The BCBCA does not recognize unilateral shareholder agreements (USA). These are a type of shareholder agreement that is recognized under the CBCA and are used to limit some or all of the directors’ powers and ability to manage the corporation.
Section 137 of the BCBCA is analogous to USAs as it provides for the limitation of a director’s powers and the transfer of such powers. This section provides that the articles of a company may transfer, in whole or in part, the powers of the directors to manage or supervise the management of the business and affairs of the company, to one or more other persons. Such a transfer may be to one or more shareholders or to persons that are neither shareholders nor directors of the company. In addition, the transferee may also be another corporate entity; accordingly, this provision permits some or all of the shareholders or other persons to act in the place of the directors of the company.
In order for this transfer to successfully occur, the articles of a company must clearly indicate, by express reference to section 137 or otherwise, the intention to transfer the powers to the proposed transferee or transferees. A provision transferring the powers of the directors may be in a company’s articles at the time of incorporation or can be added later date.
If the transfer takes place, the transferee or transferees will have all of the rights, powers, duties and liabilities of the directors, under the BCBCA or otherwise, in relation to, and to the extent of the transfer. This means that where a directors’ powers have been transferred, the directors are relieved of their corresponding rights, powers, duties and liabilities to the same extent.
A corporation operating in BC will not be able to transfer a directors’ powers if such transfer is only stated in a shareholder agreement. Such an agreement would not be valid because the BCBCA does not recognize USAs. This does not prevent corporations from using shareholder agreements, it just means that those agreements cannot be used to limit the powers of a director.
Good point Claudia! I hadn’t thought about liabilities when reading this, just powers. 🙂
Thanks Caitlyn! For some reason my mind keeps diverting to liability 🙂
Nice analysis Claudia! As we discussed in class today, I wanted to point out that when you compare BCBCA s. 137 (“Transfer of Directors’ Powers”) to BCBCA s. 124(1)(“Qualifications of a Director”), I noticed that under s. 137, the powers of a director can be transferred to any person (thus, including corporations in this definition) whereas under s. 124(1) – only an individual (a natural person) can fill the role of a director. This effectively means that a company cannot be a director of another company, but the BCBCA has left open the possibility that a company can be transferred a particular delegation of directors’ powers to be carried out, as the legislature specifically used the word “person” for s. 137. However, it is worth noting that this circumstance is probably unusual and it is more likely that the usual practice is for natural persons to sit on the board of directors and carry out directors’ duties.