Corporations are not immaculately conceived. Every corporation in the world exists only because a government has declared it to be in existence.

In a perfect world, there would be an international body capable of creating worldwide corporations; a one-stop-shop for incorporation.

But if governments do one thing poorly, it is communicate between themselves.

Many states operate with both a central government and local governments, the latter sometimes called states, provinces or territories.

In an almost-perfect world, each state would have a constitution which would give exclusive jurisdiction in a certain area of law to either the federal government or the local governments so that the citizen would know that in any given area of legal activity, the relevant law would be either federal or local.

Alas, we do not live in a perfect world.

There are close to eighty federal, state or provincial jurisdictions creating corporations on the North American continent alone. If one includes the licensing requirements of the hundreds of cities and towns, the hindrance to free trade emerges clearly.

corporate mobilityYet the pressure to operate far and wide has grown exponentially with the growth of international trade and new commerce capabilities offered by the Internet.

Canada is an example of a jurisdiction which issues incorporation certificates both nationally (federally) and locally (provincially). We must at least be grateful that municipalities have not entered the business, no pun intended.

In Canada, individuals, or existing corporations, seeking to create a new corporation have a choice to do so pursuant to Federal legislation (Canada Business Corporations Act) or provincial legislation (eg. Business Corporation Act of British Columbia or of Ontario).

Background

The legal background of recognizing corporations that have been certified in other jurisdictions can be found in international law.

As stated by Justice Wright in Lazard Bothers:

"English courts have long since recognized as juristic persons corporations established by foreign law in virtue of the fact of their creation and continuance under and by that law. Such recognition is said to be by the comity of nations."

The law also cherishes the principle that a corporation is initially enabled to operate only within the jurisdiction of the government that created it.

Justice La Forest of Canada’s Supreme Court wrote in Tolofson:

"Ordinarily people expect their activities to be governed by the law of the place where they happen to be and expect that concomitant legal benefits and responsibilities will be defined accordingly. The government of that place is the only one with power to deal with these activities. The same expectation is ordinarily shared by other states and by people outside the place where an activity occurs. If other states routinely applied their laws to activities taking place elsewhere, confusion would be the result. In our modern world of easy travel and with the emergence of a global economic order, chaotic situations would often result if the principle of territorial jurisdiction were not, at least generally, respected. Stability of transactions and well grounded legal expectations must be respected."

To accommodate and encourage the reciprocal recognition of extra-jurisdiction corporations (foreign corporations), the following extract at §16 of the Ontario Business Corporations Act is standard and reflects, for example, 15(3) of the Federal Canada Business Corporations Act (CBCA):

"A corporation has the capacity to carry on its business, conduct its affairs and exercise its powers in any jurisdiction outside Ontario to the extent that the laws of such jurisdiction permit."

Some History

In the legal history of Canada, the big bang when it comes to the authority to create corporations, occurred when the Constitution Act, 1867 (then known as the British North America Act) gave the federal government authority, at §91, over "the regulation of trade and commerce" but gave to the provincial governments legislative, at §92, authority over "the incorporation of companies with Provincial objects"!

The beauty of a Federal corporation is stated at §15(2) of the CBCA:

"A (federal) corporation may carry on business throughout Canada."

But a Federal v Provincial battle of the jurisdictions over corporations was not long in coming.

In John Deere, a judgment which issued in an era when Canadian lawyers still had to subject themselves to a British court as a final appellate court for Canadians, and when the Federal government was formally known as the Dominion government, the House of Lords wrote:

"The Province cannot legislate so as to deprive a Dominion company of its status and powers. This does not mean that these powers can be exercised in contravention of the laws of the province restricting the rights of the public in the province generally. What it does mean is that the status and powers of a Dominion company as such cannot be destroyed by provincial legislation.

"... (W)hether the province can interfere with the status and corporate capacity of a Dominion company in so far as that status and capacity carry with it powers conferred by the Parliament of Canada to carry on business in every part of the Dominion, their lordships are of opinion that this question must be answered in the negative."

