Incorporation Process: Legal Requirements

• Chapter 4 focuses on details of the incorporation process, legal requirements, considerations related to jurisdiction choices, and practical aspects

Introduction to Incorporation

• In Canada, corporations can be incorporated by one or more corporations, individuals, or a combination of both under most corporate statutes

Incorporation Requirements under CBCA

• There are no qualifications for corporate incorporators
• Individual incorporators under the CBCA cannot be:
  • Under eighteen years of age
  • Incapable
  • Bankrupt
• Incorporators under the CBCA must file material with Corporations Canada
• For incorporation under the laws of a province or territory, the prescribed documents are filed with the relevant branch of the provincial or territorial government
• Under the CBCA, the following must be filed:
  • Articles of Incorporation
  • Initial Registered Office Address and First Board of Directors
  • A name-search report on the proposed name of the corporation, with supporting information
  • A fee of 250(250 (250(200 if done online)

Articles of Incorporation

• Articles of incorporation are the most important filed documents
• They outline fundamental characteristics of the corporation
  • Name
  • Location of registered office in Canada, including the province or territory
  • Class, number, and characteristics of authorized shares
  • Number of directors
  • Restrictions on share transfers
  • Restrictions on the corporation's business activities

Corporate Names

• Problems with corporate names are both legally and practically complex
• It can be difficult to find a name that is not already in use
• A name can acquire substantial financial value through its use and association with prestige, product quality, or service, known as "goodwill"
• Name regulation aims to prevent confusion in the marketplace
• The CBCA and provincial corporate statutes regulate the use of names
• The federal Trade-marks Act grants rights based on the use of names with goods and services
• Each province regulates the use of names by corporations within its jurisdiction
• Provincial common law protects interests in names through the tort of passing-off

Corporate Law Rules Regarding Names

• The CBCA regulates the use of names to ensure they are not confusingly similar or deceptively misdescriptive
• Section 12(1) states a CBCA corporation cannot incorporate or carry on business with a name that's prohibited or doesn't meet regulatory requirements
• The director administering the CBCA can refuse incorporation or order a name change if the name violates this section
• Under the OBCA, a hearing must occur before any name change
• The CBCA Regulations have sections outlining absolute and qualified prohibitions on names
• Names that are obscene or contain phrases exclusively entitled to others cannot be used
• Using names that suggest sponsorship by the government, a university, or a professional association, or another person's family name without consent is prohibited
• Names not distinctive or confusing are prohibited
• Distinctive names provide a distinguishing identity to a business
• Section 30 sets criteria for judging inherent distinctiveness of names
• A name is not distinctive if it:
  • Describes the business, goods, services, or their characteristics (e.g., "Apples Inc" for a seller of apples)
  • Is primarily the name of a living or recently deceased (within thirty years) individual (e.g., "Pierre Trudeau Inc")
  • Is primarily a geographic name used alone (e.g., "Japan Inc.")
• The previous prohibition has exception that allows the use of names that acquired a secondary meaning through use (e.g., General Motors Inc)
• Combination of a distinctive element with a descriptive element ensures distinctiveness
• CBCA Regulations address confusion with other names and trademarks
• A corporate name is confusingly similar if its use would likely lead to the inference that the business carried on under the corporate name and the business carried on under the trade-name or trade-mark are the same
• Section 19 in the CBCA Regulations outlines factors for assessing whether a corporate name is similar to a trade-mark or trade-name:
  • Distinctiveness of any element and the extent each has become known
  • How long the trade-mark or trade-name has been in use
  • The associations of goods, services, or business with the trade-mark or trade-name
  • The degree of resemblance between the corporate name and the trade-mark or trade-name
  • The geographical area in Canada with which the corporate name or trade-name is likely to be associated
• In I Browns Packaging Inc v Canada (Consumer and Corporate Affairs), the court considered an appeal where the director appointed under the CBCA found that the name I Browns Packaging Inc was not confusingly similar to Brown's Bottle (Canada) Ltd
• Sections 20-24 of the CBCA Regulations contain rules about possible name confusion
• These provisions cover scenarios like using a name similar to another corporation or where one corporation takes over another's business
• If a corporation to use a name similar to the name that another corporation used, they must obtain consent from the other to use the name and agree to either dissolve or change its name

