What are the criteria for a corporation to qualify as a Canadian-controlled Private Corporation to receive the special incentives of this status?
February 2022 | Dani Dufresne
Canadian-controlled Private Corporation (“CCPC”):
A Canadian-controlled private corporation is defined in section 125(7) of the Income Tax Act as a private corporation resident in Canada other than a corporation that is:
“125 (7) Canadian-controlled private corporation means a private corporation that is a Canadian corporation other than
(a) a corporation controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), by one or more corporations described in paragraph (c), or by any combination of them,
(b) a corporation that would, if each share of the capital stock of a corporation that is owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation described in paragraph (c) were owned by a particular person, be controlled by the particular person,
(c) a corporation a class of the shares of the capital stock of which is listed on a designated stock exchange, or
(d) in applying subsection (1), paragraphs 87(2)(vv) and (ww) (including, for greater certainty, in applying those paragraphs as provided under paragraph 88(1)(e.2)), the definitions excessive eligible dividend designation, general rate income pool and low rate income pool in subsection 89(1) and subsections 89(4) to (6), (8) to (10) and 249(3.1), a corporation that has made an election under subsection 89(11) and that has not revoked the election under subsection 89(12);
CCPC Status Prerequisite for Incentives under Income Tax Act (Federal Laws):
CCPC status is a prerequisite for the special incentive provisions in the Act, including:
1. The small business deduction (“SBD”), which provides a preferential rate on the first $500k of a CCPC’s annual active business income earned in Canada.
2. Refundable investment tax credits (including an enhanced ITC rate and the ability to get a refund under the SR&ED program).
3. The deferred recognition of employee stock option (“ESO”) benefits.
4. If the CCPC qualifies as a small business corporation, the capital gains exemption (“CGE”).
5. A shorter time-period during which the CRA is permitted to reassess a taxation year.
6. A longer time-period to pay the balance of tax payable.
*An additional refundable tax is imposed on the investment income of a CCPC.
Similar CCPC Status Incentives under Alberta Corporate Tax Act (Provincial Laws)
The Alberta Corporate Tax Act provides similar incentives consistent with the federal rules. The Tax and Revenue Administration (TRA) administers the Act.
1. Alberta Small Business Deduction (“ASBD”).
 Income Tax Act, RSC 1985, c 1 (5th Supp), ss 125(7) Definition of “Canadian-controlled private corporation”.
 Ibid, ss 248(1) Definitions; s 262.
 Ibid, ss 125(1) Small business deduction; s 125(1.1) Small business deduction rate.
 Ibid, ss 125(2) Business limit; s 125(5) Special rules for business limit.
 Ibid, ss 125(7) Definition of income of the corporation for the year from an active business.
 Ibid ss 157(1)(b) Payment by corporation.
 Ibid ss 157(1.1) Special case; ss 157(1.2) Small-CCPC; ss 157(1.3) Taxable income – small-CCPC; ss 157(1.3) Taxable
capital – small-CCPC; ss 157(1.5) No longer a small-CCPC.
 Canadian Revenue Agency, “Fiscal period for income tax purposes” (14 April 2021), online: Government of
 Ibid, ss 129(9).
 Ibid, ss 127(5) Investment tax credit.
 Ibid, ss 127(9) Definition of “investment tax credit”.
 Ibid, ss 127(10.1) Additions to investment tax credit.
 Ibid, ss 127(10.2) Expenditure limit determined; ss 127(10.21) Expenditure limits – associated CCPCs; ss
Associated corporations; ss 127(10.6) Expenditure limit determination in certain cases.
 Ibid, ss 127.1 (1) Refundable investment tax credit; ss 127.1 (2) Definition of “refundable investment tax credit”;
ss 127.1(2.01) Additions to investment tax credit; ss 149(1) Miscellaneous exemptions.
 Ibid, s 7; ss 110(1)(d) Employee options; ss 110(1)(d.1) Idem.
