CASUAL LEGAL: So, we Established a Municipally Controlled Corporation . . . Now What?

So, we Established a Municipally Controlled Corporation . . . Now What?

By Tamara Korassa

Reynolds Mirth Richards Farmer LLP

AMSC Casual Legal Service Provider

A municipality that has established a controlled corporation (referred to herein as a “MCC”) pursuant to section 75.1 of the Municipal Government Act (“MGA”), should be aware of the ongoing requirements pertaining to the MCC and the role of the municipality in the MCC.

Shareholders are the owners of a corporation established under the Business Corporations Act (the “BCA”) and the shareholders appoint a board of directors to manage the business and affairs of the corporation. The shareholders may reserve certain decision-making authority to the shareholders by entering into a unanimous shareholders agreement.

Similarly, when a municipality or a group of municipalities establish an MCC, the municipalities are the owners (shareholders) and they appoint a board of directors to manage the MCC in accordance with the business plan of the MCC. However, the shareholders of an MCC are required to enter into a unanimous shareholders agreement (“USA”) that addresses the (1) rights and liabilities among the shareholders, (2) election of the directors, (3) management of the business and powers of the directors, (4) the MCC’s service delivery standards and decision-making structure, (5) a dispute resolution process between the shareholders, and (6) a method for the shareholders to provide direction to the MCC with respect to the action a MCC should take in response to a report of the municipal councils regarding a proposed material change under section 7(1) of the Municipally Controlled Corporation Regulation (the “Regulation”). See section 5 of the Regulation and section 146 of the BCA. Where there is a single municipal shareholder of the MCC, the Regulation still requires a USA.

A municipal shareholder also has certain statutory obligations in respect of the MCC that a shareholder of a corporation would not necessarily have unless set out in a USA. A municipal shareholder is required to ensure the MCC submits annual financial statements of the MCC to each municipality’s council (which the council is required to make available for public inspection). Also, if the MCC at any time determines to materially change the business plan (i.e. a change in services, a change in shareholders, a change in geographic service area, a change in rate structure for an MCC providing utility services, or a change to the market impact analysis) the municipal shareholder (not the MCC) has an obligation to notify its residents of the proposed material change, engage its residents through the holding of a public hearing in compliance with section 3 of the Regulation, and provide a report to the MCC summarizing the representations made during the engagement process.

The MGA does not exempt an MCC from complying with the requirements of the BCA. Therefore, an MCC is required, among other things, to maintain a minute book and file an annual return with the Registrar of Corporations (BCA, section 268). The MCC may wish to engage corporate legal counsel to provide advice on all of the requirements of the BCA.

To access AMSC’s Casual Legal Helpline, AUMA members can call toll-free to 1-800-661-7673 or email casuallegal [at] amsc.ca (casuallegal[at]amsc[dot]ca) and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] auma.ca (riskcontrol[at]auma[dot]ca), or call 310-AUMA (2862) to speak to AUMA’s Risk Management staff. Any Regular or Associate member of the AUMA can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.