By: Stewart Maier and Hon. Doug Schweitzer E.C.A., KC
Alberta has made significant strides in making its corporate legislation more attractive for businesses, particularly with the introduction of the Business Corporations Amendment Act, 2021. Coming into force on May 31, 2022, this legislation was part of a broader push to modernize Alberta’s Business Corporations Act (ABCA) and reduce red tape—a move aligned with the province’s commitment to enhancing business efficiency and attracting investment. While some may compare this initiative to the pro-business environment in Delaware, the most popular jurisdiction for incorporation in the United States, Alberta’s approach is uniquely tailored to Canadian realities. The ABCA now offers what many consider Canada’s most investor-friendly corporate statute, offering businesses greater flexibility and fewer regulatory hurdles compared to other jurisdictions.
This blog delves into how the ABCA compares with the federal Canada Business Corporations Act (CBCA), exploring the key differences that make Alberta’s approach distinct. Additionally, we will discuss the proposed amendments to the CBCA under the newly introduced Bill S-285, introduced in early 2024, which proposes significant amendments to the CBCA to integrate societal and environmental responsibilities into corporate governance. For businesses considering where to incorporate, this comparison will highlight why Alberta might provide the business friendly and strategic advantage they’re looking for.
1. Incorporation Overview
Incorporating a business in Canada involves creating a legal entity that is separate from its owners, a move that offers several key benefits. First and foremost, incorporation limits the personal liability of the business owners. If the business faces legal action or financial loss, personal assets such as homes or savings accounts are typically protected. This separation between personal and business assets makes incorporation an appealing option for entrepreneurs seeking to mitigate risk. Additionally, incorporation provides potential tax advantages, as corporate tax rates are often lower than personal tax rates, and businesses can access various tax deferral opportunities by retaining earnings within the corporation. Incorporation opens doors to raising capital more easily - corporations can issue shares, making it simpler to attract investors or secure financing. Investors tend to prefer corporations due to the clearer ownership structure, established governance practices, and potential for dividends.
When deciding where to incorporate, Alberta businesses can choose between federal incorporation under the CBCA or provincial incorporation under statutes like the ABCA. Federal incorporation is often chosen for businesses planning to operate across multiple provinces, as it provides broader name protection. However, both federal and provincial incorporations under the ABCA require extra-provincial registration (EPR) to operate in other provinces. Thus, the "national scope" of federal corporations can be somewhat misleading, as businesses will still need to comply with EPR requirements regardless of the jurisdiction of incorporation. The primary general benefit of federal incorporation remains national name protection, while incorporation under the ABCA is often more cost-effective and administratively streamlined, particularly for businesses with a regional focus.
2. Key Differences Between the ABCA and CBCA
Here’s a comparison chart highlighting the key differences between the ABCA and CBCA with a focus on the amendments made to the ABCA in 2022. The comparison is based on various governance aspects such as director residency, shareholder requirements, and corporate flexibility. It's important to note that the proposed changes to the CBCA under Bill S-285, which are discussed in detail below, could significantly alter the landscape of federal corporate governance in Canada.
