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Bill 797: Are Benefit Corporations Coming Soon to Quebec?

By Howard Levine and Paul Martel and Michael Bantey
June 24, 2021

On May 26, 2021, Bill 797, An Act to amend the Business Corporations Act to include benefit corporations (Bill 797), was tabled before Quebec’s National Assembly by opposition member Carlos J. Leitão.

If adopted, Bill 797 would amend the Business Corporations Act (Quebec Act) with the addition of a new chapter, titled “Benefit Corporations”. Bill 797 is largely based on British Columbia’s Bill M209-2019, which added the American concept of “benefit companies” to Part 2.3 of that province’s Business Corporations Act, a first in Canadian law. For further information on this subject, see our July 2020 Blakes Bulletin: How to Benefit from Benefit Companies.

British Columbia had previously amended its Business Corporations Act in 2013 by introducing “Community Contribution Companies” (C3s), a type of business structure based on “Community Interest Companies” (CICs) originally introduced in the United Kingdom in 2005. In 2016, Nova Scotia followed suit with the introduction of legislation allowing for the establishment of CICs.

CICs and C3s must include in their articles of constitution a mission of social interest and commit their efforts and resources to this mission. CICs and C3s are subject to strict regulations:

  • Directors are required to promote the company’s social mission, to the detriment of shareholder interests when necessary
  • CIC and C3 assets are “locked”, even upon dissolution of the company, to ensure that they are solely purposed for the well-being of the community
  • Payments of dividends and interests to shareholders and lenders are capped

In addition, CICs are subject to oversight by a regulatory body.

Along with these types of social mission companies, benefit corporations first appeared in the United States in 2010. While a benefit corporation’s articles of constitution must still include the company’s social mission, benefit corporations are not subject to the same strict regulations as CICs and C3s. For instance, they are not subject to asset locks, nor are there any caps on dividend and interest payments. Furthermore, directors of a benefit corporation are under no obligation to promote the company’s social mission above all else but must still take it into account without violating their fiduciary duties to the corporation.

It is this type of social mission company that Bill 797 seeks to introduce into Quebec legislation.

ARTICLES OF CONSTITUTION

Bill 797 provides that for a business corporation to be called a benefit corporation, it must include the following statement in its articles of constitution: “This corporation is a benefit corporation. As such, it is committing to operating responsibly and sustainably and to promoting one or more social interests or public benefits.”

These “public benefits” (defined in Bill 797 as being “any environmental or social consideration for the good of the environment or a group of persons other than shareholders in their capacity as shareholders”) must be included in the corporation’s articles of constitution, along with the corporation’s stated commitment to promote them and to operate “responsibly and sustainably”, which Bill 797 defines as “taking into account the well-being of the persons affected by the corporation’s operations and using a fair, proportionate share of the environmental, social and economic resources available”.

It is of note that, to promote “public benefits”, a corporation is required to act “responsibly and sustainably”. CICs and C3s are not subject to any such requirement, which is more akin to an approach than a mission.

To cease being a benefit corporation, a corporation simply has to remove the above-mentioned clauses from its articles of constitution. It remains unclear whether such a change constitutes the removal of a restriction on the corporation’s business activity, which would give rise to the right for a shareholder to demand the repurchase of its shares (“right to dissent”) pursuant to the Quebec Act.

DIRECTORS’ DUTIES

Bill 797 provides that directors and officers of a benefit corporation, in exercising their functions, have a duty to reconcile their obligations to act with prudence, diligence, honesty and loyalty with their obligation to ensure that the corporation operates responsibly and sustainably and promotes the public benefits specified in its articles of constitution.

However, this duty does not give rise to any obligation towards third parties, nor does it provide them with any remedies. Moreover, third parties are not informed of the corporation’s status as a social mission company or of the nature of the public benefits it seeks to promote.

Furthermore, only a shareholder holding at least 2 per cent of the benefit corporation’s shares may ask the court to order the directors or officers to comply with their obligations. Without this restriction, any “interested person” would have the right to exercise this remedy under the Quebec Act.

PUBLIC BENEFIT REPORT

Bill 797 sets out that a benefit corporation must present a “public benefit report” (Report) to its shareholders every year, to be prepared by the corporation’s board of directors and the contents of which are prescribed in Bill 797. In preparing the Report, the board of directors must select a “public benefit standard” developed by a standard-setting body recognized by the Government that fulfills the conditions determined by regulation. The Report must also contain an assessment of the corporation’s performance, measured against the selected standard. This standard is to be used to define and assess a benefit corporation’s performance in conducting its business responsibly and sustainably and in carrying out the commitments set out in its articles of constitution.

The board of directors must present the Report at the annual shareholders' meeting. Failure to do so exposes directors to a fine ranging between C$5,000 and C$50,000.

Should the National Assembly adopt Bill 797 as tabled, Quebec would then be the third Canadian province to legislate social mission companies, as well as the first to exclusively adopt the American concept of “benefit corporations” (i.e., without locked assets, restrictions on payments to shareholders and lenders, obligations of directors to promote the corporation’s mission regardless of shareholder interests when necessary, or oversight from a regulatory body).

For further information, please contact:

Howard Levine            514-982-4005
Angelo Noce               514-982-4062

or any other member of our Corporate & Commercial group.

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