Other Corporate Law Rules Regarding Names

• Names are prohibited if the are "deceptively misdescriptive"
• Section 31 of the CBCA Regulations defines what this means and it applies if a corporate name is likely to mislead the public by:
  • the business, goods, or services with which it is proposed to be used
  • the conditions under which the goods or services will be produced or supplied
  • the place of origin of those goods or services
• An example of a name that's "deceptively misdescriptive" of goods or services is "Made in Canada Mugs Inc," if the corporation's mugs were not made in Canada
• Subject to the rules, the CBCA allows the articles to set out the corporate name in an English form, a French form, an English and a French form, or a combined English and French form, and a 3rd language
• All corporation names must contain "Limited,” “Incorporated,” “Corporation," or the correct abbreviations
• A corporation must use its full legal name on all contracts, invoices, negotiable instruments and orders for goods or services issued
• If an individual acts on behalf of the corporation without clearly using the legal name, they may be held personally liable for company obligations

Provincial Registration and Licensing Rules Regarding Names

• Each province regulates names used to carry on business within its borders
• Corporations operating in Ontario using names other than its full corporate name must register that name
• Failure to register means the party cannot maintain an action in the courts of Ontario
• With consent from the court action may be permitted if failure to registed was inadvertent, there is no evidence the public has been deceived, and time of application to court, the name registered
• s 6 of the OBNA allows one to claim compensation as a result of deceptive usage
• Provinces regulate how corporate names can be used by corporations incorporated outside of the province through extra-provincial licensing
• Federally incorporated corporations do not need a licence to carry on business in any province since no licences is required
• Provinces can regulate a federal corporation's usage of trade name if operating as an interprovincial business rather then a provincial business

Trade-Marks Act Rules Regarding Names

• A trade-mark is a word, phrase, or symbol used with goods or services to exclusively use the product
• Registration of trade-marks is not require
• registration provides a trade mark is valid
• Under section 20 of the Trade-marks Act, a trade-mark is infringed by a confusing trade-mark or trade-name
• A trade-name for the purposes of the Trade-marks Act is name used by a business
• Not a trade mark unless it is used with services or goods

Passing-Off

• Common law right gives business owner right to seek damages
• Injunction may be claimed
• Supreme Court of Canada has held to succeed in a passing-off action, the plantiff must show the following:
  • The plantiff must have a reputation or goodwill at the relevant time
  • The defendant made misrepresentation with prospect of connection
  • The misrepresentation must lead to actaul business or goodwill damages

Names and the Incorporation Process

• A name search must happen to ensure that names do not conflict
• Incorporator takes risk if the name will be forced to change
• Canada reviews name searches
• 90 days reserved for a corporate name

Registered Office

• It's necessary to identify the corporate articles
• The concept of the registered office was introduced with the CBCA
• Must be maintained at which the records of the corporation and as the address to correspond
• May be changed by amending Article or with changes

Class and Number of Shares

• Article defines the classes of shares
• Set out the names for each share
• Bundle of set characteristics used to determine the price for investors for a fixed annual return
• Referred to as "preferred shares
• May be additional shares to be issued to remove limits

Number of Directors

• Must determine the number of directors or a minumum or maximum number
• Special resolution changes the number of directors by shareholders
• Must have 3 directors to distribute
• 1 director required other wise

Restrictions on Issuing, Transferring, or Owning Shares

• Shares are freely transferable unless otherwise specificed and common
• Shareholders must have a strong interest to make choice
• Article share transfers require director's consent
• Preemptive Rights lets shareholders to purchase the new shares
• Restriction can to transfers from outisde of a group

Restriction on the Business the Corporation May Carry On

• Model does now require a corporation to describe the activities
• Permitting of limitations when it is authorized to engage
• It's common practice to include ultra vires activities
• They are uneforceable due to the corporation being in ultra vires.

Registered Office

• Address must be in Article
• By law provisions for Super majority, limitations and notice

Names and the Incorporation Process

• a name search must be preformed to submt the name
• Must indicate busness type, clients and derivation and similarities
• Corporations Canada then views the name and makes the decision

Other Documents Required to Be Filed on Incorporation

• In addition must file an initial registered office
• Requires 25 percent for the director to be resident canidiands
• The director to adminster must be named

Other Documents Required to Be Filed on Incorporation

• In addition must file an initial registered office
• Requires 25 percent for the director to be resident canidiands
• The director to adminster must be named

Completion of Incorporation

• Issuance of certificate for the directors to be attached
• Any citizen may engage in the procedure
• Consideration is to be given a the process of advice

Post-Incorporation Organization

• May begin to be carried to be transferred
• Post issuance steps may be required for the business to be be carried
• Directors pass a resolution

Post Incorporation-Organization

• At least some of standard form resolutions has to be created for the banking of a banks business account
• At the first meeting by laws get voted on
• Approves with 67% votes which ever is higher
• Shares do not need be issue but requested has to happen

Scale Considerations of the Corporation

• Difference in scale is addressed by a higher number requirement for certain types
• Distributing and offering operations contain many restrictions such as that the articles must have transfer restrictions
• There for no shareholder agreement
• By laws have provisions for meetings