Beware the Authorization to Issue Unlimited Shares Under the BC Business Corporation Act

Companies planning on doing business in the United States should think twice

The BC Business Corporation Act: The BC Business Corporation Act now authorizes BC Corporations, for the first time, to specify that a corporation’s Authorized Share Structure was not limited to a maximum amount of authorized shares in the Notice of Articles.

Specifying a Maximum Number of Authorized Shares: Canadian legal practitioners have historically favored the authorization of multiple classes of common and preference shares. While sometimes necessary to provide future flexibility for share issuance, and/or declaration of dividends the multiple share structure the fondness for multiple share structures may be problematic if the Canadian corporation does business in the United State through a wholly owned US subsidiary or registers the Canadian Corporation as a Foreign Corporation Authorized to do business in the United States.

Case in Point: Qualification to do Business in Nevada. XYZ Canada Corp. desires to transact business in the state of Nevada. In order to transact business XYZ Canada Corp. must file a Qualification to Do Business in Nevada. The application requires (1) the filing of a one page form, (2) providing a Certificate of Existence from the British Columbia Ministry of Finance, (3) the appointment of a Nevada Registered Agent and (4) the payment of a filing fee.

Beware the “Sliding Fee Schedule”: The state of Nevada is one of several the states in the United States that has a “sliding filing fee schedule” based upon the filing entities “authorized stock.” In the simplest case a Canadian corporation with less than 75,000 shares of “authorized stock” pays a filing fee of $75.00. Note, however, the use of the words “sliding filing fee schedule” above. Just how does the scale slide? Pursuant to NRS 78, 80, 78A, and 89 Domestic and Foreign Corporations, Close Corporations and Professional Corporations. Fees are based on the value of the total number of authorized shares stated in the Articles of Incorporation as prescribed by NRS 78.760:

$75,000 or less $ 75
Over $75,000 and not over $200,000 $175
Over $200,000 and not over $500,000 $275
Over $500,000 and not over $1,000,000 $375
For the first $1,000,000 $375
For each additional $500,000-or fraction thereof $275
Maximum fee $35,000

A Canadian Corporation organized under the BC Business Corporation Act which specifies “No Maximum” Authorized Shares in its Articles will be subjected to a whopping $35,000 Nevada filing fee. The Secretary of State of Nevada is bound to follow the filing fee structure set forth in the Nevada Revised Statutes.

Practice Tip: A Canadian Company, in order to avoid the exorbitant filing fee will have to (1) amend its Canadian Articles to specify a low number of authorized shares, (2) do business in another state or (3) pay the filing fee. Any one of the three potential “solutions” to the problem will financially impact the corporation. Ask yourself at the planning stage if your Canadian company may be required to qualify to do business in the United States and plan accordingly.

Sliding Filing Fee Schedules: Similar Statutes: Several states (Nevada being most attractive to Canadians) have similar statutes where the filing fee for a foreign corporation qualifying to do business in their states is based upon the amount of authorized stock of the Canadian parent company.