Casual Legal: (Not) A Corporation by Any Other Name
DISCLAIMER: This article is meant to provide information to Alberta Municipalities members 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made to provide current and accurate information, changes to the law may cause the information in this article to be outdated. This content is not intended for the general public.
By Ceilidh Hemmati
Reynolds Mirth Richards Farmer LLP
Alberta Municipalities Casual Legal Service Provider
Municipally controlled corporations (MCCs) formed under section 75.1 of the Municipal Government Act (MGA) may be structured and function in many ways like other for-profit corporations in Alberta. However, municipalities that choose to establish or acquire control of an MCC should be mindful of the many unique requirements applicable to MCCs under the MGA and the Municipally Controlled Corporation Regulation (the "Regulation") which prevent these entities and their subsidiaries, which are also MCCs under the MGA, from being operated like non-municipally controlled corporations.
These unique requirements include:
Unanimous Shareholder Agreement. Under the Regulation, the councils of one or more municipalities which propose to establish or acquire control of an MCC must adopt a unanimous shareholder agreement in respect of the MCC. While a non-municipally controlled corporation would not typically adopt a unanimous shareholder agreement if it had a single shareholder, the requirement that an MCC have such an agreement applies even if one municipality is the sole shareholder. The unanimous shareholder agreement must meet the requirements of the Regulation, which include, but are more prescriptive than, those required under the Alberta Business Corporations Act (ABCA).
Material Change. In the absence of a unanimous shareholder agreement, a non-municipally controlled corporation generally needs to seek the approval of a portion of its shareholders for certain prescribed fundamental changes to the corporation under the ABCA. By contrast, if there is a proposed material change to the business operations of an MCC, the shareholders of that MCC cannot simply approve it as they might otherwise under the ABCA. Instead, the council of each municipality that controls the MCC must complete the resident engagement process set out in the MGA and the Regulation. Material change is defined in the Regulation and includes, among other things, a broad catch-all for any change in the business, financing, operations or affairs of the MCC that would be considered important by a reasonable person in light of the circumstances of the MCC in its entirety. Municipalities that are considering making changes to an MCC they own or control should keep this in mind to ensure that the resident engagement process is completed and reported on to the MCC if the change could reasonably be considered important.
Business Plan. Although a non-municipally controlled corporation may choose to implement some form of business plan, the council of a municipality must, before passing a resolution allowing it to establish or acquire control of an MCC, consider a business plan that addresses the required information set out in both the MGA and the Regulation. The required information is extensive and includes, but is not limited to, a three-year cash flow projection, potential risk to the municipality in controlling the MCC and the impact of the MCC on the municipality's financial viability.
Municipalities and MCCs should consider whether they need legal assistance not only in connection with the legal formalities of acquiring or forming an MCC, but also in connection with the MCC's ongoing operations to ensure that those operations comply with the MGA and the Regulation.
To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1-800-661-7673 or casuallegal [at] abmunis.ca (email) to reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please call 310-MUNI (6864) or riskcontrol [at] abmunis.ca (email) to connect with Alberta Municipalities Risk Management staff. Any Regular or Associate member of Alberta Municipalities can access the Casual Legal Service.
