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Open for business: Bill 22 cuts “red tape” from the Business Corporations Act and Partnership Act

Energy Bulletin
13.08.20
By Tyler Engelking (Summer Student) with assistance from Alicia Quesnel and Robyn Finley

On June 11, 2020, the Government of Alberta introduced Bill 22: the Red Tape Reduction Implementation Act, (Bill 22). Bill 22 forms part of the Government's efforts to reduce inefficient regulations and barriers to entry in Alberta, to promote investment and to make Alberta more competitive with other provinces. Bill 22 passed third reading in the provincial Legislature on July 15, 2020 and received Royal Assent on July 23. The amendments to the legislation affected by Bill 22 will come into force upon proclamation.

Bill 22 is omnibus legislation that will amend 14 separate statutes in Alberta. This article will focus specifically on the changes that Bill 22 makes to the Business Corporations Act RSA 2000 c. B-9 (the ABCA) and the Partnership Act RSA 2000 c P-3 (the Partnership Act).

Business Corporations Act

Removal of board member residency requirements

Bill 22 makes several changes to the ABCA, the most important of which is to remove restrictions for resident Canadians on corporations' boards of directors. Previously, the ABCA required:

  1. 25% of board members must be resident Canadians;
  2. the managing director must be a resident Canadian; and
  3. 25% of the board members at each meeting must be resident Canadians.

Director residency requirements are eliminated under Bill 22, aligning the ABCA with other Canadian jurisdictions that do not have director residency requirements, such as British Columbia and consistent with the Government of Alberta's goal of reducing barriers to entry and attracting foreign investors to Alberta. The current practice of many foreign investors is to circumvent Alberta's director residency requirements by incorporating in jurisdictions that do not have residency requirements (like British Columbia), then extra-provincially registering in Alberta. This change will create efficiencies for foreign investors by removing this step and give Alberta a competitive advantage over other provinces including Ontario, Manitoba, and Saskatchewan that still have residency requirements for directors. There is also still a residency requirement under the Canadian Business Corporations Act RSC 1985 c C-44.

Requirement of an agent for service

With the removal of the director residency restrictions comes a new requirement, that corporations registered under the ABCA appoint an "agent for service" in order to receive government notices and filings. An agent for service must:

  1. be resident in Alberta;
  2. have a publically accessible office during normal business hours that is readily identifiable; and
  3. notify the Registrar at least 60 days prior to resigning as the agent of service.

Existing corporations have a one-year grace period to appoint an agent for service and notify the Registrar, or the Registrar may dissolve the corporation. The agent for service provision aims to be less restrictive and less costly for corporations, compared to retaining an attorney for service. Corporations have reporting obligations, including the requirement to notify the Registrar if the agent changes its name, address or any other contact information, or if the agent dies. A corporation can be effectively served at the agents address or by delivery to the agent itself.

The Partnership Act

Bill 22 significantly streamlines the process of forming limited partnerships in Alberta, provides limited partners with greater statutory rights, and makes it clear that the laws of the jurisdiction of formation of an extra-provincial limited partnership will apply to determine the limited liability status of its limited partners.

Changes to the certificate of limited partnership

Currently, under the Partnership Act, a limited partnership is formed upon the registration of a certificate of limited partnership. A certificate of limited partnership registerable in Alberta requires the public disclosure of a significant amount of information about the limited partners, such as their names and addresses, as well as the rights and obligations of the partners to one another, including the amount of their contributions, any additional contributions they have agreed to make, when their contributions are to be returned, their share of profits or other compensation and rights of priority between limited partners, among other things. The rationale for this type of disclosure is premised on the desire to balance the limited liability status of the limited partners with the rights of creditors and other third parties that deal with the limited partnership. A third party dealing with the limited partnership does so knowing how much capital has been (or has agreed to be) contributed to the limited partnership and the circumstances under which it can be withdrawn.

The changes to the Partnership Act greatly reduce the information required to be included on a certificate of limited partnership. When the changes put forward by Bill 22 become law, the only information required on the certificate will be:

  1. the firm name;
  2. the name, email address, street address or postal address of each general partner; and
  3. any other information required by the regulations.

This is an important change for both private and public limited partnerships that aligns the Partnership Act with the limited partnership legislation of other provinces, such as Ontario, as well as most jurisdictions in the United States. It allows investors to make investments without having to disclose the confidential terms of their business arrangements.

Changes to the statutory rights of limited partnership

The Partnership Act contains a number of statutory rights that may be exercised by the limited partners without risking their limited liability status simply by reason of their exercise. One such statutory right is the extent to which the limited partners have a right to approve the actions of the general partner. In more investor-friendly jurisdictions, such as Ontario, the general partner is not entitled to do anything in contravention of the limited partnership agreement without the consent of the limited partners. The law in Alberta is currently much more restrictive. Section 56 of the Partnership Act provides that the general partner cannot do anything in contravention of the certificate of limited partnership without the consent of the limited partners.

What this means for limited partners is that, if a restriction on the conduct of the general partner is found in the limited partnership agreement, but is not evident in the certificate of limited partnership, the consent or approval rights of the limited partners could be construed as the limited partners taking part in the control of business, thereby putting their limited liability status at risk. The practice in Alberta to address this has been to incorporate the partnership agreement into the partnership certificate by reference and attach a copy of the partnership agreement to the partnership certificate. Many partners of limited partnerships are very uncomfortable with this level of disclosure.

Bill 22 amends section 56 of the Partnership Act to make it clear that a general partner is not entitled to do anything in contravention of the limited partnership agreement without the consent of the limited partners, providing limited partners with greater security of their limited liability status, and aligning the Partnership Act with other limited partnership legislation in Canada. While caution will still be required to ensure that the rights of the limited partners do not amount to "control" of the business of the partnership, the certificate of limited partnership will not be a determining factor in assessing whether or not such "control" has been exercised.

Extra-provincial limited partnerships

Bill 22 also adds section 80.02, which states that the applicable law regarding the liability of the limited partners for an extra-provincial limited partnership is the jurisdiction in which formation of the partnership occurred. Under the current Partnership Act, limited partners of extra-provincially registered limited partnerships doing business in Alberta technically become subject to the limited liability provisions of the Partnership Act, notwithstanding the limited liability provisions of the extra-provincial partnership's home. For example, limited partners of limited partnerships formed under Manitoba law permit limited partners to take control of the business and still preserve their limited liability status as long as third parties with whom they transact are aware that they are a limited partner. When the new section 80.2 comes into effect, limited partners of Manitoba limited partnerships doing business in Alberta will continue to enjoy the greater liability protection afforded them under Manitoba law rather than becoming subject to the more restrictive liability provisions under the Partnership Act.

Conclusion

The amendments to the ABCA and the Partnership Act brought about by Bill 22 serve to bring Alberta into step with other Canadian jurisdictions, vis-à-vis director residency requirements and the formation and operation of limited partnerships. In the Government of Alberta's mission to reduce "red tape" and invite more investment in the province, these changes should serve to level the playing field as they eliminate certain factors that may have deterred new enterprises coming to Alberta.