Non-distributing corporation (CBCA)

A buyer or seller meets this term when confirming that a company is private and subject to the federal Act’s rules for corporations that are not distributing. See how share structure affects the sale of a private business.

The definition

Section 2(1) of the Act says that, subject to subsections (6) and (7), a distributing corporation is one defined in the regulations. Section 2 of the Canada Business Corporations Regulations, 2001 covers a reporting issuer under legislation listed in Schedule 1. It also covers a corporation that has filed a prospectus or registration statement, or has securities listed and posted for trading on a stock exchange, and certain corporations tied to an amalgamation or reorganization involving one of those. A corporation exempted under provincial securities legislation, or covered by an order of the relevant provincial securities regulator that it is not a reporting issuer, is not a distributing corporation. Under section 2(6) and (7), the Director may determine that a corporation, or a class of corporations, is not or was not a distributing corporation if satisfied that this would not be prejudicial to the public interest.

Why the label matters

Some federal rules turn on it. Section 163 lets the shareholders of a corporation that is not a distributing corporation resolve not to appoint an auditor, but only with the consent of all the shareholders, including those not otherwise entitled to vote, and only until the next annual meeting; see audit exemption. Confirm the corporation is governed by the federal Act at all, and check its articles and securities history.