Articles of Incorporation in Alberta – Beyond the Basics

Written by Ali Abdulla, JD Candidate 2024 | UCalgary Law

Background - What are “Articles of Incorporation”?

To incorporate a corporation under Alberta's Business Corporations Act (the “ABCA”), the incorporator must send an application package to the Registrar of Corporations.[1] The most significant document in this application package is the “articles of incorporation”, which is a so-called “constating document” that establishes the corporation.

Certain information must be set out in the articles of incorporation, including:

the name of the corporation, the classes of shares the corporation is authorized to issue, the rights and conditions that attach to each class of shares, and the minimum and maximum number of directors of the corporation.[2]

The articles of incorporation also set out any restrictions on 1. the number of shares that the corporation is authorized to issue, and 2. the type of business that the corporation may carry on.[3] However, there is generally no reason to impose restrictions on the corporation on either front.

With this background in mind, we shall now discuss some of the more advanced considerations for articles of incorporation in Alberta.

1. Ensuring that the Corporation Meets the Private Issuer Exemption

Essentially, in order to comply with securities laws in the province, a corporation must either file a prospectus, or fall under a “prospectus exemption”, before it issues shares.[4] One common prospectus exemption is the Private Issuer Exemption, which requires, among other things, that:

the shares of the corporation are subject to restrictions on transfer, and that these share transfer restrictions are contained in the corporation's constating documents, and not more than 50 persons own shares of the corporation, not including employees and former employees of the corporation.[5]

It is common to see articles of incorporation implement the above conditions. For example, the articles may provide that any transfer of securities of the corporation is subject to approval by the board of directors, which would be a share transfer restriction.

Note that the above discussion glosses over several nuances of the relevant securities laws, and is meant purely to flag issues related to the articles of incorporation.

2. Allowing Directors to Appoint Additional Directors between Annual General Meetings

The articles of incorporation can grant the board of directors the power to appoint additional directors between annual general meetings, up to 1/3 of the current board.[6] This may help avoid a prolonged vacancy on the board of directors, or mitigate the stress of trying to quickly communicate with a large number of shareholders, if a director unexpectedly resigns or dies.

3. Miscellaneous Considerations

The articles of incorporation can also include provisions allowing:

pre-emptive rights for shareholders, so that shareholders of a class of shares have a right to purchase any shares of that class issued in the future, in proportion to their shareholding,[7] cumulative voting for elections of directors,[8] which may give minority shareholders more of a voice, and voting rights in respect of fractional shares.[9]

Conclusion

Articles of incorporation can include much more than just the basic information required under section 6 of the ABCA. In order to set up the corporation for success, and avoid the headache of needing to amend the articles of incorporation, great care should be taken when drafting the constating documents.

Endnotes

[1] Business Corporations Act, RSA 2000, c B-9 [“ABCA”], s 5 and 7(1); see also Government of Alberta, "Incorporate an Alberta corporation" (2023), online: <alberta.ca/incorporate-alberta-corporation>.

[2] ABCA, s 6.

[3] Ibid.

[4] Securities Act, RSA 2000, c S-4, s 110(1).

[5] This is an over-simplification, see National Instrument 45-106: Prospectus Exemptions, 2.4.

[6] ABCA, s 106(4).

[7] ABCA, s 30(1).

[8] ABCA, s 107.

[9] ABCA, s 48(14).