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Corporations and Notarial Practice
Left unaddressed, one consequence of that imbalance could be a reluctance to provide the service, leaving individuals to make their own Wills—creating much higher opportunities for litigation— or not to make them at all; a highly detrimental outcome for British Columbians generally.
The need for public education about the importance and true nature of Will-making was identified by all panelists as important. The problem is not that Wills are too expensive, relative to other services people are willing to pay for, but that the perception is they should be cheap. Reputation built over time also creates awareness of the value of careful Will-making; consistently providing excellent service in that area eventually builds community awareness of—and willingness to pay for—that value.
Our final topic was on mental capacity . . . whether our panelists had ever been concerned about a client’s ability to make a document and how the client dealt with that. Our panellists identified the client “on the edge of understanding” in early dementia as raising significant concerns in terms of ascertaining whether that individual was capable of making the document in question.
While some prefer to err on the side of caution—avoiding the potential for future dispute, the panel recognized the importance of enabling the person who is capable of making those arrangements to make them.
Insights and conversations among all our panel members were incredibly insightful and interesting; I am grateful to the panelists for sharing their thoughts and experiences. I learned a great deal from the discussion and look forward to more discussions of that kind in future. s Dr. Margaret Isabel Hall, BA, LLB, LLM, PhD, is a Professor and BC Notaries Chair in Applied Legal Studies in the School of Criminology at Simon Fraser University in British Columbia, Canada.
David Barroqueiro
Notaries Public in British Columbia frequently encounter situations in day-to-day practice involving corporate actors or have clients with interests in corporations.
This article provides a brief overview of corporate structures, Notary corporations, shareholders agreements, reporting requirements under the Land Owner Transparency Act (LOTA) when corporations hold an interest in land, and ways shares and control of corporations are dealt with when a shareholder dies.
Corporations, Generally
In law, corporations are “persons” separate from the individuals that own or control them. As “persons,” corporations hold many of the same rights and obligations as natural persons; they can own, buy, and sell property; enter into contracts; pay taxes; and sue or be sued. In a sense, corporations are also immortal—until and unless they are dissolved, they continue to exist indefinitely.
Corporations possess several advantages over other business
forms that make them attractive vehicles through which to do business. Chief among them is the limited liability of shareholders, because corporations are separate persons from the individuals who control them. Losses, liabilities, and legal actions typically attach to the corporation instead of those individuals. Corporations also enjoy name protection in jurisdictions where they are registered, are favourable In law, corporations are “persons” separate from vehicles for raising capital, and may be taxed the individuals that own at advantageous or control them. rates. On the other hand, corporations often have higher startup costs; record-keeping obligations are more rigid and may be difficult to dissolve compared to other business forms. The basic unit of ownership of a corporation is a share. Shares are often subdivided into classes based on their characteristics, such as voting rights, priority to receive dividends, and special restrictions. There is no limit on the number of share classes a corporation can have or on the number of shares within a particular class. At a minimum, a corporation must have at least one share class and one available share.
While corporations in BC exist in numerous forms, for our purposes we will focus on the example of the limited company, more or less the most commonly understood example of a “corporation.”
Every BC corporation requires a set of Articles, the fundamental rules dictating how the corporation operates and conducts its internal business. Often, incorporators will adopt the model Articles at Table 1 of the BC Business Corporations Act (BCA).
All BC corporations must have an official name. If the incorporators do not elect to reserve a name, it is given a name corresponding to the company’s incorporation number, followed by “B.C. Ltd,” e.g., 1234567 B.C. Ltd. They are referred to as numbered companies. If the incorporators wish to use a specific name, they must reserve it in advance through the BC Registry.
A company’s name must contain a distinctive element, e.g., someone’s name; a made-up word or phrase; and a descriptive element—some description of what the company does, followed by any one of “limited,” “corporation,” or “incorporated,” or abbreviations of those. Companies are sometimes required to use names that follow a prescribed form, as is the case with many professional corporations.
Corporations must maintain registered and records offices, at physical address(es) open to the public during regular business hours. Those addresses are where the corporation’s minute book is kept, corporate mail is sent and delivered, and notices are served. Many corporations elect to have law firms act as their registered and records offices rather than use their business addresses.
Directors
Limited companies must have at least one Director who is a natural person. Unless limited by the Articles or a Shareholders Agreement, Directors have broad discretion to make decisions on behalf of a corporation. Directors are responsible for managing much of a company’s day-to-day operations and frequently, possess signing authority.
Directors can be held liable for their acts or omissions in certain circumstances—when they breach their fiduciary duties to the company; when income taxes or employee wages go unpaid; when they knowingly authorize illegal activities; and when they act negligently or make misrepresentations.
Corporations Owning Corporations
Corporations can, and often do, hold shares in other corporations. “Parent companies” and “holding companies” are examples. “Holding” companies typically exist to hold shares in one or more other corporations or other property, but do not do much else; “Parent” companies also hold shares in subsidiary corporations, but may engage in operations of their own, separate from those of their subsidiaries.
