B. Incorporation

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 84-87

Page 84

Since 1997, banks have been required to be incorporated by letters patent only,⁵that is, the decision is to be made by the Minister of Finance, which means, effectively, that it is a decision within the Cabinet. Prior to the 1980 Bank Act, the only means of incorporating a new bank was by a private act of Parliament, a more public process, but in 1980 incorporation by letters patent was added to facilitate an anticipated rush to incorporate Schedule II foreign banks once foreign banks were permitted to do business legally by the 1980 Act. The 1991 Act continued to permit incorporation by private act or by letters patent, but the 1997 Act restricted incorporation to letters patent. This appears to be part of the increasingly centralized control of the banking sector in the government through the Minister of Finance.⁶

The application for incorporation is filed with the Superintendent and should contain all the information the Superintendent requires, including the names of the first directors.⁷

For at least four consecutive weeks prior to the application, public notice of an intention to apply is to be published in the Canada Gazette and in a general circulation newspaper at or near the place of the head office,⁸so that any person

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may object in writing to the Superintendent.⁹

The Minister is to be informed of any objection, and if the Superintendent thinks it in the public interest, should hold a public inquiry,¹⁰the findings of which are to be reported to the Minister¹¹and the public.¹²

Prior to issuing letters patent, the Minister is required to consider the financial resources, business record, character and integrity, and competence of the applicant, as well as the feasibility of the plans and the best interests of the financial system in Canada.¹³

If the applicant is a subsidiary of a foreign bank, the Minister must be satisfied that its home country will provide favourable reciprocal conditions for domestic Canadian banks.¹⁴

Applications from governments and from government agencies or entities, whether Canadian or foreign, must be rejected.¹⁵

Once the Minister has satisfied these requirements, the letters patent may be issued, in the discretion of the Minister. There is no prima facie entitlement to incorporation on application as permitted by business corporations legislation.¹⁶

In addition to incorporation by letters patent of a new body corporate, the Bank Act provides for existing corporations to continue as a bank, including trust and loan companies, insurance companies,¹⁷ and any other federally incorporated corporation,¹⁸provided certain requirements are met. At least two-thirds of the shareholders of these corporations must approve the conversion to a bank,¹⁹and once the bank comes into existence,²⁰shares are to be transferred to the existing shareholders on a share-for-share basis with the same rights, privileges, and restrictions as the shares of the corporation.²¹

The Act protects existing shareholder rights into the newly incorporated bank for a period of ten years from the issuance of the letters patent.²²

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Once incorporated,²³the name and place of the head office of the bank is added to Schedule I of the Act if the bank is not a subsidiary of a foreign bank,²⁴to Schedule II if the bank is a subsidiary of a foreign bank,²⁵or to Schedule III if the bank is an authorized foreign bank.²⁶

Once any bank is incorporated, the Bank Act applies to that bank and is the charter of that bank.²⁷

This means that the Bank Act is effectively the constitution for every bank permitted to operate in Canada, so that all banks have a common constitution.²⁸

Finally, the Bank Act also permits a bank to apply for a certificate of continuation as a business corporation or a cooperative or a cooperative association or for letters patent to continue as a trust or loan company or to amalgamate with a trust or...