What Amendments to the Alberta Business Corporations Act Mean For Your Business
Written by: Devon Slavin
Alberta’s Business Corporations Act (ABCA) has been amended - and the amendments will impact companies of all sizes in Alberta. In a provincial release, the Government of Alberta stated that the aim of the reform is to attract investment and “ensure that Alberta is the first choice for business”. Key changes include the removal of the residency requirement for directors, and provisions that create an agent for service requirement and allow for virtual annual general meetings (AGMs).
Residency Requirements for Directors
Previously, the ABCA required at least 25% of an Alberta Corporation’s directors to be resident Canadians. This requirement also applied to quorum at meetings, requiring 25% of those present to be Canadian residents. In summer 2021, the residency requirement was removed, meaning that ABCA corporations no longer need to have resident Canadians on their boards. The stated goal of the amendment is to promote economic growth and job creation by eliminating unnecessary burdens. This will impact companies by being a welcome change for foreign investors. Before a company alters the composition of the board, it is important to review the company’s by-laws to determine if the by-laws contain residency requirements. If a company wishes to take advantage of the new flexibility in the ABCA, it may be necessary to amend the by-laws.
Agent for Service Requirement
According to the change in residency requirement, an ABCA corporation may no longer have any directors located in Canada. Therefore, all ABCA corporations are now required to appoint an Agent for Service. The Agent for Service must be a resident Albertan and have an office that is accessible to the public during normal business hours. Existing ABCA corporations have until March 29, 2022, to appoint this agent for service. This is important for ABCA corporations to be aware of, because if the company does not appoint and register the Agent for Service within the time frame, the Registrar of Corporations can dissolve the corporation.
Virtual Shareholder Meetings
Previously, under the ABCA, meetings could only be held by electronic means if the bylaws expressly permitted it. With the new amendment, Alberta organizations can now automatically hold board, shareholder and member meetings by “electronic means”. The ability to hold virtual shareholder meetings is now restricted only by the bylaws of the company. In this context, “electronic means” requires that the meeting take place in real-time, meaning that all attendees can communicate instantaneously.
Devon Slavin is a member of the BLG Business Venture Clinic and is a 2rd year student at the University of Calgary Faculty of Law
 “Ensuring Alberta is the First Choice for Business” (15 November 2021), online: Government of Alberta https://www.alberta.ca/release.cfm?xID=80375781B96F2-E5F6-7FFC-34F563DC2D7A540D.
 Business Corporations Act, RSA 2000, c B-9, s 105(3) [ABCA], as amended by Red Tape Reduction Implementation Act, 2020.
 Bryan Haynes and Adrienne Roy, ”Important Changes to the Alberta Business Corporations Act Now in Effect” (13 April, 2021), online (blog): Bennett Jones Blog https://www.bennettjones.com/Blogs-Section/Important-Changes-to-the-Alberta-Business-Corporations-Act-Now-in-Effect.
 ABCA s 20.1.
 Katherine Prusinkiewicz. “Amendments to the Alberta Business Corporations Act Have Come Into Force” (30 March 2021), online (blog): Norton Rose Fulbright Thought Leadership https://www.nortonrosefulbright.com/en/knowledge/publications/36bbb4d5/amendments-to-the-alberta-business-corporations-act-have-come-into-force.
 ABCA s 1(p.1).
ASC Dealer Registration Exemption
Written by: Gordon Walters
On November 10, 2021, the Alberta Securities Commission (“ASC”) adopted a dealer registration exemption under ASC Blanket Order 31-536 Alberta Small Business Finder’s Exemption (“the Order”). The exemption allows a finder who meets certain conditions to intermediate the sale of the securities of an Alberta Small Business Issuer under certain prospectus exemptions.
The exemption is effective as of November 10, 2021, and expires November 11, 2024. The ASC is revoking the current ASC Blanket Order 31-305 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions.
Substance and Purpose
The new small business finder’s exemption is intended to help small businesses use finders to raise money. Start-up and small businesses are an important part of Alberta’s provincial economy, serving as key contributors to employment, quality of life, and income within communities. In fact, as of 2019, small businesses (defined as having between 1 and 99 paid employees) employed 8.4 million individuals in Canada, or 68.8 percent of the total private labour force. In 2016, small businesses contributed 41.9 percent to gross domestic product (GDP) generated by the private sector.
Although the size of these capital raisings are not traditionally supported by registered dealers, they can be assisted by finders who may have close friends, family, and business associates in the community that wish to invest in these types of opportunities. It was through this lens that the ASC reviewed Blanket Order 31-305 and the current exemptions from the prospectus requirement to design a more targeted exemption from the dealer registration requirement for finders.
Finders are individuals who introduce two or more parties they believe have a mutual interest and who subsequently allow those parties to work out a transaction between themselves. A finder may be compensated for his or her introductory services. The finder is required to disclose the details of the compensation received from the Alberta Small Business Issuer in relation to each purchaser’s purchase in the Risk Acknowledgement Form provided to the purchaser. If a finder does more than say “there is an investor/company” and instead sells or acts as the go-between person in a securities transaction, they are likely in violation of applicable securities laws by acting as an unregistered broker-dealer.
To register for the exemption, the finder can be an individual, as defined in the Securities Act (Alberta) as a natural person, or a company in respect of which the only registered shareholders and beneficial shareholders are an individual and the individual’s spouse alone or together. The finder cannot be a party registered under securities legislation in Canada or a foreign jurisdiction, cannot previously have provided services as a registrant to the purchaser, and cannot be a “bad actor” (subject to a court or regulatory sanction relating to fraud, theft, deceit , or misrepresentation).
