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UNIVERSITY

OF CALIFORNIA

LOS ANGELES



SCHOOL OF LAW
LIBRARY




B. MOFFAT

BARRISTER, ETC,

OSHAWA, ONT.



HANDBOOK ON COMPANIES



WITH



Appendix of Forms



FOR



SHAREHOLDERS, DIRECTORS, BONDHOLDERS, CORPORA-
TION OFFICIALS, BROKERS, BOND DEALERS,
SOLICITORS, AUTHORIZED TRUS-
TEES AND LIQUIDATORS.



BY

WILLIAM KASPAR FRASER

OF THE TORONTO BAR

AUTHOR OF CANADIAN COMPANY FORMS AND PRECEDENTS ; JOINT AUTHOR o
COMPANY LAW OF CANADA

ASSISTED BY

HUGH WILLIAMSON MACDONNELL

OF THE TORONTO BAR



TORONTO :

THE CARSWBLL COMPANY, LIMITED
1922



COPYRIGHT, CANADA, 1922, BY WILLIAM KASPAR FBASEB.



PREFACE



The companies incorporated in Canada in 1921
alone represent a total share capital exceeding
$850,000,000. When it is considered that most of the
larger corporations secure a portion of the capital
they require 'by public issues of bonds or other
securities, some idea can be formed of the vast
amount of money invested by the public in com-
mercial corporations.

While persons without legal training cannot hope
to master all the details of the law relating to com-
panies in the different jurisdictions in Canada, it is
important that those who invest their money in the
shares or bonds of companies should have at least a
general acquaintance with their rights and liabili-
ties. Even a slight knowledge may put an investor
on his guard and save him from serious loss and
disappointment. It is important that directors and
corporation officials should be familiar with the
principal legal provisions relating to their own duties

and liabilities and those of their companies. They
will then be in a position to know when they ought to
consult their legal advisers, whose services this book
is in no wise intended to supplant.

While it is primarily intended for directors,
shareholders and bondholders, it is hoped that this



IV PREFACE.

book will also be useful to lawyers and all who are
interested in company law, including brokers, bond-
dealers and authorized trustees.

Chapters I to XX, XXIV and the Appendix of
Forms are the work of Mr. Fraser. Chapters XXI
to XXIII are the work of Mr. Macdonnell, who has
also compiled the Tables of Fees and the Index.

In order to avoid technicalities, the authors have
not quoted decided cases which those who are
interested in pursuing the subject further may find
in the standard text-books on Company Law. The
authors have endeavoured to incorporate all statu-
tory amendments up to the end of the 1922 sessions
of the various legislatures.

The references to "Company Law" and
"Forms" are respectively to the second edition of
Masten and Fraser on Company Law and Canadian
Company Forms and Precedents by W. K. Fraser.

120 Bay Street, Toronto. W. K. F.

August 1, 1922. H. W. MACD.



CONTENTS



Chapter Page

I. Incorporation 1-19

Nature and characteristics of companies 1

Incorporation 2

Where to incorporate 3

Procedure for obtaining incorporation 4

Dominion 4

Quebec.

Manitoba.

New Brunswick.

Ontario 9

Departmental instructions.

Nova Scotia 14

Saskatchewan.
Alberta.

British Columbia 14

The memorandum of association 14

The articles of association 17

II. Proceedings subsequent to Incorporation 20-43

Organization

I. Companies incorporated by letters patent . . 20

(1) Dominion; Manitoba, Quebec, New

Brunswick 20

(2) Ontario 25

II. Companies incorporated by memorandum

and articles of association 26

Vendors' agreements and further matters inciden-
tal to organization 27

j Restrictions on allotment and commencement of
business.

Restrictions on allotment 29

I. Quebec 29

Manitoba
New Brunswick
Nova Scotia
II. Dominion 29

III. Ontario 30

Saskatchewan

Alberta

IV. British Columbia 33

Restrictions on commencement of business.

Dominion 34

Quebec
Manitoba



VI CONTENTS.

'

Chapter Page

II. Proceedings, etc. Continued.

Companies with shares of no par value.

Dominion; Quebec; New Brunswick.. 35

Ontario 35

Saskatchewan 38

Alberta 39

British Columbia 39

III. The Prospectus 44-68

Statutory requirements as to filing a prospectus.

Quebec 46

Manitoba 46

New Brunswick 46

Nova Scotia 47

Dominion ... 47

Ontario 47

Saskatchewan 48

Alberta 48

British Columbia 49

Statutory requirements as to form and contents ... 49
Dominion.
Ontario.
Nova Scotia.
Saskatchewan.
Alberta.

