Mechanics of Incorporation Flashcards
History of Incorporation
England:
- Prior to 1844: can only incorporate through Royal Charter or Act of Parliament - monopoly organizations
- 1720: South Sea and Bubble Act: companies cannot sell shares to public unless it’s incorporated by the Crown or Parliament
- Pressure towards general incorporation: 1844 Joint Stock Companies Act; 1845 Limited Liability.
Steps in incorporation
Who: CBCA-s5
What:
- Articles of incorporation - CBCA - s6
- Delivery to the Director - CBCA - s7
- Notice of the Registered Office of the Corporation - CBCA - s19
- Initial organizational meeting - CBCA - s104
- Notice of initial Directors - CBCA - s106 - Form 6
Articles of Incorporation
Form 1
- s 6(1)
- Name: ltd, inc, corp. - name search
- Province of registered office
- Classes and max number of shares authorized to issue - think Facebook
- Any restriction on share issurance, transfer, and ownership
- Number of directors [not required unless cumulative voting] - s102 (2): if private, can have 1 director, but if public/distributing, at least 3, 2 of which are outside directors
- Any restriction on the business of corp.
- s 6(2) by-law: scope
- s103: unless provided otherwise, directors may amend by-law at any time, but need SH approval at next annual meeting
- s173: articles must be changed by SH vote: special resolution - no less than 2/3 votes or signed by all
- s175: SH have proactive power to propose change to articles - notice of amendment
Funding of the business
Business can be funded by: RE, loans, investors
Stage of business will relate to the type of investor:
- Seed finance: friends and fam
- Angel investor: early investor who are not friends and fam
- Venture Capital: once the concept of business has been proven.
Capital structure
1) Common stock: financial right to appreciation or depreciation in stock price + right to dividend if declared + voting right
- s24 (3): Where a corp has only one class of shares, the rights of the holders thereof are equal in all respects…
- Sparling v Caisse de depot et placement du Quebec: “A share is not an isolated piece of property. It is rather . . .a ‘bundle’ of interrelated rights and liabilities. A share is not an entity independent of the statutory provisions that govern its possession and exchange.”
2) Preferred shares: financial claim on stated dividend
- cross between common stock and debt
- Preferred div must be paid before div can be paid on common shares
- Failure to pay is not default - cumulative
- Liquidation preference before common stock but after bondholder.
3) Debt: financial right to principal and coupon rate
- failure to pay is a default and can bring breach of k
- BoD doesn’t have direct fiduciary duty to bondholders but must follow best interest of the corp, which incl. creditors
- Like a k: control rights need to be specified in debenture agreement.
- Safer than stock: higher claim than stockholders, contractual right to get principal and interest.
- Marriott Group
Sparling v Quebec
aa
Existence of corp
When the director receives the articles of incorporation, he is required to issue a certificate of incorporation under CBCA s.8
The date on the certificate is the date when the corporation comes into existence under s.9
- Date of incorporation becomes important to determine how an artificial entity that was not in existence when the contract was made can be made legally bound by such an agreement - s14
s14 - Pre-Incorporation contracts
A person who enters into, or purports to enter into, a written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to its benefits.
A corporation may, within a reasonable time after it comes into existence, by any action or conduct signifying its intention to be bound thereby, adopt a written contract made before it came into existence in its name or on its behalf.
