Introduction to Corporate Law

AuthorJ. Anthony VanDuzer
In this chapter, we introduce the corporation from a var iety of perspec-
tives. After a historic al overview of the development of corporate law
in Canada, we wi ll brief‌ly describe the current state of corporate law i n
terms of the following questions:
What is the constitutional competence of the federal govern ment
and the provinces in relat ion to corporations?
To what extent is the Charter of Rights and Freedoms1 applicable to
corporat ions?
What is the current proces s of incorporation and organization of
corporat ions in Ca nada?
What is the function of corporate law a nd what policies underpin it?
What is the nature of the separate legal existence of the corporation?
Before the nineteenth century, only two typ es of incorporation were
provided for in English and Canadi an law. First, a corporation could
1 Canadian Char ter of Rights and Freedoms, Part I of the Constitution Act, 1982, be-
ing Schedule B to th e Canada Act 1982 (UK), 1982, c 11.
Introduction to Cor porate Law 97
be created by exercise of the royal prerogative. This was done by the
Crown issuing letters patent, sometimes referred to as 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 Engla nd in 1670.
These corporations, which were created for colonization purposes as
much as for trade, did not resemble modern business cor porations. For
example, the shareholders remained liable for the corporation’s obliga-
tions. A second way in which incorporation could be effected was by a
special act of the legislature. Canadian legislatures have passed special
acts to permit incorporat ion of a corporation for a particular purpose,
but this has not been a common practice.
A new approach to incorporation was adopted with the Engli sh
Joint Stock Companies Act2 which came into force in 1844. It permitted
incorporation for any type of busine ss simply upon registration of cer-
tain documents specif‌ied in the statute. This regist ration approach to
the formation of corporations has b een followed in England ever since.
Early Canadian statutes also followed a registration approach. In
1849, statutes were passed in Upper and Lower Can ada allowing for
the incorporation of companies for the purpose of building roads and
bridge s.3 Incorporation did not require the exercise of t he royal pre-
rogative but was obtained by the regist ration of prescribed 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 businesses t hrough an expeditious pro-
cess that, like t he 1849 Acts, did not depend on the exercise of t he 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. Limited li ability was granted to cor porations under
the Limited Liability Act (18 & 19 Vict, c 133) in 1855.
3 An Act to Authorize the Format ion of Joint Stock Companies for the Constructio n of
Roads and Ot her Works in Upper Canada, SC 1849, c 84; and An Act to Auth orize
the Formation of Joint Stock Comp anies in Lower Canada for the Constr uction of
Macadamized Roa ds, and of Bridges and Other Works of Like Nature, SC 1849, c
56. For a general disc ussion of early Canadia n corporate legislation see F W
Wege nast, The Law of Canadian Companies (Toronto: Burroughs, 1931).
4 An Act to Provide for the Format ion of Incorporated Joint Stock Companies, for
Manufacturing, Mining, Mech anical or Chemical Purposes, SC 1850, c 28.
however, corporations under this Act had two of the def‌ining char-
acteristics we associate with the modern 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, replaci ng the 1855
Act. It, too, was based on a registration approach; the Act provided for
incorporation on the f‌iling of a memorandum of association and articles
of association. This Act continues to provide the model for contempor-
ary English law a nd subsequently became the model for Canadian
legislat ion in some juri sdictions.
For some reason, the United Provinces of Can ada reverted to a
model based on the exercise of royal prerogative in a new general i n-
corporation statute passed in 1864.6 While permit ting incor poration for
any commercial purpose, i ncorporation occurred only upon the issue of
letters patent by the Gover nor in Council, a discretionary act of the state.
The letters patent approach was followed in the federal incorporation
statute enacted in 18697 and in provincial legi slation in Prince Edward
Island, New Brunsw ick, Quebec, Ontario, and Manitoba. In contrast, by
1900, Nova Scotia, Newfoundland, Saskatchewan, Alberta, and British
Columbia h ad enacted corporate leg islation providing for incorporat ion
through f‌iling a memorandum and articles of association following the
English registrat ion approach.
There are certain conceptual di fferences between the registr ation
and letters patent approaches. As mentioned above, the creation of a
corporation under a letters patent statute is 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 is deemed to have the rights
and powers of a natural person, wherea s a corporation under the Eng-
lish registration system (referred to here as a “memorandum corpora-
tion”) has only the powers provided for expressly or by implication in
its articles. In effect, t his meant that actions of memorandum corpora-
tions could sometimes be attacked a s outside their corporate powers, or
5 Companies Act (UK), 1862, c 89. This model, with man y additions and improve-
ments, continues t o be followed in the United Kingdom: Compani es Act 2006
(UK), 2006, c 46.
6 An Act to Authorize the Granting of Charters of Incor poration to Manufacturing,
Mining, and Other Companie s, SC 1864, c 23. Harris et al sugge st that the inspi-
ration may have come f rom an English act dealing w ith the incorporation of
banks (D Har ris et al, Cases and Mater ials on Partnerships and Canadi an Business
Corporations, 4th ed (Toronto: Thomson Carswe ll, 2004) at 56 [Harris].
7 Canadian Joint Stock Compa nies Letters Patent Act, SC 1869, c 13.

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