Director duties under the BCBCA

The Business Corporations Act (s. 142) imposes two core duties on every director:

• Fiduciary duty — to act honestly and in good faith with a view to the best interests of the company. This means the company’s interests, not your own and not the majority shareholder’s.
• Duty of care — to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. You are expected to be informed before you vote.

The business judgment rule protects directors who make decisions in good faith, on an informed basis, and in the honest belief that the decision serves the company. It does not protect directors who are conflicted, uninformed, or acting dishonestly.

Conflicts of interest

Section 155 of the BCBCA requires a director who has a material interest in a proposed transaction or agreement with the company to disclose that interest to the board. In most cases, the conflicted director must also abstain from voting on the matter.

Common conflict situations include: a director who is also a supplier to the company; a director entering a lease with the company; a director who holds shares in a company that is the subject of an acquisition. Managing conflicts properly — disclosure, abstention, and documentation in minutes — protects both the director and the transaction.

Records and resolutions

BC companies are required to maintain a records book containing the notice of articles, articles, central securities register, register of allotments, register of directors, and certain other documents. These must be available at the company’s records office.

Directors may act without a formal meeting by passing resolutions in writing, provided all directors entitled to vote sign the resolution (s. 126 BCBCA). Annual general meetings are generally required unless waived by unanimous consent of the shareholders (s. 182).

Well-maintained corporate records are not just a legal requirement — they are essential when you want to sell the company, bring in investors, or respond to a regulatory inquiry. Gaps create problems at the worst possible times.

Personal liability of directors

Limited liability protects shareholders from a company’s ordinary debts. Directors receive less protection. Specific statutory provisions impose personal liability on directors for:

• Unpaid employee wages (up to two months) and vacation pay — Employment Standards Act
• Unremitted source deductions — Income Tax Act
• Unremitted GST/HST — Excise Tax Act
• Environmental remediation costs in certain circumstances

Resignation from the board does not automatically end liability for obligations that arose during your term. A due diligence defence is available for some of these obligations, but it requires that you actually took steps to prevent the default.

Shareholder remedies

Oppression remedy (s. 229 BCBCA) — A shareholder, director, or officer who believes that the company’s affairs are being conducted in a manner that is oppressive, unfairly prejudicial, or unfairly disregards their interests can apply to the BC Supreme Court for relief. The court has broad remedial discretion, including ordering a share buyout, damages, or changes to corporate governance.

Derivative action (s. 232 BCBCA) — A complainant can apply to court to bring or defend an action in the name of the company, where the company has suffered a wrong and those in control are unwilling or unable to pursue it. Leave of court is required.

Share purchase vs. asset purchase

There are two fundamental ways to buy or sell a business in BC:

• Share purchase — the buyer acquires the shares of the company. The company and all its assets and liabilities transfer together. Sellers generally prefer this structure because the gain on qualifying small business corporation shares may be sheltered by the lifetime capital gains exemption.
• Asset purchase — the buyer acquires only specific identified assets, leaving the corporate shell (and its liabilities) with the seller. Buyers often prefer this structure to limit exposure to unknown or contingent liabilities.

The right structure depends on the specific tax positions of the parties, the nature of the business’s liabilities, and the preferences of financing parties.

Letter of intent

A letter of intent (LOI) or term sheet sets out the agreed commercial terms before the parties invest in full due diligence and definitive documentation. Key LOI terms: purchase price and adjustments; exclusivity period; conditions to closing; and deal structure.

Most LOIs are non-binding on the substance of the deal, but confidentiality and exclusivity provisions are typically binding. Get legal advice before signing an LOI — it shapes the negotiation that follows and can be difficult to back away from even if technically non-binding.

Due diligence

Due diligence is the buyer’s systematic examination of what is being acquired. For a BC company, this covers: corporate records and capitalization; material contracts and their assignability; intellectual property; real property; employment matters; litigation; financial statements; and tax filings.

Purchase agreement

The purchase agreement is the governing document. Its key provisions include:

• Representations and warranties — statements by the seller about the state of the business
• Indemnification — the seller’s obligation to compensate the buyer if a representation proves false
• Conditions to closing — events that must occur before either party must close
• Non-competition and non-solicitation — restrictions on the seller after closing

Closing and post-closing

Closing involves more than signatures. Depending on the deal: PPSA registrations may need to be discharged or assumed; landlord and lender consents may be required; employment offers must be made in asset deals; and regulatory licences may need to be transferred.

Post-closing integration — bringing the acquired business into existing operations — has its own legal dimensions, including treatment of existing contracts, employee arrangements, and any vendor take-back financing or earnout provisions.

What makes a contract enforceable in BC

A contract requires offer, acceptance, and consideration (something of value exchanged by both parties). It must reflect genuine agreement — contracts made under duress, based on a fundamental misrepresentation, or covering illegal subject matter will not be enforced by BC courts.

Many business contracts are formed verbally or by conduct, and can be binding even without a signed document. Written contracts are strongly preferable because they create certainty and make disputes easier to resolve.

Common commercial contracts in BC

• Services agreements — for contractors, consultants, and service providers
• Supply and distribution agreements — governing ongoing purchase relationships
• Software and licensing agreements — covering IP use and ownership
• Non-disclosure agreements (NDAs) — protecting confidential information
• Commercial leases — office, retail, and industrial premises
• Loan and promissory note agreements — documenting financing arrangements
• Employment and contractor agreements

Clauses to watch closely

Limitation of liability — caps your recovery at a fixed amount, often well below your actual loss. Generally enforceable in BC but can be overridden in cases of fraud or intentional misconduct.