Dealer registration requirement
The dealer registration requirement prohibits a person or company from acting as a dealer unless registered in accordance with Alberta Securities Laws. A person or company is only required to be registered as a dealer if the person or company engages in or holds itself out as engaging in the business of trading in a security or exchange contract as principal or agent, or acts as an underwriter.
However, under ASC Blanket Order 31-536, the dealer registration requirement does not apply to a finder in connection with a specified distribution, provided they do so in compliance with the Order.
A summary of the material aspects of the Exemption are as follows:
a) Which issuers can finders act for?
b) When can a finder participate as a salesperson in financing?
c) What can’t a finder do?
The ASC has included a six-month transition period before the revocation of Blanket Order 31-505 is effective. The six-month period will allow finders that are currently relying on the dealer registration exemption contained in Blanket Order 31-505 a transition period in which to complete private placements that are in progress.
Gordon Walters is a member of the BLG Business Venture Clinic and is a 2rd year student at the University of Calgary Faculty of Law
 ASC Blanket Order 31-536 Alberta Small Business Finder’s Exemption (2021), online: ASC Notice of Implementation: <https://asc.ca/securities-law-and-policy//-/media/ASC-Documents-part-1/Regulatory-Instruments/2021/11/5976826-ASC-Notice-Blanket-Order-31-536.ashx>.
 Alberta Small Business Finder’s Exemption, 2021 ABASC 172, s 8.
 ASC Blanket Order 31-536 Alberta Small Business Finder’s Exemption (2021), online: ASC News Release: <https://asc.ca/News-and-Publications/News-Releases/2021/11/Nov-10-ASC-adopts-new-small-business-finders-exemption-to-facilitate-capital-raising>.
 ASC Notice of Implementation, supra note 1.
 Canada, Key Small Business Statistics, Report by Government of Canada (2020), online (pdf): Government of Canada <https://www.ic.gc.ca/eic/site/061.nsf/eng/h_03126.html>.
 ASC Notice of Implementation, supra note 1.
 “What you need to know about finders, agents & brokers” (n.d.), online: Venture Law Corporation <http://venturelawcorp.ca/finders_agents_brokers.html>.
 ASC Notice of implementation, supra note 1.
 Supra note 8.
 Alberta Small Business Finder’s Exemption, supra note 2 at s 2.
 Ibid at s 6.
 Securities Act, RSA 2000, c S-4, s 75(1)(a)
 ASC Notice of interpretation, supra note 1.
SAFEs: What are they and when are they used
Written by: Devan Fafard
A SAFE, short for “Simple Agreement for Future Equity”, is a popular form of early stage outside financing for start-up companies. The SAFE was created in 2013 by YCombinator, the well known start-up incubator, as a quick and easy alternative to convertible notes for seed financing rounds that avoids the quirks of California lending laws. The attractiveness in using a SAFE is, as the name suggests, its simplicity in negotiation and execution. The standard form SAFE document is quite short and, by design, contains few negotiable terms. Another attractive feature is that it piggybacks off of future valuation work by institutional investors, converting into shares of the company in relation to a future priced financing round. This allows a seed investment to be made without undertaking the arduous work of trying to value a company in its infancy.
The terms of a SAFE that are meant to be negotiable, besides the amount of the investment, are the discount rate to the future equity investment that the SAFE will convert at, the financing threshold or “qualified financing” at which the SAFE will convert into equity, and the valuation cap at which the conversion can be priced at.
The discount to the future equity investment may be included to recognize that the SAFE investor invested their funds at an earlier time when the company presumably had a lower valuation. By having the SAFE convert at a discount on a price per share basis to the priced equity financing the SAFE recognizes this time period difference in valuation while still using the valuation work done by the priced equity financing round. The typical discount range is between 10-20%.
The financing threshold provides for the required value of the subsequent equity financing that will automatically trigger the conversion of the SAFE into shares. This sets the minimum financing amount required before the SAFE will convert and the founders will be diluted.
The valuation cap sets the ceiling for the valuation that the SAFEs will convert at during a future equity financing. This term was brought in for SAFE holder protection in response to rapid increases in the value of start-ups. This term functions so that if there is an equity financing at a valuation above the set cap the SAFE will convert as though the financing occurred at the valuation cap amount. This results in the conversion price reflecting the early stage of the SAFE investment and prevents the SAFE investor ownership position being diluted during the subsequent priced financing round past a certain point.
Do SAFEs Make Sense in Canada?
Despite the popularity of SAFE instruments in the start-up community, from an investor perspective they may not be the best financing fit for start-ups in Canada. The SAFE was born as a solution to work around strange lending registration requirements in California. In the absence of these registration requirements in Canada, convertible notes can have longer maturities and provide investors with more downside protection than SAFEs can offer. Canada also lacks the venture capital infrastructure that results in good ideas being subsequently financed and properly valued by sophisticated investors. There is a risk in Canada that either the start-up is not financed at all or is financed and valued by an unsophisticated retail investor who lacks the experience to properly value the venture. Both scenarios are potentially damaging to SAFE investors and indicate that convertible notes may be the better option.
While heralded for their simplicity, it is important to know the pros, cons and mechanics involved in using SAFEs to finance or invest in a start-up business. Seeking out the qualified advice of a legal professional to make sure that a SAFE fits your individual situation is advisable before engaging in this type of seed financing.
Devan Fafard is a member of the BLG Business Venture Clinic and is a 3rd year student at the University of Calgary Faculty of Law
 Bryce C Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practice, 3rd ed (LexisNexis Canada, 2018) at 274 [Tingle].
 Michael E Reid et al, “Demystifying SAFEs: The good, the bad, and the ugly,” (30 July 2020), online: < https://www.dlapiper.com/en/canada/insights/publications/2020/07/demystifying-safes/> [Demystifying SAFEs].
 Tingle, supra note 1 at 273.
 Ibid at 274.
Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.