Feature | ABCA (Alberta) | CBCA (Federal) |
|---|---|---|
Corporate Purpose and Fiduciary Duty Note: Bill S-285 is at the second reading stage in the Senate. It was introduced and completed its first reading on May 23, 2024. The bill has not yet progressed to committee review, third reading, or House of Commons consideration. | The ABCA grants corporations the capacity to pursue any objectives within legal boundaries, without explicitly prescribing a specific purpose. This broad discretion allows corporations to define their purpose primarily based on shareholder interests and profitability, aligning with traditional business goals Directors and officers owe a fiduciary duty to the corporation that they serve on the board of or are employed by, respectively. The ABCA imposes an obligation on directors and officers to act honestly and in good faith with a view to the best interests of the corporation. The duty to act honestly and in good faith is understood at common law to include a duty to act without conflict or without a conflicting personal interest, on behalf of the corporation. | Current Standard: The CBCA grants corporations the capacity to pursue it’s corporate purpose broadly, with the primary focus on maximizing shareholder value while allowing directors to consider other stakeholder interests. Directors and officers are required to act honestly, in good faith, and in the best interests of the corporation The "best interests of the corporation" have traditionally been interpreted as aligning with shareholder value, though courts have acknowledged that directors may consider the interests of employees and creditors if it benefits the corporation in the long term. Proposed Amendments under Bill S-285 (See detailed analysis below): Bill S-285 seeks to redefine the traditional purpose of a corporation by embedding societal and environmental considerations directly into the corporation’s purpose and directors' fiduciary duties. The proposed amendments would require directors to not only consider the interests of shareholders but also to actively consider societal and environmental impacts alongside profitability. The bill also introduces new reporting requirements on societal and environmental impacts and broadens the scope for derivative actions |
Name Protection | Incorporating in Alberta provides name protection only within the province. If your business wants to operate or have name protection in other provinces, you must complete an extra-provincial registration (EPR) for each jurisdiction. Once your EPR is approved and your name is accepted in a particular province, you do gain name protection in that jurisdiction, similar to the protection you have in your home jurisdiction. However, this protection is limited to each specific jurisdiction where you’ve registered. To have your name protected across multiple provinces, you must go through the EPR process in each one. | Federal incorporation offers name protection automatically across all provinces and territories in Canada. |
Individuals with Significant Control (ISC) Disclosure | No requirement for maintaining or publicly disclosing a register of ISC. | Under the CBCA, all federally incorporated businesses are required to maintain a register of ISC. This register must identify and document any individuals who, directly or indirectly, own or control 25% or more of the voting shares, or has “control in fact” over the corporation without owning any shares. While the full ISC register is kept internally by the corporation, key information about individuals with significant control is publicly accessible through Corporations Canada. This includes names and other relevant details of ISCs, like the nature of control or their relationship to the corporation. |
Director Residency Requirement | No director residency requirement. | Requires at least 25% of directors to be Canadian residents. |
Corporate Opportunity Waivers (COWs) | COWs under the ABCA allow directors to pursue business opportunities that may conflict with their corporate roles, a significant deviation from the prevalent Canadian doctrine that prohibits fiduciaries, such as directors and officers, from profiting personally from opportunities that should be reserved for the corporation. This investor-friendly provision reduces liability risks for nominee directors and aligns with the investor-friendly practices found in Delaware corporate law. | Not allowed under the CBCA. Directors cannot personally take advantage of corporate opportunities. |
Due Diligence Defense The due diligence defense refers to the ability of directors to rely on certain information sources in good faith to avoid liability when exercising their duties. | Both the ABCA and CBCA allow directors to rely on reports or opinions provided by professionals, such as lawyers, accountants, or engineers, as part of their decision-making process. Under the amended ABCA, the due diligence defense has been expanded significantly. Directors and officers can now rely on a broader range of information, including interim financial statements, as well as opinions or reports from employees of the corporation. This expansion is particularly valuable for businesses with complex operations, where employees might have specialized knowledge that can inform board decisions. | The CBCA’s due diligence defense is more limited. Directors can only rely on financial statements, auditors' reports, or opinions from professionals whose expertise lends credibility to their statements. |
Special Consideration for Nominating Shareholder Interests | Allows nominee directors to give special (though not exclusive) consideration to the interests of their appointing shareholder. | No specific provisions allowing this under the CBCA, where directors are expected to act primarily in the best interest of the corporation as a whole. |
Director Self-Interested Transactions | Directors can vote on transactions in which they have an interest, provided they disclose their interest and the transaction benefits the corporation (e.g., a director might vote on approving a loan or contract involving a related party if it can be demonstrated that it’s in the best interest of the corporation and has been disclosed). | Directors generally must abstain from voting on transactions where they have a material conflict of interest. Directors must disclose their interest and then recuse themselves from the decision-making process to avoid potential conflicts. |