British Columbia.

Remedies of subscriber when prospectus untruth-
ful or defective 54

Common law remedies 54

Statutory remedies 55

New Brunswick.
Dominion.
Ontario.
Nova Scotia.
Saskatchewan.
Alberta.

British Columbia.
Remedy of subscriber to whom no prospectus has

been delivered 59

Ontario 59

Alberta 59

British Columbia 60

Prevention of fraudulent statements by companies 61
Precautions to be observed by prospective pur-
chasers or subscribers 61

New companies 61

Established companies 67

IV. Promoters Commissions Underwriting 67-75

Promoters 69

Commissions and underwriting 70

Dominion; New Brunswick; Quebec 71



CONTENTS. Vll

Chapter Page

IV. Promoters, etc. Continued.

Ontario 71

Manitoba 72

Nova Scotia 73

Saskatchewan 73

Alberta 73

British Columbia 74

Precautions to be observed 74

V. Private Companies 76-81

Dominion 76

Ontario 76

British Columbia 76

Procedure for incorporation 77

Conversion of private company into public com-
pany 78

Privileges, exemptions and obligations of private

companies 79

Close corporation 81

New Brunswick.

VI. Share Capital 82-98

Preference shares 83

Creation of preference shares 85

(a) Companies incorporated by letters patent 85

(b) Companies incorporated by registration. 87
Modification of preference shareholders' rights 87
Redemption and re-purchase of preference

shares 90

Preference share certificates 92

Shares of no nominal or par value 93

Dominion.

Quebec.

New Brunswick.

VII. Shares 89-127

Acquisition of shares 99

" Allotment of shares 101

Return of allotments 103

Ontario ; Saskatchewan ; Alberta 103

British Columbia 104

Share certificates 104

Loss, destruction or defacement of share certifi-
cates 106

Share warrants 106

Liability of shareholders 107

Issue of shares for a consideration other than cash. 108

Issue of shares at a discount 110

Special statutory provisions Ill

Calls 121

Enforcement of calls 123

Forfeiture; action ; sale 123

Purchase by company of its own shares 125

Surrender of shares . 126



Vlll CONTENTS.

Chapter Page

VIII. Transfer of Shares 128-144

Restrictions on transfers 128

Loans on security of shares 130

Transfer practice 131

Tax on transfers of shares and securities 134

(a) All companies 134

(b) Ontario 136

(c) Quebec 138

Statutory provisions relating to transfers of shares.

Dominion 139

Ontario 140

Quebec 141

Manitoba 142

New Brunswick 142

Nova Scotia 143

Saskatchewan.

Alberta.

British Columbia.

IX. Directors 145-158

Number, election, vacancies, failure to elect 145

Qualification 148

Disqualification, retirement, removal 149

Remuneration 150

Proceedings 152

Powers of directors 154

Position and liabilities of directors 156

X. Meetings 159-181

First Statutory Meeting:

Ontario; Saskatchewan; Alberta; British Col-
umbia 159

Nova Scotia 162

Annual Meeting:

Companies incorporated by letters patent 162

Special General Meetings:

Companies incorporated by letters patent 164

Ordinary General Meetings:

Companies incorporated by registration 165

Extraordinary General Meetings:

Companies incorporated by registration 167

Notice of meetings 167

Procedure at meetings 169

Proxies 173

Adjournment of meetings 175

Special resolutions and extraordinary resolutions. 177

By-laws requiring confirmation by shareholders.. 179

XI. Borrowing 182-199

Statutory provisions regarding the borrowing of
money:

Dominion; Ontario; Quebec; Manitoba; New

Brunswick . . 182



CONTENTS. IX

Chapter Page

XI. Borrowing. Continued.

Nova Scotia; Saskatchewan, Alberta; British

Columbia 184

Specially limited mining companies:

Alberta; British Columbia 185

Limitations on the power to borrow and precau-
tions to be observed by lenders 185

Bonds, debentures and debenture stock 188

Registration of mortgages and charges 192

XII. Contracts and Officers 200-210

Contracts 200

Officers :

Manager, general manager or managing direc-
tor 205

President, vice-president 206

Secretary, treasurer 206

Auditors 208

XIII. Head Office 211-216

Summary of statutory provisions . . . . 212

Change of head office 214

XIV. Books and corporate seal 217-225

XV. Dividends 226-235

Procedure 228

Mode of payment Cash dividends Stock divi-
dends 231

Reserve fund 232

Dominion income tax 233

Distribution of assets in specie 234

Special statutory provisions:

Ontario; Quebec.
XVI. Supplementary Letters Patent and Alteration of

Memorandum of Association 236-251

Supplementary letters patent:

j Procedure for obtaining 236

Cases when supplementary letters patent
necessary :

Change of name 237

Amendment of letters patent 237

Sub-division of shares 238

Consolidation of shares 239

Increase of capital 239

Decrease of capital 240

Other purposes 243

Petition and documents required 244

Alteration of memorandum of association 247

Change of name 247

Change of registered office 247

Alteration of objects 247

Increase of capital 249

Sub-division of shares . 250



X CONTENTS.