 Ibid, ss 110.6(1) Definitions; ss 110.6(2.1) Capital gains deduction – qualified small business corporation shares.
 Ibid, ss 110.6(14) Related persons, etc.
 Ibid, ss 152(3.1) Definition of normal assessment period.
 Ibid, ss 157(1)(b).
 Ibid, ss 152(1) Assessment; ss 123.3 Refundable tax on CCPC’s investment income; ss 129(3) Dividend refund to
 Ibid, ss 129 (1) Dividend refund to private corporations.
 Ibid, ss 186(1) Tax on assessable dividends.
 Alberta Corporate Tax Act, RSA 2000, c A-15, ss 22(1) Small business deduction; ss 22(2.198).
 Ibid, ss 36(1.1) Return to be filed; ss 36(1.3).
 Ibid, ss 43(0.1) Assessment period, reassessment, etc.
 Ibid, ss 38(1.1) Payment on account.
Is the Unanimous Shareholder Agreement (also known as a “USA”) Bad for Your Growth Company? The Answer is … Probably!
Written by: Nikolas Kalantzis
Then, why is the USA so commonly used by growth companies and start-ups as the go-to addition to the constating documents? There are some advantages that don’t completely rule it out in certain situations. But, for the vast majority of growth companies out there, stay away – the disadvantages far outweigh the advantages.
What is a USA?
It is a type of shareholder agreement that aims to regulate the conduct of shareholders with respect to one another and the company. Shareholder agreements are concerned with allocating management control and setting out the terms in which shareholders may sell or buy their shares in the company. In general, some kind of shareholder agreement should be used in raising equity for the company.
A USA works to eliminate all or a portion of power from the board of directors and give it to the company’s shareholders. This requires the approval of every current shareholder and will force any future shareholders into the agreement. Shareholder powers will likely include a vast array of rights and privileges that can be highly beneficial or highly obstructive depending on the issues each company faces.
A USA is likely beneficial in only in two scenarios:
(1) Where a private company is anticipating raising capital from a large but individually small group of investors. Here, a USA can force all of the incoming individual shareholders to sell their shares if the majority shareholder (likely the founders) plan to sell their shares at some in the future. This provision in the USA is called a “Drag-Along Right”.
(2) Where a company seeks to be classified as a Canadian controlled private corporation (CCPC) for tax purposes a USA will allow non-Canadian resident investors, as long as Canadian resident investors have the right to elect 50% of the company’s board of directors.
Apart from the above, a USA will likely cause more roadblock’s than create solutions.
(1) USAs are roadblocks in efficient management of a growth company. With a few shareholders a USA may not cause many problems, but once a company grows, multiple shareholders with differing personalities, goals, and opinions will make organization and decision-making extremely difficult.
(2) USAs automatically include every new shareholder. If the relationship between shareholders deteriorates, this could be catastrophic for a company. For example, commonly used “shotgun” provisions, if triggered, requires one shareholder to offer to purchase the others at a specified price but if refused, the other shareholders must then buy the initial offerors shares at the same price. The result may lead to one single shareholder with all the company’s shares and the less equipped shareholders forced out.
(3) USAs are roadblocks to shareholder freedom. Generally, shareholders don’t have a responsibility to anyone’s interests other than their own. Yet, corporate legislation expressly provides that powers exercised by shareholders in a USA are subject to the same kind of fiduciary duties of directors. That likely means shareholders may have duties of disclosure, honesty, loyalty, and candour to the company but no means of resigning those duties like directors.
(4) USAs are not that helpful most of the time. Courts will not always enforce certain provisions that compel a company if they are seen as fettering discretion of the directors. Further, directors may not be excused from their fiduciary duties even though they have lost effective control of the company.
(5) Lastly, USAs are extremely difficult to modify or terminate. The Alberta Business Corporations Act states that every shareholder is a party to the agreement and any amendment requires the consent of all. In cases where the company has outgrown the uses of a USA, such as an IPO or buyout, there will be limited options – especially if shareholders are passive or difficult to reach.