Indemnification — may require you to cover the other party’s legal costs for claims unrelated to your conduct. Read carefully; broad indemnities create unexpected exposure.

Automatic renewal — common in software and service contracts. You can be locked into a multi-year renewal if you miss a narrow termination window. Know your renewal dates.

IP ownership — who owns work product created under the contract. Particularly important in technology, marketing, and development agreements. Silence often means the contractor retains ownership.

Contract review vs. contract drafting

Contract review — examining a document prepared by the other side — tells you the risks you are accepting. You are responding to the other party’s agenda.

Contract drafting — preparing the document yourself — lets you set the agenda. For transaction types you repeat often, having your own template agreement is worth the upfront investment. You use it repeatedly and negotiate from a position of familiarity.

Types of business financing

BC businesses typically access financing through: bank loans (term loans and lines of credit); shareholder loans; equipment financing; accounts receivable financing (factoring or assignment); and private lender or bridge financing. Each structure has different legal documentation requirements.

The Personal Property Security Act (PPSA)

BC’s Personal Property Security Act governs security interests in personal property (everything except land). If a lender takes security over a BC company’s assets — inventory, equipment, accounts receivable, intellectual property, shares in subsidiaries — that security interest must be “perfected” under the PPSA to be enforceable against third parties and in insolvency proceedings.

Perfection is usually achieved by registering a financing statement in the BC PPSA registry. An unperfected security interest is valid between the parties but ranks behind a perfected interest and may be ineffective in bankruptcy.

Security agreements

A security agreement creates the security interest in the collateral. It must be in writing, signed by the debtor, and contain a sufficient description of the collateral. General security agreements (GSAs) cover all present and after-acquired personal property of the debtor — the broadest form of security.

Priority and subordination

Where multiple creditors hold security over the same collateral, the PPSA’s priority rules determine who gets paid first. Generally: a perfected security interest ranks ahead of an unperfected one; and among perfected interests, the first to register prevails. Purchase money security interests (PMSIs) get “super-priority” if registered correctly and within the required time.

Subordination agreements — where a senior and junior lender agree in writing on their relative priority — are common in multi-lender financing arrangements.

BC annual report

Every BC company must file an annual report with BC Registries each year within two months after the company’s anniversary date. The annual report confirms the company’s registered and records office addresses, its director list, and its share structure.

Failing to file annual reports for two consecutive years will result in the company being struck from the register (dissolved). A dissolved company cannot carry on business, enter contracts, or hold property — and its assets vest in the Crown.

Transparency register

Since 2020, BC companies have been required to maintain a transparency register listing their “significant individuals” — persons who, directly or indirectly, hold 25% or more of the voting rights or economic interest in the company, or who have the right to appoint or remove a majority of directors.

The transparency register must be kept at the company’s records office and updated within 30 days of any change. Penalties for non-compliance can include fines and dissolution.

Privacy obligations (PIPA)

BC’s Personal Information Protection Act (PIPA) applies to most private-sector organizations operating in BC and governs the collection, use, and disclosure of personal information about employees and customers. Key obligations include: having a privacy policy; obtaining consent before collecting personal information; limiting collection to what is necessary; and responding to access requests within 30 days.

Director liability for regulatory breaches

Directors who know about regulatory non-compliance and fail to address it can face personal liability. This is particularly acute for environmental breaches, employment standards violations (unpaid wages), and tax remittance failures (source deductions, GST).

The due diligence defence is available for many statutory director liabilities — but it requires that you actually took steps to prevent the contravention.

Before you litigate

Business disputes are almost always better resolved without litigation. Litigation is expensive, slow, unpredictable, and public. Even when you are clearly in the right, the cost of proving it can exceed the value of winning.

The first question is always: what do you actually want? A money judgment? A share buyout? An injunction? The answer shapes the strategy. Some outcomes are only available through litigation; many can be achieved through negotiation or structured dispute resolution.

Oppression remedy (BCBCA s. 229)

The oppression remedy is the most powerful tool available to a minority shareholder of a BC company. A complainant can apply to the BC Supreme Court where the company’s affairs are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly disregards the interests of, one or more shareholders.

The court has extremely broad remedial discretion — it can order a share buyout (at a price it determines), change the articles, require payment of dividends, restrain conduct, or award damages. The oppression remedy is not limited to technical illegality; it covers conduct that is commercially unfair even if technically lawful.

Derivative action (BCBCA s. 232)

Where the company itself has suffered a wrong — a director misappropriated funds, a contract was breached in favour of an insider — a complainant can apply to court for leave to bring or defend an action in the name of the company. Any recovery goes to the company, not directly to the complaining shareholder.

Mediation and arbitration

Mediation is a facilitated negotiation with a neutral third party. It is voluntary, confidential, and non-binding until a settlement agreement is signed. It can resolve disputes faster and at lower cost than litigation, and allows creative solutions courts cannot order.

Arbitration is a private adjudicative process governed by BC’s Arbitration Act. It produces a binding award enforceable by the courts. Arbitration is typically faster than court litigation, private, and allows the parties to choose a decision-maker with relevant expertise.

Breach of contract claims

Where a commercial contract has been breached, the injured party is generally entitled to damages putting them in the position they would have been in had the contract been performed. Mitigation matters: you are expected to take reasonable steps to reduce your losses after a breach. Document your mitigation efforts.

BC’s Limitation Act imposes a two-year basic limitation period for most civil claims, running from the date you discovered (or ought to have discovered) that you had a claim. Missing a limitation period is generally fatal to your claim — act promptly.