Notary Corporations
While not mandatory, some Notaries opt to deliver Notarial services via Notary corporations. Notary corporations are subject to certain requirements and restrictions set by The Society of Notaries Public of BC that operate on top of the general requirements of a limited company under the BCA.
Some ways in which Notary corporations differ from a conventional limited company— 1. Corporate names must include one of the words “Notary” or “Notaries.” 2. Incorporators require the preapproval of The Society to use a particular corporate name. 3. All voting shares must be owned by members of The
Society in good standing, including other Notary corporations. 4. Any nonvoting shares may only be owned by members of The Society, their spouses, children of shareholding members, or other relatives of shareholding members residing in the same household. 5. All Directors must be members in good standing. Notary corporations are permitted to derive business income only from Notary services and related functions. That said, Notary corporations can invest in real estate, personal property, mortgages, stocks, bonds, insurance, and other investments.
While Notary corporations do provide for limited liability in some respects, Notaries should be aware that their liability for professional negligence is neither affected nor avoided by providing Notary services through a Notary corporation.
Shareholders Agreements
Shareholders Agreements (SHAs) are contracts between shareholders, spelling out the rights and obligations of the shareholders to one another and upon the
occurrence of specific events. While not required under the BCA, they are useful for preventing and mitigating disputes between and among shareholders.
Some advantages of having a SHA
1. There is greater certainty in how to deal with shares on the occurrence of certain triggering events. 2. They may allow for the transfer of shares by operation of the contract, rather than by statute, which promotes efficiency. 3. They afford the shareholders greater control over the transfer or issuance of shares. 4. They can restrict or clarify
Directors’ powers. SHAs usually supplement a corporation’s Articles and deal with matters such as • how deadlocks are resolved; • functions requiring unanimous approval; and • how shares and directorial power are dealt with following a “triggering event,” such as incapacity, death, family breakdown, termination of a shareholder’s employment, or the buying or selling of shares. Notaries advising clients with legal or beneficial interests in shares would be wise to consult the SHA, if one exists, for guidance on how those shares are to be dealt with in certain circumstances.
Corporate Ownership and the Reporting Requirements under the LOTA
Notaries sometimes represent corporate clients in real estate transactions. When an interest in land is transferred to a corporation, that may give rise to certain reporting obligations under the LOTA.
The LOTA requires that holders of an indirect interest in land be identified in a transparency report. An “interest-holder” includes, in the case of a corporate holder of an interest in land, persons owning or controlling 10 per cent or more of the shares or the voting rights in that corporation. Under the LOTA, most corporations are “reporting bodies” and must submit transparency reports identifying individual interest-holders.
When an interest-holder in a reporting body is a corporation, the chain of inquiry continues. Preparers of transparency reports are meant to trace through often complex corporate structures to identify the natural persons holding an indirect interest in land. That is a technical process, so those preparing transparency reports should be mindful of and frequently consult the LOTA and Regulation for guidance.
Corporate Shares and WESA
In the absence of a SHA or some other mechanism for dealing with a shareholder’s shares and related corporate power, on death they would be distributed to beneficiaries per the Wills, Estates and Succession Act (WESA). That can result in a sort-of organizational paralysis while an executor or administrator seeks a grant of probate or administration and ultimately waits for the clock to run out on potential Wills Variation claims before distributing the shares.
Following the grant of probate or administration, an executor or administrator may obtain interim control of a deceased’s shares by way of a transmission. The transmission does not transfer ownership of the shares to the executor, and it remains the case that the executor, absent consent from all named and potential beneficiaries, must wait until the expiry of the 210-day waiting period to distribute the shares.
WESA permits the use of multiple Wills in BC. A Willmaker can create both a probate Will—dealing with non-corporate assets, and a separate nonprobate Will—dealing with company shares, outstanding shareholder loans, and dividends that allows for the transfer of corporate shares without a grant of probate. Note that in a situation involving two Wills, each requires a different executor. Those considering nonprobate Wills should be aware of the risk of Wills Variation claims and the potentially high costs of administering multiple estates.
A Final Word
Corporations can be very useful vehicles through which to conduct business and store value, but when things go wrong, not having a plan in place to deal with the interim management of a corporation can lead to major headaches. That highlights the importance of incapacity planning, e.g., Power of Attorney Agreements; Representation Agreements and corporate planning; e.g., Shareholders Agreement; granting partners or upper management means of making corporate decisions. s David Barroqueiro is a Vancouver corporate/commercial lawyer focused on delivering legal services to small- and medium-size businesses. He is always excited to assist local businesses, startups, societies, co-operatives, artists, and community-based organizations in meeting their needs and realizing their goals. When not practising law, David spends time with his partner and their Corgi-Sheltie Olive.