Chapter Page

XVI. Supplementary Letters Patent, etc. Continued.

Consolidation of shares 250

Reduction of capital 251

XVII. Change of name 252-256

XVIII. Sale of assets 257-264

Reconstruction and reorganization 259

Amalgamation 262

XIX. Termination or impairment of corporate existence for

reasons other than insolvency 265-275

Surrender of Charter 265

Forfeiture of Letters Patent 268

Forfeiture of certificate of incorporation 269

Defunct companies 269

Removal from register of companies in default or

defunct 270

Carrying on business with less than minimum

number of shareholders 274

Appointment of inspectors 275

XX. Blue Sky Laws 276-286

Manitoba 276

Saskatchewan.
Alberta.

Quebec (Mining Companies Act) 283

British Columbia.

Extra-provincial companies 284

Mining companies 285

XXI. Extra-provincial Corporations 287-297

Statutory requirements 287

Application for license or registration 288

Holding of land by extra-provincial companies. . . 294
Ontario.
Manitoba.
Saskatchewan.
Alberta.

British Columbia.

Quebec; New Brunswick; Nova Scotia, Prince
Edward Island.

XXII. Taxation 298-309

Dominion Income Tax 298

Sales Tax 303

Provincial Taxation on companies:

Prince Edward Island 305

Nova Scotia 305

New Brunswick 305

Quebec 306

Ontario 307

Manitoba 308

Saskatchewan 308

Alberta 308

British Columbia 309



CONTENTS. XI

Chapter Page

XXIII. Returns and documents to be filed 310-333

Dominion 310

Ontario 311

Quebec 314

Manitoba 315

Nova Scotia 317

New Brunswick 319

Saskatchewan 320

Alberta 323

British Columbia 326

XXIV. Winding-up and Insolvency 334-353

Winding-up under provincial legislation 334

The Bankruptcy Act 335

The Dominion Winding-up Act 344

Table of Fees 355-374

Appendix of Forms 375-395



INDEX OF FORMS



TAGS

Acceptance of draft 204

Agreement for sale of business to a company 376

Allotment of shares

letter of 383

resolution of directors 384

return of allotments 384

Application for shares 383

Auditor's certificate 209

Banking and signing officers' resolution 393

Borrowing of money

by-law for 391

resolution for 393

Call-
notice of 386

resolution making 386

Change of head office, by-law for 394

Commission, Ontario charter provision authorizing payment of,

on sale of or subscription for shares 72

Consent to act as director 375

Contract by directors to take qualifying shares 375, 376

Contract under seal, form of execution 202

Contract not under seal, form of execution 204

Dividend, resolution declaring 229

Draft 204

Forfeiture of shares

notice of 386

resolution for 387

Increase of capital

notice of 393

resolution for 249

Notice of annual meeting 388

Notice of change in registered office 216

Notice of dividend 229

Notice of ordinary general meeting 389

Notice of situation of principal office 23

Notice of situation of registered office 376

Notice of special general meeting 168, 169, 389

Notice, unconditional, of two meetings to pass and confirm special

resolution 390

Preference shares, by-law creating 378

Promissory note 205

Proxy 390, 391

Receipt for money paid on application for shares 383

Restriction on transfer of shares, charter provision 77

Share certificates

common shares 385

no par shares 382

preference shares (letters patent) 381

preference shares (registration) 382

Transfer of shares

common form 388

endorsement on certificate 387



NOTE



Each province in Canada has a Companies Act of its own, under
which companies may be incorporated, and there is also a Dominion
Companies Act, under which companies may be formed with power
to carry on business throughout the Dominion. A company is gov-
erned by the provisions of the Act under which it is incorporated.
Unless otherwise specified, the references to the legislation in the
various jurisdictions, eg. : "Dominion (s.s. 5-13) ; Ontario (s.s. 3-8),"
are to the sections of the Companies Act of the jurisdiction indicated.
Pamphlet copies of the Dominion Act can be got from the Department
of the Secretary of State at Ottawa ; and copies of the various Pro-
vincial Companies Acts from the Provincial Secretary or Registrar
of Companies in the Provincial capital.



