The wealth of Canada’s natural resources, its strong economy, and a stable government and banking environment makes Canada a sought-after nation for trade, investment and doing business.
There are several legal business structures available to foreign entrepreneurs and businesses wishing to conduct business in Canada. The two most common ways in which global entrepreneurs register to operate their businesses in Canada are through the registration of a Canadian branch or the incorporation of a Canadian subsidiary.
A branch office is an extension of the parent corporation’s business, while a subsidiary is a separate corporation which is controlled by the parent corporation. It should be noted that a parent company may be held liable for the actions of the subsidiary, despite the latter’s self-sufficiency.
One of the most popular options between global entrepreneurs seeking to do business in Canada is the registration of a Canadian Subsidiary Corporation.
One of the main advantages of registering your business in Canada as a subsidiary over a branch structure is that a subsidiary allows the foreign entity to portray a “made in Canada” business to the Canadian public, who would generally prefer doing business with a Canadian entity over a foreign entity, all other things being equal.
Director Residency Requirements in Canada for Canadian Corporations
Director Residency Requirements for Federal Corporations
Canada Residency Requirement: Yes
At least twenty-five percent of the directors of a corporation must be resident Canadians. However, if a corporation has less than four directors, at least one director must be a resident Canadian.
Director Residency Requirements for Alberta Corporations
Canada Residency Requirement: Yes
At least 1/4 of the directors of a corporation must be resident Canadians.
Director Residency Requirements for British-Columbia Corporations
Canada Residency Requirement: No requirement
Director Residency Requirements for Prince Edward Island Corporations
Canada Residency Requirement: No requirement
Director Residency Requirements for Ontario Corporations
Canada Residency Requirement: Yes
At least 25 percent of the directors of a corporation other than a nonresident corporation shall be resident Canadians, but where a corporation has less than four directors, at least one director shall be a resident Canadian.
Director Residency Requirements for Manitoba Corporations
Canada Residency Requirement: Yes
At least 25% of a corporation’s directors must be residents of Canada. If a corporation’s board is comprised of three or fewer directors, one of them must be a resident of Canada.
Director Residency Requirements for New Brunswick Corporations
Canada Residency Requirement: No requirement
Director Residency Requirements for Nova Scotia Corporations
Canada Residency Requirement: No requirement
Director Residency Requirements for Nunavut Corporations
Canada Residency Requirement: No requirement
Director Residency Requirements for Quebec Corporations
Canada Residency Requirement: No requirement*
*Not in the actual Companies Act and not in the future new Business Corporations Act in Quebec.
Director Residency Requirements for Saskatchewan Corporations
Canada Residency Requirement: Yes
At least 25% of the directors of a corporation must be resident Canadians, but if a corporation has fewer than four directors, at least one director must be a resident Canadian.
Director Residency Requirements for Newfoundland and Labrador Corporations
Canada Residency Requirement: YES
At least 25% of the directors of a corporation shall be resident Canadians*.
(*does not apply to a body corporate that earns no income in Canada).
Director Residency Requirements for Northwest Territories Corporations
Canada Residency Requirement: No requirement
Director Residency Requirements for Yukon Corporations
Canada Residency Requirement: No requirement
Please note that it is only directors which are specified, not officers or shareholders. Officers and shareholders do not need to be Canadian residents. Note also that Canadian residents are specified, not Canadian citizens.
Qualifications of Directors for Canadian Corporations
Directors must be individuals, not corporate entities, who are at least 18 years old, of sound mind and not bankrupt. The BCBCA adds an additional restriction barring persons who have been convicted of fraud or other offenses relating to the promotion, formation or management of business from serving as directors for a period of five years. The Civil Code of Québec contains a similar prohibition, but in that case any such disqualification requires a court order and is not automatic. It should also be noted – although it appears to make little practical difference – that the Code disqualifies “minors” from directorships rather than referring specifically to the attainment of the age of 18 (the QBCA follows the Code on this point). Unless otherwise provided in the corporation’s constating documents, a director need not be a shareholder.
Duties under Corporate Law for Company Directors in Canada
Many of the duties of directors and officers in Canada are defined in the business corporations statutes. The most significant of these are the duty to manage, the fiduciary duty, the duty of care, the duty not to support resolutions authorizing improper acts and the general duty of compliance.
Duty to manage
The fundamental legal duty of boards of directors in Canada is worded as follows in the CBCA, ABCA and OBCA, and in nearly identical language in the BCBCA and QBCA:
Subject to any unanimous shareholder agreement, the directors shall manage, or supervise the management of, the business and affairs of a corporation.
Boards, other than those of very small corporations, will usually focus on strategic matters affecting the organization’s overall direction, leaving day-to-day decisionmaking to professional managers. They may establish guidelines for management decision-making and will usually require regular reporting from management on critical aspects of the business. The board’s role can be described as that of “stewards of the corporation”.
There are statutory limits on the powers that the board may delegate to management. Thus a board is not permitted to delegate the capacity to adopt, amend or repeal corporate by-laws, to issue securities, to declare dividends or to approve financial statements, among others. However, as discussed at page 18 below, these limits may not apply if a “unanimous shareholder agreement” (USA) is in place that transfers those board powers to another person or persons in accordance with the USA (or equivalent) provisions of the governing BCA.
Fiduciary duty
Directors and officers of business corporations have a fiduciary duty to act honestly, in good faith and in the best interests of the corporation. In other words, in acting as a director or officer, you must always focus on promoting the corporation’s interests, even if doing so might cause a conflict with another interest that is significant to you, including other business or personal interests that you may have.
While the term “fiduciary duty” does not actually appear in the BCAs, it is widely recognized by the courts of the common law provinces. The term is not usually used in Quebec proceedings, even though the applicable principle is virtually the same.
The nature of the duty
According to the Supreme Court of Canada, the fiduciary duty requires directors and officers to:
- Act honestly and in good faith vis-à-vis the corporation;
- Manage the assets of the corporation so as to realize the corporation’s objectives;
- Avoid conflicts of interest with the corporation;
- Not abuse their positions for personal benefit;
- Maintain the confidentiality of information they acquire by virtue of their position; and
- Serve the corporation selflessly, honestly and loyally.
To whom the duty is owed
While “promoting the corporation’s interests” may sound like a relatively straightforward idea, in practice it can be difficult to distinguish the interests of the corporation from those of its constituent groups, particularly its shareholders. The Supreme Court of Canada has stated that the fiduciary duty of directors and officers is owed to the corporation as such, rather than to any particular constituency (e.g. shareholders, creditors, employees or community members). While shareholders are not the focus of the fiduciary duty, as a practical matter attention to the corporation’s interest will generally promote shareholder interests as well, given that shareholders have an interest in a healthy and prosperous corporation. In addition, the Supreme Court has also stated that, in discharging its duties, the board of directors should take account of the reasonable expectations of stakeholder groups. In certain situations – e.g. where a change of control or a possible insolvency is on the horizon – it will be important to be able to show that stakeholder expectations were considered within a decision-making framework that recognized the paramountcy of the corporation’s interests (particularly its interests over the longer term). Your counsel will be able to advise on how this
