New Brunswick Business Corporations Act: 10 Key Proposed Amendments
Published:
January 27, 2023
Author(s):
The New Brunswick government has proposed significant amendments to the New Brunswick Business Corporations Act. Bill 24 An Act to Amend the Business Corporations Act follows a multi-year consultation project in which the New Brunswick government engages legal stakeholders, including McInnes Cooper, to provide first-hand insight into the proposed amendments and offer opinions and suggestions. If passed, the amendments will modernize the New Brunswick Business Corporations Act, bringing it into line with other Canadian corporate statutes and introducing several innovative concepts new to the Canadian corporate landscape. Here’s a look at 10 key proposed amendments to the Act and their impact on New Brunswick corporations, if enacted in their current form.
1. Default to Pre-Emptive Rights Removed
The amendments propose fundamental changes to the existing provisions governing preemptive rights. The Act currently grants existing shareholders pre-emptive rights in respect of any subsequent issuances, unless the corporation’s articles specifically “opt out” of these rights. With the amendments, in the case of new incorporations, shareholders won’t have pre-emptive rights unless it’s specified in the corporation’s articles. In the case of existing corporations, a corporation can, by special shareholder resolution, remove the applicability of the pre-emptive rights provisions. These changes will also bring the Act into line with the Canada Business Corporations Act and corporate laws in other Canadian jurisdictions by requiring shareholders to “opt in” instead of “opt out” of pre-emptive rights.
2. Financial Assistance Rules Repealed
The amendments propose to repeal the restrictions on financial assistance currently set out in section 43 of the Act. This is consistent with most other Canadian jurisdictions, which have similarly repealed restrictions on financial assistance.
3. Default to Cumulative Voting for Directors Removed
Mandatory cumulative voting provisions will only apply to new incorporations if the corporation’s articles indicate as such. The current Act allows minority shareholders to direct their votes cumulatively toward the election of a director of the corporation, to avoid the majority shareholders electing an entire slate of directors. The proposed amendments will allow existing corporations to opt out of the existing mandatory cumulative voting provisions by shareholder resolution. To ensure shareholders that currently make use of the mandatory cumulative voting provision approve these changes, a resolution won’t be effective if the votes cast against it would have been sufficient in number to have elected a director in accordance with the existing cumulative voting provisions.
4. Shares of Different Classes with Same Terms
The proposed amendments clearly allow a corporation to have identical classes and/or series of shares. This removes the need for corporations to include nominal differences in share terms otherwise intended to be identical. Corporations will be able to attach conditions to a series of shares either in their articles or the directors can determine them at a later date.
5. Shares Issued for Promissory Note From Arm’s Length Party
Current New Brunswick law prevents a corporation from accepting a promissory note as consideration for the issuance of shares, even if issued by a third party. The proposed amendments will permit a promissory note from an arm’s length party as proper consideration for the issuance of shares. This change will bring the Act into line with other Canadian corporate statutes and provide greater flexibility in structuring share issuances as part of a corporate reorganization.
6. Uncertificated Securities
Shareholders of New Brunswick corporations currently have a right to demand a physical share certificate, constraining the ability of N.B. corporations to issue uncertificated securities. The proposed amendments will allow a corporation to issue uncertificated securities.
7. Directors May Appoint Additional Directors Between AGMs
The amendments propose allowing a corporation to increase the number of directors on its board by up to one third between shareholders’ meetings. However, this change won’t automatically apply to corporations; it will need to be included in its articles.
8. Body Corporate as a Director
In one of the more innovative amendments proposed, in certain circumstances a body corporate will be allowed to be a director of a New Brunswick corporation. The body corporate must hold voting shares of the corporation and be either incorporated under the Act or an extra-provincial corporation registered or exempted from registration under the Act. As a tradeoff for this allowance, the proposed amendments state that if a body corporate is a director of a corporation, the directors of the body corporate that’s acting as a director are jointly and severally liable for all the body corporate’s obligations and liabilities arising from its position as a director.
9. Single Shareholder Corporation Operating Without Board
In another innovative change, the amendments propose the option of a directorless corporation if the corporation has a single shareholder corporation or is subject to a unanimous shareholders’ agreement that completely restricts the board’s power. Director liabilities in such circumstances are shifted to the shareholder(s) of the directorless corporation.
10. Unlimited Liability Corporations (ULCs)
In yet another innovative change, the proposed amendments allow for the creation of ULCs: corporations in which the shareholders have unlimited liability for any liability, act or default of the corporation. Unlimited Liability Corporations are currently a popular vehicle for U.S. entities to carry on their Canadian business. This change is expected to bring more corporate interest to New Brunswick as this change makes New Brunswick only the fifth Canadian jurisdiction – along with Prince Edward Island, Nova Scotia, Alberta and B.C. – to permit ULCs.
Please contact your McInnes Cooper lawyer or any member of our Corporate & Business Law Team @ McInnes Cooper to discuss whether New Brunswick is the right place to incorporate your business.
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