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______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 2 - FORMS OF BUSINESS ORGANIZATIONSBusinesses in Atlantic Canada can operate through a variety of legal entities, including companies, soleproprietorships, partnerships, limited partnerships, joint ventures and co-operative associations.CompaniesOverview of IncorporationA company is a legal entity that is separate and distinct from the shareholders who contribute to thecompany’s capital. The shareholders exercise ultimate control over the management of the companythrough the election of directors. The directors are responsible for the day to day management of thebusiness and affairs of the company and have a duty to act honestly, in good faith and in the bestinterests of the company. Companies enjoy perpetual succession, meaning that the existence of thecompany continues despite the death of any or all of its shareholders. Further, companies are affordedall the rights of a natural person to own property and the rights to carry on business.There are several advantages to using the corporate form of business organizations as opposed tooperating as a sole proprietor:• An incorporated company offers investors access to a wide range of financing opportunities. Theflexibility that exists with respect to a company’s share structure under either provincial or federalcorporations legislation provides investors with a number of investment options: shares can bevoting or non-voting, can have limited or unlimited participation in equity and can be redeemablefor a fixed price at the option of the company or the holder. The effect of this flexibility is thatvarious classes of shares and debt instruments may be utilized to provide different levels ofshareholder and lender participation in the capitalization of the company and to provide varyingdegrees of risk or opportunity for profit.• Generally speaking, the liability of a shareholder is limited to the amount of that shareholder’scontribution to the company, although the Nova Scotia Companies Act provides for theincorporation of unlimited liability companies (discussed further below).• The control of a company can be easily transferred through transfer of shares.Federal or Provincial IncorporationThe two main sources of company law in Atlantic Canada are provincial and federal legislation. Eachprovince has its own companies legislation, being the Business Corporations Act (“NBBCA”) in NewBrunswick, the Companies Act (“PEICA”) in Prince Edward Island, the Companies Act (“NSCA”) in NovaScotia, and the Corporations Act (“NLCA”) in Newfoundland and Labrador. The federal companieslegislation is the Canada Business Corporations Act (“CBCA”). Companies may be incorporated eitherunder one of the provincial companies statutes or under the federal CBCA. Currently there is littlepractical difference between the provincial and federal powers to incorporate a business. A companyestablished under a provincial companies statute is entitled to carry on business in that province, andgenerally will be required to register in all other jurisdictions in Canada in which it carries on business. Acompany incorporated under federal legislation is empowered to carry on business anywhere in Canada,but it may be required to be registered in any province in which it carries on business.There are certain practical factors which may be present in determining where to incorporate. Oneimportant factor is the requirement for at least 25% of the company’s directors to be Canadian residentsfor incorporation under the CBCA or the NLCA. To qualify as a resident, a person must be either aCanadian citizen or a permanent resident under the federal Immigration and Refugee Protection Act.Subject to some limited exceptions, a person must already be living in Canada in order to be consideredto have resident status. It is possible to avoid these residency requirements by incorporating in NewBrunswick, Prince Edward Island or Nova Scotia, which have no residency requirements. Incorporation inPage 10