Understanding The Articles That Form Your Corporation
Articles of incorporation are a fundamental part of your corporation. Failing to properly draft them when you incorporate, can lead to a variety of problems down the road. As will be described here, these problems can have a significant impact both monetarily and functionally in your business. To properly set up your articles of incorporation, you must have an understand of them and understand that a “one size fits all” approach does not work with articles of incorporation. For more information call the Calgary corporate lawyers at Kahane Law Office today 403-225-8810.
What are “Articles of Incorporation”?
The “Articles of Incorporation” are one of the constating documents of a company. They are required under Canadian Corporate law. They function as a type of “constitution” for the company, setting out the name of the company, governing the types and classes of shares that the company can issue, and the rights and restrictions attaching to those shares. They also set out the restrictions on share transfers between shareholders, the minimum and maximum number of directors, and also any other restrictions or unique provisions that will govern the company. Together with the Notice of Address, and the Notice of Directors, and a NUANS search (for a named company) they are a required document by the provincial registrar in order to formally incorporate.
What Do The Articles of Incorporation Contain?
In addition to setting out the name of the company and the minimum and maximum number of directors, the articles of incorporation contain several “items” that will usually incorporate separate schedules. The first schedule sets out the classes and any maximum number of shares the company may issue. It is very common for a company to authorize several classes of voting and non-voting shares, issuable in series, as well as one or more classes of preferred shares. This first schedule will determine the dividend participation rights of the classes relative to each other and how the classes of shares will rank on the distribution of remaining corporate property if the company is dissolved.
Canadian securities legislation requires that, in order to be exempt from the prospectus and registration requirements, that a private company’s articles contain certain restrictions. As such, it is common to see additional restrictions and requirements in the remaining schedules to allow the company to qualify for this “private issuer” exemption. These types of restrictions include a limitation to no more than 50 (exclusive of employees and affiliates) shareholders of the company, no shares being transferred without the approval of the board of directors, and restrictions preventing the company from offering its securities for sale to the public. Other restrictions may include, in the unusual case, restrictions on the type of business the company may carry on, and sometimes you’ll see provisions dealing with casting votes in a two-person 50-50 voting control scenario.
What Happens If I Use The Wrong Incorporating Articles For My Company?
The issues that stem from using articles of incorporation that are not appropriate for your specific company can be significant. As the problems can be so serious, and costly, it is very important to discuss your articles of incorporation with your corporate lawyer. This is not a complete list and what your company requires will be very situational specific. These issues include:
- Shareholder disputes regarding dividends
- Shareholder oppression remedies
- Canadian securities regulation offenses
- Negative tax consequences to shareholders
- Negative tax consequences to the corporation
Are There Different Types of Articles of Incorporation For My Business?
Yes. As the Articles of incorporation serve as a constitution, they should be uniquely drafted for your needs as a business and in light of the shareholder’s and investor’s best interests. The start-up business and entrepreneurial lawyers at Kahane Law Office in Calgary, Alberta can help you draft your articles of incorporation so that they work best for you and the needs of your investors. We can be reached toll-free at 403-225-8810 or 1-877-225-8817 toll free. Please also feel free to email us directly here. Call today!