A USA is probably not for your growth company! Nevertheless, there are times where a USA may be appropriate. Every company should pay close attention to the potential roadblocks and benefits before approving a USA.
Nikolas Kalantzis is a member of the BLG Business Venture Clinic and is a 2nd year student at the Faculty of Law, University of Calgary.
 Bryce C Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practice, 3rd ed (LexisNexis Canada, 2018) at ch 5. [Tingle]
 Tingle, ch 5.
 Ibid; see Business Corporations Act, RSA 2000, c B-9, s 146(7). [ABCA]
 Ibid; Atlas Development Co. v. Calof, 1963 MBQB CarswellMan 20.
 ABCA, s 146(8).
 Tingle, ch 5.
Not-for-Profit Organizations (Registered Charities and NPOs)
Written by: Viviana Heather
The not-for-profit sector is a significant growing part of the Canadian economy and has a huge impact on the lives of Canadians. Not-for-profit is an umbrella term used to describe non-profit organizations (“NPO”) and registered charities. Both are creatures of statute (specifically, the Income Tax Act) and are mutually exclusive categories of organizations. This blog post provides a brief overview of the various ways a non-profit organization can be incorporated in Alberta and Canada and registering a charity through the Canada Revenue Agency (“CRA”). For differences between NPOs and charities, please visit the Canada Revenue Agency website.
There are two main ways for a NPO to incorporate in Alberta: (1) under the Companies Act, RSA 2000, c C-21, or (2) under the Societies Act, RSA 2000, c S-14. Depending on the purpose of the organization, an applicant may choose one or the other to incorporate a NPO in Alberta.
(1) Companies Act
A NPO under the Companies Act must have the purpose of promoting art, science, religion, charity, or any other useful objective. Further, a NPO can be involved in business activities by, for instance, charging other organizations to provide services. Therefore, a NPO can operate in various ways as long as it is on a cost-recovery and they cannot distribute profits to its shareholders or members.
There are two types of organizations under this Act: private and public. For a private NPO, at least two people are needed to form the organization. There are also the following restrictions: It cannot have more than 50 shareholders or members, it cannot sell shares or memberships to the public, and it restricts share or membership transfers. For a public NPO, at least three people are required to form a public organization. However, there are significant reporting requirements.
(2) Societies Act
A NPO under the Societies Act can be formed if there are more than five people for purposes such as social activities, recreation, culture, and charity. However, a NPO under the Societies Act cannot be involved in business activities. Societies cannot issue shares, declare dividends for members, or distribute property among the members during the lifetime of the society.
(3) Advantages and Disadvantages
The Companies Act is more complex in comparison to the Societies Act. An organization under the Companies Act must either be a public or private company and there are specific requirements under each. On the other hand, the Societies Act is simpler and cheaper to incorporate. However, it prevents the organization from engaging in any type of ongoing business operations.
An organization may incorporate as a federal NPO under the Canada Not-for-Profit Corporations Act, SC 2009, c 23. This is advised if the organization wishes to operate nationally and require name protection across Canada. However, the organization will be required to incorporate as a NPO in Alberta and then register in other provinces if it intends to conduct business in those provinces.
Incorporating Federally vs. Provincially
The main advantage of incorporating federally, as described above, is it grants name protection across the country. This can be important if a NPO envisions providing services across the country. However, if the services will only be provided locally, it may not be necessary to incorporate federally. Consequently, the main advantage of incorporating a provincial not-for-profit is it is often simpler, quicker, and cheaper.
Registering a Charity
There are various requirements for a charity to be registered. First, the charity must use its resources for charitable activities and have charitable purposes that fall into one or more of the following categories: relief of poverty, advancement of education, advancement of religion, and other purposes that benefit the community. Second, the organization’s purposes and activities must meet a public benefit test. The organization must be able to show that: (a) its purposes and activities provide a measurable benefit to the public, and (b) the people who are eligible for benefits are either the public as a whole or a significant section of it (the beneficiaries cannot be a restricted group or one where members share a private connection - this includes social clubs and professional associations). Lastly, there are specific governing documents that have to be in place. Once the charitable purpose has been outlined, the organization can meet the public benefit test, and the governing documents are in place, the CRA will designate the charity as either: a charitable organization, public foundation, or private foundation. To learn the criteria that the CRA applies to determine the designation of the registered charity, visit the CRA’s website.