Indemnification & Insurance | Directors and officers can now be indemnified not only in civil, criminal, and administrative cases but also during investigations and similar proceedings where they are merely “involved” but not directly named as parties. The ABCA’s amendments broaden the ability to purchase and maintain Directors and Officers (D&O) insurance, allowing coverage even if the claim involves failure to act in good faith, as long as it does not relate to intentional misconduct or fraud. | More restrictive; to qualify for indemnity, directors must not have committed any fault or omission, and they must have acted in good faith with a belief that their actions were in the best interest of the corporation. However, the CBCA retains a stricter standard, requiring directors to be “substantially successful” on the merits of their defense to be entitled to indemnification. The CBCA allows corporations to purchase and maintain D&O insurance under similar conditions to the ABCA, but with a tighter focus on avoiding coverage for acts involving fraud or bad faith. |
Shareholder Voting by Written Resolution | Requires approval from at least 2/3 of the shareholders entitled to vote on the matter, making it easier to pass written resolutions.[i] | Requires unanimous written consent from all shareholders entitled to vote on the matter for written resolutions. |
Required Notice for Shareholder Meetings | Minimum of 7 days’ notice (reduced from 21 days), and a maximum of 60 days notice (extended from 50 days) | Requires a minimum of 21 days and a maximum of 60 days’ notice. |
Dispensing with Auditor Requirement | Allows corporations to dispense with auditors if approved by 2/3 of shareholders entitled to vote (reduced from unanimity). | Unanimous consent from shareholders entitled to vote is required to dispense with the auditor. |
Revival of Dissolved Corporations The process by which a business that has been legally dissolved can be reinstated and resume its operations. | Extended from 5 to 10 years. | Under the CBCA, the revival period for dissolved corporations is typically 5 years, although it can vary depending on the specific circumstances and the discretion of regulatory authorities. The CBCA revival process often involves more stringent conditions, including regulatory approvals and compliance reviews. |
Filing Efficiency and Cost | Instantaneous filings via Alberta’s online CORES system for certain filings like incorporations, amalgamations and amendments. The cost to incorporate under the ABCA is typically lower than federal incorporation. As of 2024, incorporating in Alberta costs approximately CAD$275. The annual return filing fee is approximately CAD$50. Further, if your corporation’s home jurisdiction is Alberta, the New West Partnership Trade Agreement (NWPTA), allows businesses incorporated in one member province (e.g., Alberta) to register in the other member provinces (BC, SK, MN) without the need to undergo a full extra-provincial registration process. This streamlined process can significantly reduce administrative burdens and registration costs. | Federal filings under the CBCA can take longer due to additional layers of examination and processing by Corporations Canada. While express services are available, they often come with additional fees. Incorporating under the CBCA costs around CAD$200, but companies operating in multiple provinces may face extra-provincial registration fees, which can add significantly to overall costs. At minimum, a CBCA corporation should extra-provincially register in the province where it’s registered office is located. Extra-provincial registrations can range from CAD$100 to CAD$400, depending on the province. The CBCA’s annual filing fee is also CAD$12. |
3. Proposed CBCA Changes Under Bill S-285 – The Shifting Corporate Mandate
A notable development on the federal legislative front is Bill S-285, known as the 21st Century Business Act, introduced in the Senate in early 2024.[i] Bill S-285 proposes significant changes to the CBCA, including redefining the “purpose” of corporations to consider societal and environmental impacts alongside profitability. These proposed changes reflect a significant shift in Canadian corporate governance, moving from a traditional focus on shareholder value to a model that mandates consideration of social and environmental impacts. By embedding progressive mandates into corporate legislation, CBCA companies would be required to balance social and environmental considerations with profitability.
Purpose of Corporation
Firstly, the proposed amendments under Bill S-285 would introduce a new Section 14.1 to the CBCA, establishing that the “purpose” of a corporation is to pursue its best interests while also operating in a manner that benefits society and the environment in a manner proportionate to their size and operations. Additionally, CBCA corporations must minimize “minimizes any harm that the corporation causes to the wider society and the environment, with the objective of eliminating such harm”.
Directors and Officers
Secondly, the fiduciary duties of directors and officers under Section 122(1) would be expanded. Under the current standard, directors and officers to act honestly and in good faith with a view to the best interests of the corporation - directors may consider stakeholder interests, but it is not mandatory. Bill S-285 amends Section 122(1) to require directors and officers to pursue the best interests of the corporation while ensuring that it operates in a way that benefits society and the environment. This amendment shifts the fiduciary duty from a shareholder-centric model to a broader stakeholder approach, mandating consideration of non-financial factors. This means that directors and officers would be required, not merely permitted, to consider these factors when making decisions. Directors and officers could find themselves navigating complex trade-offs between financial goals and non-financial considerations, potentially leading to more cautious or risk-averse behavior.
