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PLEASE READ THIS. IT IS EXTREMELY IMPORTANT
When your Company was incorporated it qualified as a “Private Company” within the meaning of the “Securities Act” of Quebec, and upon issuing shares to you and the other Shareholders, the Company was exempted from the requirement of publishing a prospectus, and of providing information and notices. It was simple to qualify as a “Private Company”. The Articles had to include a restriction on the transfer of shares, a prohibition of a public offering, and it was limited to 50 shareholders.
THAT WAS VALID UNTIL SEPTEMBER 14, 2005.
On that day, Regulation 45-106 was enacted and equivalent legislation was enacted Federally and in every other Province. We have been given until October 12th, 2007 to change all of the old “Private Companies” into new “Private Issuers“, in order to qualify for the exemptions upon issuance and transfer of shares and other securities. You therefore have until October 12th, 2007 (by which date this must have been done) to amend the Company’s Articles in order to extend the restriction on the transfer of shares to all securities of the Company and to qualify as a “Private Issuer”.
Make no mistake about it, the penalties for failure to do so can prove to be extremely onerous to you. Most of my clients operate small to medium size businesses. The last thing that you require is this additional expense which applies to all Companies in Quebec, except those incorporated during the past year, and even some of those must still be brought in line to comply with this new law.
Because of the enormous volume of Companies in Quebec that are required to make this amendment, which also includes amending the Company’s By-Laws, etc., we are going to be able to keep the costs to a minimum through the sheer volume of Companies we are amending, and all Companies must be amended. The penalties that you will be subject to for not proceeding in this manner range from $1,000 to $50,000 as you will read below, and the Directors assume personal responsibility based on a certain formula.
Would you therefore call us and send us a letter authorizing us to make the appropriate request of amendments, and change of By-Laws, as outlined below, so that we may begin this process on your behalf.
This is not an error in incorporation. It is a new Regulation (Regulation 45-106) of the “Autorite des Marches Financiers” and all Quebec and Federal Companies operating in Quebec are affected.
The total cost to you should not exceed $1000 plus tax for a Quebec Company, and $1060.00 plus tax for a Federal Corporation but it must be done.
To qualify as a “Private Issuer”, a company must amend its Articles to extend the restriction on the transfer of shares, to all securities of the Company. Moreover, the restriction to the number of Shareholders and the prohibition of public offering are no longer required to appear in the Articles. It is thus recommended to remove these restrictions at the same time. This simple amendment to your articles will prevent numerous problems. We recommend you to consider it seriously before October 12, 2007. After this date, your Company could lose its status as Private Issuer, which may entail costs and difficulties.
In some instances, we could suggest that you not incur the expenses arising from the amendment of Articles. This is the case of Holding Companies with a sole Shareholder, or for dormant Companies. However, at some time in the future, or as soon as your Company has more than one Shareholder, or carries on business or owns assets, if you have not amended before October 12, 2007, you will regret the omission, because after this date, your Company will lose its status as Private Issuer, and, once lost, this status cannot be recovered.
Not to amend the Articles does not mean that the Company can no longer issue shares or securities. But it will then be required to obtain other exemptions from registration and prospectus under Regulation 45-106. These other exemptions require complex and expensive formalities, such as the filing with the ‘’Autorite des marches financiers ( AMF )’’ of a declaration of trade and payment of fees of 0.025% of the total value of the securities issued in Quebec and a minimum of prescribed fees of $250. Failure to file such declaration and pay the prescribed fees constitutes an infraction which may lead to fines ranging from $1,000 to $50,000.
The Directors who authorize or permit this transaction are personally liable for the same amounts. In addition, the objective of Regulation 45-106 being the protection of the public, this protection came with an important increase of the formalities on any issuance or transfer of securities, even if the Company has amended its Articles as provided above. Thus, the Company can only issue securities to persons contemplated in subsection 2.4(2) of Regulation 45-106.
It is therefore very important to document these transactions to avoid potential difficulties upon the sale of the business. Other restrictions apply to the transfer of securities, including the transfer of shares. Serious consequences may be faced upon failure to comply with the prescribed procedure. The transfers may be cancelled, their price may be contested and serious penalties and damages may occur. Once again, we suggest you contact us for any transaction on shares to ensure compliance and avoid serious and costly consequences.
In conclusion, we strongly recommend amending the Articles of your Company to comply with the new provisions of Regulation 45-106, and then to ensure that you respect the requirements for all issuances and transfers of shares by documenting extensively these transactions to avoid future questions that may result in a decreased value of your business. We will assist and advise you in all of these matters.
Contact us : 1-514-322-8888
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