Choosing a NPO vs. Charity
An organization may choose to be a registered charity if the focus is on gaining donations from individuals and companies to support the community by providing donation receipts for income tax deduction purposes. On the other hand, an organization may choose to be a NPO if its focus is on community and creating an association for individuals. It is important to note that an organization can only be one or the other, but not both!
If you want more information regarding the similarities and differences between NPOs and registered charities or need help with registering your charity or incorporating your NPO, contact the BLG Business Venture Clinic.
Viviana is a member of the BLG Business Venture Clinic and is a 3rd year student at the University of Calgary Faculty of Law.
 There are other ways to incorporate a NPO provincially such as through the Agricultural Societies Act, Religious Societies Lands Act, and other private Acts. The Companies Act and Societies Act are the two main ways to incorporate a NPO.
 Companies Act, s 200(1).
 Alberta Government, “Incorporate a non-profit company”, online: <https://www.alberta.ca/Incorporate-non-profit-company.aspx>.
 Alberta Government, “Incorporate a society”, online: <https://www.alberta.ca/incorporate-a-society.aspx>.
 Canada Revenue Agency, “What is charitable?” (last updated 25 April 2019), online: <https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status/apply-become-registered-charity/establishing/what-charitable.html>.
 Canada Revenue Agency, “What is a governing document” (last updated 18 December 2019), online: <https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status/apply-become-registered-charity/establishing/what-a-governing-document.html>.
 Canada Revenue Agency, “Types of registered charities (designations)” (last updated 3 June 2016), online: <https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status/apply-become-registered-charity/establishing/types-registered-charities-designations.html>.
Legal Considerations for Employees and Start-up Companies
Written by: Ali Sarhill
It is contended that a new company’s success is primarily attributable to future managerial decisions, unlike established companies where most income is derived from existing business. As such, the value of employing superior employees to start-ups is, arguably, substantially higher than for established companies. Thus, an overview of some potential employment issues may encourage start-ups to pay closer attention to employment matters with their counsel.
Areas of Potential Employment Issues for Start-ups
As changes to responsibilities of employees can frequently occur in a start-up company, employment agreements used should broadly describe job duties. They should also express that job responsibilities may change from time to time due to the corporation’s expected growth. This is crucial as Canadian courts have found that constructive dismissal occurred due to changes in an employee’s work duties.
As benefit plans and office policies are likely to change in start-ups over time, they should not be specified in the employment agreement. To assist companies in establishing consideration for various agreements, the employment agreement should explicitly reference these separate agreements that comprise the entire contract of employment: stock option agreement, share subscription agreement, non-disclosure and non-competition agreements, and any assignment of technology.
Crucially, the employment agreement should include an integration clause - that the documents in question form the entire employment agreement and that terms and conditions can only be changed by both parties in writing. Such a clause prevents an argument that some oral interactions are terms of the employment agreement.
The employment agreement and other contracts should be given to the employee at the time employment is offered to the employee. The employee should, in writing, also be encouraged to seek independent legal advice. Doing so would support a court enforcing the employment agreement. Otherwise, if the employment agreement was signed on the employee’s first day of work, courts will not enforce such an agreement, without additional consideration being provided.
Termination of employees and independent contractors
When an employee is terminated, the corporation is required to pay the employee a certain amount of money, also known as “notice”, if they were terminated “without cause”. This is often the amount of money they would have made, had they continued to work the “notice” period.
