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Corporate legal aspects of impact investments in British Columbia Mosimann, Michael Peter 2014

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CORPORATE LEGAL ASPECTS OF IMPACT INVESTMENTS IN  BRITISH COLUMBIA  by Michael Peter Mosimann  lic.iur., University of Zurich, 2008  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF  MASTER OF LAWS in THE FACULTY OF GRADUATE AND POSTDOCTORAL STUDIES (Law)  THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver)  August 2014  © Michael Peter Mosimann, 2014  ii  Abstract  The historically grown distinction between for-profit corporations and non-profit organizations has caused a demand for new hybrid corporate forms that allow for the combination of the pursuit of a social or ecological goal and the generation of profits at the same time. These hybrid corporate forms are intended, among others, to attract social responsible investments in general and particularly impact investments, with which an investor aims to solve a social or ecological problem while making a profit. British Columbia has led the path in Canada by implementing the community contribution company (or C3 or CCC).  This thesis argues that from a pure corporate legal point of view, a CCC may provide the highest and most enduring social impact, but depending on the interests of the investor, another corporate form might be more suitable for impact investments in British Columbia.  After some general remarks on impact investing and the consideration of stakeholders’ interests by directors, the thesis first will provide a detailed analysis of the corporate legal features of the CCC. The discussion will show that most provisions governing the CCC intend to achieve two things, i.e., first that the CCC is managed in accordance with its community purpose and second, in particular through restrictions on dividends and asset transfers (asset lock provisions), to protect it from being stripped of its assets. The comparison with other corporate forms following the outline of the CCC’s features  iii  intends to draw a conclusion with regard to the suitability for impact investments. While some of the restrictions applicable to a CCC as well as the requirement to produce a community contribution report could be desirable from an impact investor’s point of view, others might be less advantageous or even disadvantageous.  Before concluding the thesis with a summary of the findings as well as some thoughts about further research in this area, potential amendments to the CCC framework in order to increase its suitability for impact investments will be discussed. In addition, some high level thoughts on further incentives for social financing will be provided.   iv  Preface  This thesis is an original intellectual product of the author.  v  Table of Contents  Abstract .......................................................................................................................... ii Preface .......................................................................................................................... iv Table of Contents .......................................................................................................... v List of Abbreviations ..................................................................................................... x Acknowledgements ..................................................................................................... xii Dedication ................................................................................................................... xiv Chapter 1: Introduction .................................................................................................... 1 1.1 The Problem ..................................................................................................... 1 1.1.1 The Emergence of a Demand for Hybrid Corporate Forms ....................... 1 1.1.2 Historical Overview .................................................................................... 5 1.2 Corporate Legal Issues from an Impact Investor’s Point of View ...................... 8 1.3 Has the Solution Been Found? ....................................................................... 12 1.4 Methodological Remarks ................................................................................ 17 1.4.1 Objectives / Research Questions ............................................................. 17 1.4.2 Hypothesis ............................................................................................... 21 1.4.3 Framework and Methodology .................................................................. 22 1.4.3.1 In General ......................................................................................... 22 1.4.3.2 The Author’s Normative Framework ................................................. 22 1.4.3.3 The Law in Focus ............................................................................. 25 1.4.3.4 Considering the Impact Investor’s Interests ...................................... 27 1.4.4 Exclusions and Limitations ....................................................................... 28  vi  1.5 Structure of the Research ............................................................................... 29 Chapter 2: Impact Investing .......................................................................................... 31 2.1 What is Impact Investing? ............................................................................... 31 2.1.1 Definition .................................................................................................. 31 2.1.2 Demarcation from other Social Responsible Investment Strategies ........ 37 2.1.3 Market Data ............................................................................................. 43 2.2 Why is Impact Investing Necessary? .............................................................. 45 2.2.1 In General ................................................................................................ 45 2.2.2 Conditions for Impact Investing ................................................................ 49 2.3 The Stakeholders of a Company Delivering a Social or Ecological Impact and How their Interests Can Be Considered ..................................................................... 55 2.3.1 Definition of Stakeholders ........................................................................ 