Quebec Company Law Reform - Changes Of Interest To Tax Planners.

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Tax, October 2009

On October 7, 2009, the Quebec Finance Minister tabled Bill 63, entitled Business Corporations Act (the Bill), in the Quebec National Assembly. The Bill contains a number of proposals which will be of interest to Canadian tax planners.

In the past it has not been possible to change the jurisdiction of a Quebec corporation to another Canadian jurisdiction such as the Canada Business Corporations Act (CBCA) or to change a corporation from another jurisdiction into a Quebec corporation. This has prevented a corporate reorganization by way of an amalgamation of a Quebec corporation with corporations in other Canadian jurisdictions. Under the Bill, such reorganizations will be possible because it is proposed that a Quebec corporation will be permitted to continue into another jurisdiction and vice versa.

Other proposed changes in the Bill could make Quebec corporations a preferable jurisdiction of incorporation in tax planning:

At present, it is not necessary for Quebec corporations to have Canadian directors whereas many other Canadian jurisdictions (such as the CBCA) require their corporations to have at least 25% of Canadian directors. This will continue to be the case under the Bill.

Currently, Quebec corporations must issue an initial share to an incorporator as part of the process of organizing the corporation. This will not be necessary for Quebec corporations under the Bill.

Quebec corporations will continue to be able to issue shares having par value (and a paid-up capital for income tax purposes) less than the issue price of the shares. There will also be flexibility to pay a stock dividend by issuing shares with a nominal paid-up capital for tax purposes (commonly referred to as "high/low" shares).

In some cases, it is desirable for a corporation to have separate classes or series of shares having identical rights and restrictions. There was some question whether this is possible under other corporate jurisdictions. The Bill confirms that this will be possible for a Quebec corporation.

In other jurisdictions, the "corporate incest rules" prevent a corporation from holding shares of its controlling shareholder. Under the Bill, this will be permitted for a period of 30 days.

Under the Bill, it will be possible to fix the date and hour of an incorporation, amalgamation or other corporate change.

The Bill will permit the amalgamation of an insolvent corporation with a solvent corporation so long as the corporation resulting from the amalgamation is solvent.

Other proposed changes in the Bill are outlined in the October 2009 Blakes Bulletin on Business Law: Business Corporations Act - In-Depth Reform of Companies Act.

It is anticipated that the Bill will be in force sometime in 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr John Leopardi

Blake, Cassels & Graydon LLP

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