The amount of notice that an employee is entitled to is determined by reference to the relevant province’s Employment Standards Code and the common law. Judges often rely on common law cases and determine that an employee is entitled to much more notice than under legislation, based on an estimate of what the employment agreement implicitly provides for. To avoid courts finding that an employee is entitled to more notice than what was given, an explicit provision that sets out the notice period and severance amounts should form part of the employment agreement.
A written contract stating that an independent contractor is not entitled to any severance payments should be prepared, as courts are likely to impose a notice period if such a written contract does not exist. This is especially true if the company is asserting control over the contractor, where the contractor worked mostly exclusively for the company, and where the contractor’s and company’s businesses are tightly integrated.
Ali Sarhill is a member of the BLG Business Venture Clinic and is a 3rd year student at the University of Calgary Faculty of Law.
 Bryce Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practice, Third Edition, LexisNexis Canada Inc. (2018) at 126 [Tingle].
 Ibid at 127.
 see Ferdinandusz v. Global Driver Services Inc.  O.J. No. 4225, 5 C.C.E.L. (3d) 248 (Ont. Gen. Div.).
 Tingle at 127.
 ibid at 127.
 ibid at 127.
 ibid at 127-128.
 ibid at 128.
 ibid at 128-129.
 ibid at 130-131.
The Next Era of Social Discovery Platforms and Dating Apps: The Metaverse
Written by: Dani Dufresne
Last month, Bumble’s Founder and CEO, Whitney Wolfe Herd, broke the news to shareholders on a quarterly earnings call that the friend-finding function, Bumble BFF, is expanding into the Metaverse.
What is “the Metaverse”?
The anticipated future of the internet: extended reality (XR), a 3D virtual world that is persistent, synchronous, and interoperable. The Metaverse is a never-ending extension and digital parallel of our physical world. It can be comprised of a combination of technologies such as augmented reality (AR), virtual reality (VR), avatars, and a digital economy that uses non-fungible tokens (NFTs).
“Bumble BFF gives us a platform for Bumble to become a leader in the Web 3.0 world. […] Longer-term, it becomes a way for members to own their experience on Bumble. This could happen through the communities they build, the virtual goods and experiences they acquire, or through new ways of owning their identity as they navigate the metaverse.”
The company’s President, Tariq Shaukat elaborated on Bumble’s ambitions to venture into the Metaverse and predicts that cryptocurrency will be incorporated into future iterations of dating apps.
Rival dating app, Tinder, shared similar plans to build a Metaverse.
The company is currently testing crypto tokens (tinder coins) in multiple regions. Tinder has initiated beta-testing on a concept called Singletown on select college campuses in Seoul. Through this platform, one’s digital self, in the form of a real-time, audio-powered avatar, can engage in one-on-one or group conversations in virtual spaces.
Dating-focused Metaverse: a promising new medium to connect people in a global pandemic and revolutionize the dating landscape OR a platform that will create further isolation and less human interaction?
Dani is a member of the BLG Business Venture Clinic and is a 3rd year student at the University of Calgary Faculty of Law.
Should you Extra-Provincially Register your Company?
Written by: Bilal Qureshi
If your Company, which is provincially incorporated in Alberta and wishes to “carry on business” in a province other than Alberta, it may need to be registered in that other province it wishes to “carry on business” in. This is called an extra-provincial registration.
What does “carry on business” mean?
Each province has its own statute defining what “carry on business” means, which will determine whether your Company is required to extra-provincially register in that other province. For example, in British Columbia, the governing statute to determine what “carrying on business” means is defined in the Business Corporation Act (“BCA”). The BCA requires that foreign entities be registered as an extra-provincial company in accordance with the BCA within two months after beginning to carry on business in British Columbia. A foreign entity is defined as “a foreign corporation or a limited liability company”. Pursuant to the BCA, a foreign entity is deemed to carry on business in British Columbia if:
However, section 375(4) in the BCA provides an exemption for a foreign entity from being registered under the BCA while allowing it to carry on business in British Columbia. The foreign entity may do so if it does not maintain in British Columbia a warehouse, office or place of business under its own control or under the control of a person on its behalf.
