believe that it may be unable to pay its liabilities as they become due; otherwise, the directors are solidarily (jointly and severally) liable for restitution, with some exceptions. The rule does not apply to a dividend payable in shares in or in share option rights. All or part of a share dividend's value may be added to the class's paid-up share capital. Reorganizations. A corporation may not hold its own shares or its parent's, or allow a subsidiary to hold its shares, for more than 30 days; during that time, the parent shares' voting rights cannot be exercised. A limited holding period facilitates compliance with certain income tax reorganization rules. Non-compliant acts are invalid under the QBCA; apparently there is no provision similar to section 16(3) of the CBCA, under which acts are not invalid only because they are contrary to a corporation's articles or to the CBCA. The QBCA plan of arrangement regime is similar to that in the CBCA. Date and time. The date and time of articles of incorporation and amendment may be fixed, thereby enhancing the flow of transactions and certainty for tax purposes. Continuation. A legal person created under Canadian or foreign law may continue under the QBCA, and a Quebec corporation may continue under those other laws. Substantial alienations. Before a corporation can alienate (sell, exchange, and rent) property and thus disenable itself from continuing its substantial activities, a special resolution of two-thirds of its shareholders is required. A parent corporation must prohibit its subsidiaries from undertaking a property alienation that will prevent the parent from pursuing its substantial activities. The loss of control of a subsidiary is deemed to be an alienation of all its property. Alienations in the normal course of business and to a wholly owned subsidiary are excluded. A corporation is deemed to pursue its substantial activities if its activities require at least 25 percent of its assets' value at the year-end before the alienation and generate at least 25 percent of that prior year's revenue or income before taxes. Any dissenting shareholder may request the redemption of his, her, or its shares. Corrections and revival. New rules may allow the revival of a corporation to make a tax election and to allow a corporation's articles to be modified, corrected, consolidated, or cancelled. Directors. A director need not be a Canadian resident. Unless he or she acted with prudence and reasonable diligence, a director may be exposed to liability when there are reasonable grounds to believe that a corporation will be unable to pay its liabilities as they become due as a result of an acquisition of shares, an increase or decrease in share capital, a declaration and payment of dividends, or a reorganization. Under the Civil Code of Quebec, any director of a legal person must in the exercise of his or her functions act with prudence, diligence, honesty, and loyalty. A director's prudence and diligence is presumed if he or she relies in good faith on the report, information, or opinion of a corporate officer who the director believes is reliable and competent in the exercise of his or her functions. Except in the case of unpaid salary, the court may exonerate a director in whole or part if the director apparently acted in a reasonable manner and with honesty and loyalty and if in all fairness he or she should be exonerated. Language. Outside Quebec, a corporation may identify itself in a language other than French. Minority rights. A shareholder or a beneficiary of a security may have recourse if its rights have been abused or if the corporation did not protect its rights. A "security" is a share and, in the case of the reporting issuer, includes a debenture, bond, and note dealt in or traded on a securities exchange or financial market. The court may order an investigation of the facts. Recourse includes the right to act on behalf of the corporation, review its functions, modify an SA, make board appointments, forbid the corporation and its subsidiaries to make payments to previous or existing security holders, prevent a particular conduct, modify or terminate a contract, name a receiver, require the reimbursement of securities, and order a corporation's dissolution. Redemption right. A dissenting shareholder may require the redemption of its shares at fair value on the day before the adoption of a resolution or question such as a shareholder squeeze-out, substantial alienation of property, amalgamation, continuation, and dissolution. Claude Désy
De Grandpré Chait LLP, Montreal | 
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