Alberta Unlimited Liability Companies (ABULC)
Until May, 2005, corporate groups considering the use of a Canadian hybrid entity could use only a Nova Scotia Unlimited Liability Company (NSULC). Recent amendments to the Alberta Business Corporations Act (ABCA), effective as of May 17, 2005, provide the Alberta Unlimited Liability Corporation (ABULC) as an alternative. The ABULC should be considered a corporation for Canadian federal income tax purposes. In addition, the ABULC should qualify as a foreign eligible entity for U.S. federal income tax purposes, which will cause the ABULC to be considered either a partnership or a disregarded entity unless it elects to check the box and be considered a corporation. Typically, this type of hybrid entity is used in double dip structures for financing U.S. investments and operations.
ABULC vs. NSULC – Distinguishing Features
Liability of Shareholders: Members of an NSULC appear to have a slight advantage in that they are liable for the debts and liabilities of the company only if the company cannot meet its obligations when it is wound up. The liability of the shareholders of an ABULC is unlimited in extent, and joint and several in nature. Therefore, the shareholders can be sued concurrently with the corporation for any liability, regardless of whether the company has failed to meet its obligations. Although this difference may appear to be significant, the NSULC can easily be petitioned into winding up, thereby exposing the members to liability. In contrast, to the benefit of ABULC shareholders, liability appears to be limited to the corporation and its current shareholders, or to persons who owned shares when the ABULC was dissolved. In Nova Scotia, the liability of a past member can continue if the company and those members owning an interest in the company when it is wound up cannot satisfy the company’s outstanding liabilities.
Corporate Fees: The NSULC gives rise to considerably higher transaction costs. In Nova Scotia incorporation of an NSULC and amalgamation of companies into an NSULC are subject to a special $6,000 tax and a $2,000 annual renewal tax. Corporate fees in Alberta are low. Although the privatization of licensing and registry services in Alberta makes it impossible to give precise prices for these services, in most cases an incorporation or amalgamation can be completed for less than $200, with annual returns costing less than $10.
Corporate Registrations: The modern corporate statute in Alberta eliminates the complexity of corporate registrations and changes evident in older company statutes, such as the Nova Scotia Companies Act. In Nova Scotia, an amalgamation must be approved by a special resolution of the members and by court order. In Alberta, a short-form amalgamation is allowed, which requires only a special resolution of the shareholders. In addition, certain actions in Nova Scotia may require that the NSULC be converted into a limited liability corporation. One such case is continuance into another jurisdiction.
In general, the Alberta legislation may be easier to work with than the existing NSULC legislation, thereby making the ABULC a potentially attractive vehicle for Canadian cross-border planning.