HANDBOOK ON COMPANIES



CHAPTER I.
INCORPORATION.

Nature and characteristics of companies.

In this work only one of the different classes of
incorporated bodies will be dealt with, viz., limited
companies with a capital divided into shares, incor-
porated under the Companies Act of the Dominion
or of one of the provinces. These constitute by far
the most numerous and important class of com-
panies carrying on commercial undertakings in
Canada. Such companies are described as "com-
panies limited by shares " or ' ' companies with share
capital" or "joint stock companies," and are to be
distinguished from companies without share capital,
corporations, companies limited by guarantee and
unlimited companies. Accordingly, wherever the
word "company" is used hereafter it is intended to
refer to an incorporated body, with a capital divided
into shares, which are held by the company's mem-
bers or shareholders whose liability is limited by the
amount of the capital for which they have subscribed.

A company, unlike a partnership, is an entity leg-
ally separate and distinct from its individual mem-
bers or shareholders. The shareholder may transfer
his shares to others under certain prescribed condi-
tions, thereby causing himself to cease to be, and his
transferee to become, a shareholder. The amount of
share capital which the shareholder agrees to take is

H.C. 1



2 HANDBOOK OX COMPANIES.

the measure of his liability to the company and its
creditors. This privilege of limited liability is one
of the outstanding advantages conferred by incor-
poration. Among other advantages of incorpora-
tion is the control which the shareholders can exer-
cise over those who manage the company's under-
taking, viz., the directors. The latter are special
agents and have only such powers as are given them
by the governing statute and the regulations of the
company. Other characteristic advantages enjoyed by
companies are the facilities they possess for obtain-
ing capital by the issue of bonds and preference
shares and for effecting combinations and amalga-
mations. The fact that the company possesses an
existence separate from and independent of its
members enables it to contract with the latter. The
death, bankruptcy or lunacy of a member does not
interfere with the continued existence of the com-
pany as it does in the case of a partnership. Shares
or securities in a prosperous company may be an
asset of commercial value which can be used in any
other enterprise in which the owner is engaged.

Among the external characteristics of a company
are the following : It has a name of which the word
"limited" forms a part; it has a corporate seal on
which the name is engraved; it has a charter or
memorandum of association in which among other
things the name, objects, capital and number of
shares into which it is divided are set forth; it has
regulations consisting of by-laws or articles of
association.

Incorporation.

Apart from incorporation by special legislative
Act, a mode which is not here considered, incorpora-



INCORPORATION. 6

tion is obtained in Canada by following the pro-
cedure required by the particular Companies Act
under which incorporation is sought and by paying
the required departmental fee. Each province has
a Companies Act of its own under which companies
may be incorporated and there is also a Dominion
Companies Act, under which companies may be
incorporated with power to carry on business
throughout the Dominion. A province, on the other
hand, can only confer, on companies incorporated
by it, actual powers and rights exercisable within the
province; if the company carries on business in
another province it must get the right to do so from
the latter. This it can do by taking out a license or
becoming registered and paying the license or regis-
tration fee required.

Where to incorporate.

If the company's activities are to be confined to
one province, it is usually advisable and cheaper to
obtain incorporation in that province. If the com-
pany proposes to carry on business throughout the
Dominion or in several provinces or in* foreign
countries, incorporation under the Dominion Act is
advisable. If the company's business is primarily
provincial but its operations may extend further, the
jurisdiction under which to incorporate is a matter
of choice, largely to be determined by a computation
of the relative incorporation and license fees and
taxation. Tables of incorporation and license fees
are given at p. 355. It has been held that a Dominion
company need not take out a license as a condition
precedent to doing business in Ontario and Mani-
toba, and the same is probably true under similar
legislation in other provinces. In Quebec and



4 HANDBOOK ON COMPANIES.

Alberta a Dominion company is not required to take
out a license to do business. In Saskatchewan a
Dominion company is required to become registered
but need not take out a license. If, however, a Do-
minion company proposes to hold land in any pro-
vince it must 'comply with the local requirements, if
any, as to obtaining a license in mortmain.

Procedure for obtaining incorporation.

Two modes of incorporation are in vogue in
Canada, viz., by letters patent, or by certificate of
incorporation issued by the Registrar of Companies
upon the filing of a memorandum and articles of
association. In the following jurisdictions incor-
poration takes place by letters patent granting a
charter of incorporation:

Dominion (ss. 5-13).
Ontario (ss. 3-8; 17-22).
Quebec (arts. 5961-5967a; 6748).
Manitoba (ss. 4-16).
New Brunswick (ss. 5-14).

