The Alberta government’s recent extensive red tape reduction measures are designed to attract not only investment, but entrepreneurs and innovative businesses to Alberta as part of the government’s Alberta Recovery Plan to grow and diversify the Alberta economy. Certain of these new legislative amendments are intended to improve the ability of corporations in Alberta to attract equity capital and startups in the tech sector, including the introduction of a prospectus exemption for self-certified Alberta and Saskatchewan investors, a small business public financing prospectus exemption, and perhaps most noticeably, considerable amendments to the Alberta Business Corporation Act (the “ABCA“).
Among the many stresses, decisions and considerations a startup founder must navigate, where to incorporate is not a decision which is typically at the top of the list. However, this is an early decision that can have lasting impacts, particularly when startups begin seeking outside equity capital.
The Alberta Business Corporations Amendment Act (formerly Bill 84) came into force on May 31, 2022. The amendments modernize the ABCA, reduce administrative burdens for Alberta corporations, and aim to attract new business and investment by clarifying the protections and responsibilities of directors.
A goal of the amendments was to make it easier for corporations to attract venture and private equity capital. One feature of the amendments is that now corporations have the ability to waive any interest or opportunity to participate in a specified business opportunity available to directors and officers. The waiver mechanism is designed to be beneficial to venture capitalists and institutional investors who focus their investments in specific industries and sectors and who nominate representatives and directors who sit on multiple boards of companies involved in the same industry. However, these waivers will equally benefit other industries, including Alberta’s energy sector, a capital-intensive sector which has historically attracted significant investment from private equity and other institutional investors who, as part of their investment strategy, contribute value to companies by nominating representatives and experienced directors who sit on multiple boards of companies involved in the same industry.
Other changes benefitting directors and officers include: (i) the ability for directors to vote on contracts or transactions in which they have a material interest and where the director’s and the corporation’s interests align beneficially for the corporation, (ii) expansion of the good faith defense, which provides that directors will not be liable for breach of their duty of care if they can demonstrate that they relied in good faith on an opinion or report of a person, including professional services providers such as lawyers, accountants, and engineers, and now as a result of the amendment, employees of the corporation, and (iii) increased protections for indemnification from the corporation by expanding the circumstances in which a director and officer may be indemnified.
With respect to reducing administrative burdens, the key amendments for private corporations (non reporting issuers), include reducing the required approval threshold to two-thirds of the voting shares for both written shareholder resolutions and resolutions to dispense with the appointment of auditors. Previously, to be effective, a written resolution would need to be signed by all shareholders entitled to vote on the matter being presented, and dispensing with the appointment of auditors required unanimous approval of the corporation’s shareholders, including non-voting shareholders, regardless of whether the approval was sought by written resolution or at a meeting of shareholders. In addition, the notice period for shareholder meetings has been lowered to a minimum of 7 days. These amendments will allow early-stage startups and other private corporations to conduct matters of corporate business more efficiently and conserve resources, where appropriate, by allowing them to forego the costs of organizing shareholder meetings and completing financial statement audits.
The objective of attracting investment capital and tech startups is not unique to Alberta; many municipal, State and Provincial policymakers currently share the same objective. However, with the enactment of the amendments, the ABCA now provides certain flexibility and advantages which are unique among Canadian corporate jurisdictions, and which differentiate the ABCA from the legislation of other provinces which have historically been relatively uniform. Take for example the statutory corporate opportunities waiver, the first of its kind to be introduced in Canada. Similar waivers exist in certain United States jurisdictions, including Delaware where more than half of the publicly traded companies in the United States are incorporated. It may be a stretch to think that Alberta will become the ‘Canadian Delaware’ as a result of the ABCA amendments; Delaware boasts greater privacy protections and an established court system with extensively established precedent, and other Canadian jurisdictions may soon follow Alberta’s direction. At present however, Canadian founders should consider the advantages of incorporating their new business in Alberta, regardless of where the business is or will be headquartered.