Reporting and Disclosure
The proposed amendments would also mandate new transparency and reporting requirements. A new Section 172.2 would require corporations to report annually on their societal and environmental impacts, including measures taken to minimize harm. These reports can be prepared individually or jointly with affiliated corporations and must be made available to the public, including on the corporation’s website. The standards for reporting can vary based on the corporation’s size, and the report may need to be assessed against a prescribed third-party standard. For large public corporations, this may seem a natural progression. However, for small and medium-sized enterprises, these obligations could prove burdensome. The additional costs and resources needed to comply with such regulations could lead to inefficiencies, putting CBCA businesses at a competitive disadvantage.
Derivative Actions
Finally, the proposed amendment to Section 239 of the CBCA under Bill S-285 would introduce a new presumption that would automatically recognize individuals pursuing societal or environmental interests as "proper persons" (or "complainants") for derivative actions. Specifically, under a newly added subsection 239(3), a person making an application under Section 239(1) related to a director’s or officer’s duty under the newly expanded Section 122(1)(b) is deemed to be a "proper person" if the court determines that they are acting on behalf of the broader society or environment. This amendment would significantly broaden the range of individuals or groups who can bring derivative actions against directors. Traditionally, derivative actions are brought by shareholders or certain other stakeholders (like creditors or employees) who have a direct interest in the corporation. This change allows those without a direct financial stake—such as environmental advocacy groups or social justice organizations—to bring actions if they can demonstrate that they are pursuing the public interest.
Bill S-285 rests on the premise that corporations should not only disclose and address the risks that social and environmental issues pose to their operations and profitability, but also be responsible for their broader societal and environmental impacts. This integration of the “double materiality” principle - where corporations and their leadership must consider both their impact on society and the environment and how these factors affect their operations—could transform Canadian corporate governance. The broader underpinnings of Bill S-285 suggest a move towards a "stakeholder capitalism" model, where shareholder interests are no longer the primary focus and businesses are expected to take on responsibilities traditionally held by governments or non-profit organizations. By requiring businesses to balance multiple, sometimes conflicting, objectives, the bill introduces an element of uncertainty into decision-making processes.
4. Conclusion: Which Jurisdiction Is Right for Your Business?
Selecting between the ABCA and CBCA ultimately depends on your business strategy, operational footprint, and investor requirements. As businesses consider where to incorporate, the distinctions between the ABCA and CBCA are becoming more pronounced. Alberta’s legislation has created a jurisdiction focused on efficiency, investor protection, and minimal regulatory interference. In contrast, federal developments are expanding towards a governance model that incorporates broader societal goals—an approach that could potentially burden businesses with complex obligations and competing priorities.
Businesses should also keep an eye on legislative developments like Bill S-285, as these could dramatically change the regulatory landscape and impact corporate governance decisions. This could lead to a trend of “jurisdiction shopping”, where businesses opt to incorporate under provincial statutes like the ABCA, which offer more business-friendly conditions than the CBCA. In Canada, businesses can choose from 14 main business corporation statutes—one for each province and territory, plus the federal jurisdiction. While these statutes share core corporate principles, significant changes to any of them, such as the proposed amendments to the CBCA under Bill S-285, companies may seek particular jurisdictions that prioritize flexibility, streamlined governance, and fewer regulatory burdens. This situation mirrors what has long been observed in the United States, where states like Delaware and Texas are popular for incorporation due to their favourable legal frameworks.
For businesses weighing their options, the choice between federal incorporation and Alberta incorporation will likely hinge on governance priorities. Companies that align with more expansive and socially driven goals may find the federal model appealing. However, those who seek straightforward, efficient, and investor-focused governance will continue to see Alberta as a growing jurisdiction that strikes the balance between modern governance standards and economic practicality.
Consulting with the experienced lawyers at Blue Rock can help tailor your incorporation strategy to your specific needs. Whether you're considering federal incorporation under the CBCA, provincial incorporation under the ABCA, or even the transition of an existing corporation from one jurisdiction to another, our team is ready to assist with all aspects of corporate jurisdiction strategy to ensure you make the most informed decision for your business.
[i] As of the date of this blog, Bill S-285 is at the second reading stage in the Senate. It was introduced and completed its first reading on May 23, 2024. The bill has not yet progressed to committee review, third reading, or House of Commons consideration.
[i] For reporting issuers, the amended rules on written resolutions do not apply. Reporting issuers still require unanimity for written resolutions, both for ordinary and special resolutions.
To learn more about this topic, check out Episode 33 - The Corporations Act with Stewart Maier and Doug Schweitzer of our podcast, Definitely Not Legal Advice:
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