Each province will have different requirements for what “carrying on business” means. For example, unlike in British Columbia, Quebec and the Quebec’s Act Respecting the Legal Publicity of Enterprises considers companies to be “carrying on business” in Quebec if it has representatives in Quebec for the purpose of making profit.
To avoid unnecessary fees and penalties, it is better to be proactive in determining if your company requires to be registered extra-provincially. Please feel free to contact the BLG Business Venture Clinic for further information!
Bilal Qureshi is a member of the BLG Business Venture Clinic and is a 2rd year student at the University of Calgary Faculty of Law
 Business Corporations Act, SBC 2002, c 57. at s 375(1).
 Ibid at s 1.
 Ibid at s 375(2).
 Ibid at s 375(4).
 Act respecting the legal publicity of sole proprietorships, partnerships and legal persons, CQLR c P-45, s 21(4).
TSX Venture Exchange – Security Based Compensation Policy Change
Written by: Ryan Amaral
On November 24th 2021, the Toronto Stock Exchange Venture Exchange (TSXV) announced amendments to their policies regarding security based compensation. These changes will allow greater flexibility to issuers in terms of their ability to offer a variety of security-based compensation options. As the TSXV is focused on early-stage and growth companies, these amendments are particularly relevant to start-ups who frequently utilize security-based compensation as a mechanism to attract and retain employees. While a number of changes were made, some of the key changes are outlined below.
Additional Forms of Security Based Compensation
The former policy (Policy 4.4 – Incentive Stock Options) only addressed traditional stock options, whereas the new policy (Policy 4.4 – Security Based Compensation) now covers other forms of security-based compensation such as:
By expanding upon the previous policy, these additions will effectively allow TSXV issuers greater ability to tailor their compensation plans to the specific needs and peculiarities of their organizations.
Additionally, a key change in relation to these incentives is that they may not vest for a period of at least 12 months from the date of grant or issuance, subject to limited circumstances which may provide for acceleration.
Security Based Compensation Plan Changes
Further, the new policy expands upon the previous one by providing for two additional types of security-based compensation plans, while also amending the previous stock option plans to include the new forms of security-based compensation. These four new categories include:
Categories (i) and (ii) are unchanged from the previous policy, except as to including the new additional types of Security Based Compensation. Category (iii) is termed by the TSXV to be a “hybrid” category, designed to provide additional flexibility to Issuers. Category (iv) is a subset of (ii) in that it permits a fixed number up to 10% only, and it is further limited only to Stock Options.
Cashless Exercise and Net Exercise
Formerly, the exercise price of a stock option was required to be paid in cash where the option holder would pay the issuer the strike price at the time of exercise. The new policy now allows for these options to be exercised under either a “cashless” or “net” method. A "cashless exercise" is one where a brokerage firm facilitates the exercise of an option, and the issuer still receives the exercise price in cash. A "net exercise" is one where the participant receives the shares based on a five-day volume weighted average trading price calculation, provided that the participant is not an investor relations service provider.
These amendments took effect as of November 24th, 2021. For further information regarding these changes, check out the TSXV’s bulletin notice here.
Ryan is a member of the BLG Business Venture Clinic and is a 2nd year student at the University of Calgary Faculty of Law.
 TMX Security Based Compensation Bulletin Notice (2021), online: <https://www.tsx.com/resource/en/2758>
 John E Piasta et al, “TSX Venture Exchange Updates Security-Based Compensation Policies”, (December 10, 2021), online: <https://www.bennettjones.com/Blogs-Section/TSX-Venture-Exchange-Updates-Security-Based-Compensation-Policies>
 Supra note 1
 Rick Moscone and Sabrina Alaimo, “Canada: TSX Venture Exchange Announces Amendments to Security-Based Compensation Policies”, (December 16, 2021), online: <https://www.mondaq.com/canada/shareholders/1142220/tsx-venture-exchange-announces-amendments-to-security-based-compensation-policies>
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.