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Commercial Law

The articles of constitution are an essential element in the creation of a business under the legal form of a corporation. In other words, it is the transmission of these documents to the Registraire des entreprises du Québec that validly creates the corporation.

Mandatory content

The articles of constitution include a number of mandatory elements:

– The name of the company;
– The capital stock, including :

– The par value of the shares, if any. Unless otherwise provided in its articles, the corporation has unlimited share capital and its shares are without par value;
– The rights (voting rights, right to dividends, right to remainder) and restrictions attached to the shares of each class and, if applicable, the maximum number of shares that the company is authorized to issue. Each of the three rights listed above must be included in at least one class of shares. In the absence of a provision to this effect in the articles, all classes of shares will benefit from these three rights;
– Restrictions imposed on the transfer of shares, if any. This will often be the case when dealing with a private company, in order to avoid the possibility of shares being sold to anyone, as shareholders prefer to have a say in the identity of their business partners;

– The number of directors of the corporation (this can be a fixed number or minimum and maximum limits);
– Limits on the activities of the corporation, if any. For example, limits on the activities of professional corporations will often be required by their code of ethics and their professional order.

Once drafted, the articles of constitution are signed by the founders of the company and sent to the Registraire des Entreprises along with the other documents that must be attached to the transmission. Upon receipt of the articles and other required documents, and provided that all formalities are complied with, the Registraire des entreprises registers the date of receipt of the articles and issues the certificate of incorporation which gives birth to the company.

Generally, the date of incorporation of the company is the date of receipt of the articles of association. However, the articles of association may themselves provide for a date subsequent to the transmission of the articles of association. When such a date is provided for in the articles of association, the company is formed on that date.

Optional content

The articles of constitution may also contain a number of optional elements that structure the operation of the company and adapt to the founders’ objectives. For example, they may contain any provision that could be found in the company’s by-laws. One of the effects of this inclusion in the articles of constitution is to make it more difficult to amend or repeal the provision.

The articles of constitution may also provide:

– A greater number of votes than the law provides for the adoption of certain actions by directors or shareholders;
– A right of first refusal;
– The qualifications for directors of the corporation;
– The method of election of directors;
– The division of the remaining property;

But there are limits to what the articles of constitution can provide. They cannot go against a rule of public order. For example, it would be impossible to relieve the directors of their duty of prudence and diligence or of their duty of honesty and loyalty to the corporation.

However, one aspect that must be taken into account is that the content of the articles of constitution is accessible to the public through the Enterprise Registrar. Thus, some companies will prefer to keep their internal operating rules private.

After the creation of the corporation

Once the corporation is incorporated, the articles must be included in the company book and kept at the registered office of the corporation. Shareholders may consult the company book and obtain extracts from it.

It is important to properly draft the articles of constitution and to adequately foresee the legal implications that a clause could have. Indeed, the law provides for certain presumptions with respect to third parties in relation to the content of the articles of constitution. Third parties may presume that the corporation is exercising its powers in accordance with the articles and that the articles contain truthful information. Thus, if a third party makes a decision in good faith on the basis of information contained in the articles of constitution when the information was erroneous and this causes prejudice to the third party, the corporation may be liable and must compensate the third party.

Also, if the corporation fails to comply with a provision of the articles, any person with an interest in the matter may apply to the court to have the corporation ordered to comply. In fact, if the articles contain illegal provisions or false or erroneous statements, any interested person may apply to the court for an order to dissolve the corporation, to cancel the articles and the certificate of incorporation of the corporation, or to take any other action that the court considers appropriate.

Because drafting articles of constitution has many implications, it may be wise to consult a team of professionals who can guide you through the process. Our team of experienced corporate lawyers can draft your articles of constitution based on your needs and objectives.