The application for letters patent must be by
formal petition executed by at least five (Quebec
and New Brunswick three) petitioners, each of the
full age of twenty-one years. Forms of petition and
accompanying documents and pamphlets setting out
the procedure are obtainable gratis from the Depart-
ment of the Secretary of State of Canada, at Ottawa,
for Dominion companies, or from the Department of
the Provincial Secretary in the provincial capital for
provincial companies. For statutory forms see
Forms, pp. 630 ff.

The following is an outline of the requirements
under the Dominion Act. The requirements in the



INCORPORATION. 5

different provinces are similar, with some slight
modifications.

An application for incorporation must be pre-
pared, signed and filed with the department. The
application must set out:

(a) The proposed corporate name of the com-
pany, which shall not be that of any other known
company incorporated or unincorporated, or any
name liable to be confounded therewith, or otherwise,
on public grounds, objectionable, s. 7 (a). It is
always advisable before forwarding the application
to make inquiry from the department whether the
proposed name is acceptable. It is also advisable
that the name be as short as possible. "If the name
of the proposed company is that of an existing
partnership, there must be a written consent to the
use of the name, signed by all the members of the
partnership, duly verified, and accompanied by an
affidavit that the signatories are all the members of
the partnership. If the proposed name contains the
names of individuals who are not applicants for
incorporation, written consents, verified by affidavits
of execution, of all such persons should be filed."
(Departmental regulations.) If the proposed name
is that of an incorporated company, a by-law of the
directors of such company authorizing the applica-
tion and undertaking that no further business opera-
tions will be carried on by the company, and that the
letters patent of the existing company will be sur-
rendered forthwith, must be filed. If the corporation
is defunct the affidavit should show it.

Certain names will not be granted, e.g., names
including the word "Imperial," or other titles signi-
fying royal or government support or patronage,
such as "Crown," "King's," etc.



6 HANDBOOK ON COMPANIES.

(b) The objects for which the company is to be
incorporated :

Great care and the services of a competent soli-
citor are requisite in drafting the objects of the
company, as these can only be changed subsequently
by supplementary letters patent. In addition to
specific objects, experience has shewn that a number
of general clauses and powers should be inserted.
See further Company Law, p. 36, and, for examples,
Forms, pp. 338 ff.

(c) The place within Canada where the head
office of the company is to be situate. If the head
office is in a township or district, the post office
address should be given.

(d) The proposed amount of the capital of the
company, the number of shares, and the amount of
each share.

If it is desired that the provisions relating to the
issue of preference shares should appear in the let-
ters patent, they ought to be set out in the petition.
(See further p. 85) :

Shares of no nominal or par value :
The Acts of the Dominion, New Brunswick and
Quebec provide for shares without nominal or par
value. Such shares may be issued for such con-
sideration as the letters patent prescribe, or as may
be fixed by the directors pursuant to authority con-
ferred in the letters patent, or if the letters patent
do not so provide, then by the consent of two-thirds
of each class of shares then outstanding given at a
meeting called for that purpose in such manner as
is prescribed by the by-laws. Where shares of no
nominal or par value are authorized, the letters
patent must set out the amount of capital with which
the company will carry on business ; this necessitates
stating it in the petition.



INCORPORATION. 7

The amount (which must not be less than $500)
is to be determined as follows : If there are no
preferred shares with a preference as to principal,
it is a sum equivalent to $5 or some multiple of $5
for every share authorized to be issued. If pre-
ferred shares with a preference as to principal are
provided for, the nominal amount of such preferred
shares must be added.

(f) The names (in full, not initials), address and
calling of each of the applicants; the names of the
applicants, not less than three Dominion and New
Brunswick (and not more than fifteen) who are to
be the provisional directors of the company. The
applicants must be of the full age of twenty-one.

(g) The number of shares taken by each
applicant.

It is usual for each applicant to subscribe for one
share and that no payment should be made thereon
before incorporation.

The petition must be signed by each of the appli-
cants and the facts therein stated verified by affidavit
of one of the applicants. Signatures by attorney
(if any) must be made under specific power of attor-
ney duly executed and verified. The original power
of attorney or an authenticated notarial copy thereof
must be produced with the petition. The application



Online LibraryUnknownHandbook on companies, with appendix of forms, for shareholders, directors, bondholders, corporation officials, brokers, bond dealers, solicitors, authorized trustees and liquidators → online text (page 1 of 29)