John Deere logoThis was reiterated in a 1921 decision, Great West Sadlery in which the House of Lords added:

"It must now be taken as established that §91 (of the British North America Act) enables the Parliament of Canada to incorporate companies with that status and powers as to restrict the provinces from interfering with the general right of such companies to carry on their business where they choose, and that the effect of the concluding words of §91 is to make the exercise of its capacity of the Dominion parliament prevail in case of conflict over the exercise by the provincial legislatures of their capacities under the enumerated heads up §92."

Once the assertive provincial governments had been tamed by the British House of Lords in regards to federal corporations, a New Brunswick case started the same process of accommodation of one another's corporations as between provinces.

Writing in Aetna, the New Brunswick Court of Appeal noted:

"No province has, of course, the power to grant a company incorporated under its laws the right to carry on business in another province. Such right can only be derived from the other province.

"The plaintiff, having been brought into existence ... in the name of the Lieutenant Governor of Quebec and issued under the Great Seal of that province, is a company having the capacity of a natural person with the same right that a natural person, residing outside of New Brunswick, has of bringing an action within this jurisdiction. As there is no statute or law in this province prohibiting a company so incorporated and not carrying on business here from suing in New Brunswick it is my opinion that the plaintiff has the right to maintain an action in this province."

But while that may have extended a right to sue in court, it did not give the entity foreign to New Brunswick law (the Quebec corporation), the all-important right to operate in New Brunswick.

Registration of "Foreign Corporations"

With time, and sound legal decisions by the courts, legal wisdom has prevailed. The provinces have developed a system of registration or licensing, of all corporations certified by another province, which then allows the foreign entities to fully operate within the registration jurisdiction.

Even though the extra-provincial corporations seeking registration might be from another Canadian province, corporate law often uses the term foreign corporation or foreign entity when referring to a corporation which is certified by another jurisdiction.

The registration process can be quite annoying.

In addition to a fee of several hundreds of dollars, a name search might be required which exposes an established company to having it's application for registration as a foreign entity  denied because of conflict with an existing name within the jurisdiction in which it is seeking registration ... even though it has been using that same name for decades within its jurisdiction of origin.

Annual reports may be required of foreign corporations.

Further, with registration inevitably comes the onerous requirement of appointing an attorney for the purposes of acting as legal agent for the corporation within the jurisdiction in which registration is sought.

This latter requirement is a gold mine for lawyers. In spite of the word, the attorney does not have to be a lawyer but given the complexity of the process, a de facto monopoly on the representation of foreign corporations exist in the hands of knowledgeable corporate lawyers.

More recently, some provinces have lifted some of the registration requirements by way of bilateral agreements such as, for example, an agreement between British Columbia and Alberta.

But, generally, federally incorporated companies, and corporations created by outside jurisdictions must register in each province in which they wish to operate failing which, they could be fined.

A Federally-incorporated corporation is not exempt from the registration requirements although they may be saved from some of the less significant requirements, such as providing a successful name search report.

It is not always easy to determine whether the amount of business activity is enough to require registration. The courts will look at whether contracts were completed and if so, where they were completed. Another relevant facts might be where orders for products or services are taken or where the terms of a contract are performed.

Conclusions

Extra-jurisdiction corporations must go through a maze of unique requirements to carry-on business within other jurisdictions. The lack of responsiveness of corporations law to the growth of international trade is still a work-in-progress; a mess of aged technical requirements. The requirements are great for lawyers and tax-collectors but, hopefully, like some other vestiges of the common law, will follow the path of the dodo bird.

For mail order businesses, or those operating on the Internet, a large number of Mom 'n Pop operations probably ignore the registration requirements, in spite of their high volume of customers outside of their jurisdiction. They jeopardize their legal right to enforce a contract if their bill is not paid but this is probably a cost-benefit decision: the rigmarole and annual cost of registration is not worth the occasional breach of contract award.

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