“It takes all kinds to make a world”. However, for a Quebec corporation, only three actors are needed : the shareholder, the director and the officer.
In a previous article, we listed the differences between a federal corporation and a provincial corporation in Québec. Today, Lexstart presents a sneak preview of the protagonists of the Quebec corporation.
The shareholders of a Quebec corporation
Shareholders are persons (individuals or legal entities) who own shares issued by a company – hence the name “share-holders”. They invest in a company in exchange for shares.
In Quebec, shareholders are often mistakenly perceived as the “owners” or “bosses” of the company. Although they are directly linked to the economic interests of the company, in reality, they only own shares and benefit from the rights conferred by these shares.
What is a share? A share is a “security” issued by the company in exchange for capital. By owning shares, shareholders obtain rights over the company, such as the right to vote, the right to receive part of the profits (dividends) and the right to receive its assets in the event of liquidation (the remainder). The rights of each shareholder vary according to the class of shares they decide to acquire.
For example, Charles may have B shares, which give him the right to receive dividends, but Jonathan, who holds C shares, has only a voting right.
To grow, a start-up will need financing. Whether it comes from parents or business partners, the investors will seek to acquire shares in the company in exchange for capital.
If the shareholders have entered into a shareholders’ agreement, the issuance of new shares will have to be done in accordance with this agreement.
Unlike directors and officers, shareholders cannot act on behalf of the corporation regardless of whether or not they hold a majority of the shares.
What are shareholders responsible for? Subject to compliance with legislative provisions, the liability of shareholders is generally limited to the amount they have invested in the corporation and they cannot be held liable for the corporation’s debts.
You can read our article on the shareholders of a Québec corporation to learn more about their powers and responsibilities.
Directors of a Quebec corporation
In Quebec, a director is a natural person, over the age of eighteen, who has not been declared bankrupt or incapable and is not disqualified within the meaning of the Civil Code of Quebec.
The directors form the Board of Directors. As a stakeholder of the company, the board of directors makes the vast majority of the company’s decisions.
For example, the board of directors may decide by resolution to create or amend the articles of the corporation. Directors are also the ones who make the decision to issue shares to shareholders or to enter into banking agreements. Subject to the existence of an unanimous shareholder agreement, the directors make virtually all decisions concerning the corporation.
Unsurprisingly, such power comes with great responsibility. According to section 119 of the Quebec Business Corporations Act, directors are subject to two fundamental obligations: to act with prudence and diligence and to act with honesty and loyalty. To this effect, directors must avoid situations of conflict of interest and must, where applicable, immediately disclose if they ever find themselves in such a situation.
To learn more about the role of a director in a Quebec corporation, you can read our article.
Officers of a Quebec corporation
An officer, in Quebec, is a person appointed by the directors to carry out the day-to-day management of the company. Sometimes called “managers”, officers are often presidents, vice-presidents, secretaries, treasurers or any other title agreed upon by the board of directors.
Once appointed, officers do not perform the same functions as directors. Like directors, they are indeed subject to an obligation to act honestly and in good faith (Section 119 (3) of the Quebec Business Corporations Act) but do not have the power to vote when important decisions are made. Consequently, they are not held to the same level of liability as directors.
For more information on the duties of officers of a Québec business corporation, read our article.
Conclusion
As we can see, it is not so much a question of who gets the title of “boss” within a company. The company is managed jointly by several players to ensure that it operates in the most efficient way.
In the case of start-ups, one or a few people will assume the responsibility of being shareholders, directors and managers at the same time. Whoever decides to act alone to create a company will, however, have to keep in mind that each role involves powers and duties that are distinct from one actor to another.
Please do not hesitate to contact us if you would like more legal information on this subject.
