Introduction to Corporate Law

• Author: J. Anthony VanDuzer
• Profession: Faculty of Law University of Ottawa
• Pages: 90-145

90

CHAPTER 3

INTRODUCTION

TO CORPORATE LAW

A. INTRODUCTION

In this chapter, we introduce the corporation from a variety of perspec-

tives. After a historical overview of the development of corporate law

in Canada, we will brief‌ly describe the current form of corporate law in

terms of the following questions:

          

and the provinces in relat ion to corporations?

   Charter of Rights and Freedoms1 applicable to

corporat ions?

           

corporations in Canad a?

 

 

B. A BRIEF HISTORICAL NOTE ON

CANADIA N CORPOR ATE LAW

Before t he nineteenth century, only two types of incorporation were

provided for in English and Canadian law. First, a corporation could

1 Canadian Char ter of Rights and Freedoms, Part I of the Const itution Act, 1982, be-

ing Schedule B to t he Canada Act 1982 (U.K.), 1982, c. 11.

Introduction to Cor porate Law 91

be cre ated by exercise of the royal prerogative. This was done by the

Crown i ssuing letters patent sometimes referred to a s a “Royal Char-

ter.” Only a small number of royal charters were granted, such as the

charter of the Hudson’s Bay Company granted by England in 1670.

These cor porations, which were created for colonization purposes as

much as for trade, did not resemble modern business corporations. For

example, the shareholders remai ned liable for the corporation’s obliga-

tions. A second way in which incorporation could be effected was by a

special or general Act of the legislature. Though Canadian legislatures

sometimes passed speci al acts to permit incorporation of a corporation

for a particula r purpose, i ncorporation by an enactment of the leg isla-

ture rarely occurred.

A new approach to incorporation was adopted with the English Joint

Stock Companies Act2 which came into force in 1844. It permitted incor-

poration for any type of business simply upon registration of cert ain

documents specif‌ied in the statute. This registration approach to the

formation of corporations has been followed in England ever since.

Early Canadian statutes al so followed a registration approach. In

1849, statutes were passed in Upper and Lower Canada allowing for

the incorporation of companies for the pur pose of building roads and

bridges.3 Incorporation did not require the exercise of the royal pre-

rogative but was obtained by the regi stration of prescr ibed documents

in the county in which the work was to be done. In many respects,

however, these companies still did not resemble modern business cor-

porations. They were organizations set up for a limited purpose, and

did not provide their shareholders with limited liability.

In 1850, the United Provinces of Canada enacted a more gener-

ally applicable statute for incorporation.4 Following the American ap-

proach, the new Act permitted incorporation for mining, shipbuilding,

manufacturing, and chemical busines ses t hrough an expeditious pro-

cess that, like the 1849 Acts, did not depend on the exercise of the royal

prerogative. Incorporation was obtained simply by the registration of

certain documents. Unlike those incorporated under the 1849 Acts,

2 7 & 8 Vict., cc. 110 & 111. Limite d liability was grant ed to corporations under

the Limited Liability Act (18 & 19 Vict., c. 133) in 1855.

3 An Act to Authorize the Forma tion of Joint Stock Companies for the Construct ion of

Roads and Ot her Works in Upper Canada, S.C. 1849, c. 84; and An Act to Aut hor-

ize the Formation of Joint Stock Compa nies in Lower Canada for the Constru ction

of Macadamized Roa ds, and of Bridges and Other Works of Like Nature, S.C. 1849,

c. 56. For a general disc ussion of early Canadia n corporate legislation se e F.W.

Wegenast, The Law of Cana dian Companies (Toronto: Burroughs, 1931).

4 An Act to Provide for the Forma tion of Incorporated Joint Stock Companies, for

Manufacturing, Mining, Mech anical or Chemical Purposes, S.C. 1850, c. 28.

THE LAW OF PARTNERSHIPS AND COR PORATIONS92

however, corporations under this Act had two of the def‌ining char-

acteristics we associate with the moder n corporation: separate legal

personality and limited liability. In contrast to modern corporations,

however, their life was limited to f‌ifty yea rs.

In 1862, the English Companies Act5 was passed, replacing the 1855

Act. It, too, was based on a registration approach; the Act provided

for incorporation on the f‌iling of t he documents requi red by statute: a

memorandum of association and articles of association. This Act continues

to provide the model for contemporary English law and subsequently

became the model for Canadia n legislation in some juris dictions.

For some reason the United Provinces of Canada reverted to a model

based on the exercise of royal prerogative in a new general incorporation

sta tute pa ssed in 1864. 6 While p ermi tting incor porat ion for a ny comm er-

cial purpose, u nder this Act, incorp oration occu rred only up on the iss ue

of letters patent by the Governor in Council. Issuing letters patent was a

discretionar y act of an off‌icial of the state. The letters patent approach

was followed in the federal incorporat ion statute enacted in 18697 and in

provincial legislation in Prince Edward Island, New Brunswick, Quebec,

Ontario, and Manitoba. In contrast, by 1900, Nova Scotia, Newfound-

land, Saskatchewa n, Alberta, and British Columbia had enacted corpor-

ate l egisl ation pr ovidi ng for i ncorpor ation t hrough f‌ilin g a memor andum

and articles of association following the English registration approach.

There are certain conceptual differences bet ween t he registration

and letters patent approaches. As mentioned above, the creation of a

corporation under a letters patent statute i s a discretionary act of the

Crown. Under a registration approach, incorporation must be granted

by the state so long as the documents f‌iled satisfy the statutory require-

ments. Also, a letters patent corporation i s deemed to have the rights

and powers of a natural person, wherea s a corporation under t he Eng-

lish regi stration system (referred to here a s a “memorandum corpora-

tion”) has only the powers provided for expre ssly or by implication in

its articles. In effect, this me ant that actions of memorandum cor pora-

tions were sometimes attacked as outside their corporate powers, or

ultra vires. Under English registration model statutes, the incorporators

have to provide a set of rules in the memorandum and articles of asso-

5 Companies Act (U.K.), 1862, c. 89.

6 An Act to Authorize the Granting of Char ters of Incorporation to Manufact uring,

Mining, and Other Compani es, S.C. 1864, c. 23. Harris et al. sugge st that the

inspirat ion may have come from an English act de aling with the incorp oration

of banks (D. Har ris et al., Cases and Materia ls on Partnerships and Canadian Bu si-

ness Corporations, 4t h ed. (Toronto: Thomson Cars well, 2004) at 56 [Harris].

7 Canadian Joint Stock Compa nies Letters Patent Act, S.C. 1869, c. 13.