57 2.3.2 The Legal and Theoretical Basis for Consideration of Stakeholders’ Interests  ................................................................................................................. 60 2.3.2.1 The Legal Framework ....................................................................... 60 2.3.2.2 Theories Concerning Corporate Social Responsibility ...................... 63 2.3.2.3 The Business Case for Corporate Social Responsibility ................... 68 2.3.2.4 Summary .......................................................................................... 71 2.3.3 Internal Stakeholders ............................................................................... 73 2.3.4 External Stakeholders .............................................................................. 77 2.3.5 Summary ................................................................................................. 79 Chapter 3: The Community Contribution Company ....................................................... 81 3.1 Corporate Purpose .......................................................................................... 82  vii  3.1.1 The Scope of Beneficiaries of a CCC ...................................................... 83 3.1.2 Direct or Indirect Benefits ......................................................................... 91 3.1.3 The Beneficial Services ........................................................................... 95 3.1.4 Other Purposes ........................................................................................ 96 3.1.5 The Relevance of the Lack of Clarity ....................................................... 97 3.1.6 Summary ............................................................................................... 100 3.2 Voting Rights ................................................................................................. 101 3.3 Transfer Restrictions Regarding the Shares ................................................. 102 3.4 Board Composition and Representation ....................................................... 105 3.5 Duties of the Directors .................................................................................. 107 3.6 Reporting ...................................................................................................... 116 3.7 Distribution of Profits and Liquidation Proceeds ............................................ 121 3.7.1 Restrictions on Dividends ...................................................................... 121 3.7.2 Restrictions on Asset Transfers (Asset Lock) ........................................ 126 3.7.2.1 The Transfer Restrictions in General .............................................. 126 3.7.2.2 Exempted Transfers ....................................................................... 127 3.7.2.3 Transfers by Way of Financial Assistance ...................................... 129 3.7.2.4 Consequences in Case of Non-Compliance ................................... 132 3.7.3 Restrictions on Asset Transfers Upon Dissolution ................................. 136 3.8 Possible Exits for a Shareholder ................................................................... 140 3.8.1 Sale of Shares ....................................................................................... 142 3.8.2 Redemption or Repurchase of Shares ................................................... 143 3.8.3 Reorganization ....................................................................................... 146  viii  3.8.4 Initial Public Offering (IPO) .................................................................... 149 3.8.5 Liquidation ............................................................................................. 153 3.8.6 Summary ............................................................................................... 153 3.9 Chapter Summary ......................................................................................... 154 Chapter 4: Comparison to Other Corporate Forms ..................................................... 156 4.1 Corporate Purpose ........................................................................................ 156 4.2 Voting Rights ................................................................................................. 162 4.3 Transfer Restrictions Regarding the Shares ................................................. 167 4.4 Board Composition and Representation ....................................................... 169 4.5 Duties of the Directors .................................................................................. 170 4.6 Reporting ...................................................................................................... 175 4.7 Distribution of Profits and Liquidation Proceeds ............................................ 179 4.7.1 Restrictions on Dividends ...................................................................... 180 4.7.2 Restrictions on Asset Transfers (Asset Lock) ........................................ 182 4.7.3 Restrictions on Asset Transfers Upon Dissolution ................................. 184 4.7.4 Summary ............................................................................................... 186 4.8 Possible Exits for a Shareholder ................................................................... 187 4.8.1 Sale of Shares ....................................................................................... 187 4.8.2 Redemption or Repurchase of Shares ................................................... 190 4.8.3 Reorganization ....................................................................................... 192 4.8.4 Initial Public Offering (IPO) .................................................................... 194 4.8.5 Liquidation ............................................................................................. 195 4.8.6 Summary ............................................................................................... 195  ix  4.9 Chapter Summary ......................................................................................... 196 Chapter 5: Legal Improvements or Incentives in Favour of Impact Investing .............. 199 5.1 Improvements to the CCC Framework .......................................................... 200 5.1.1 Implementation of a Regulator ............................................................... 200 5.1.2 Obligation to Consider Other Stakeholders’ Interests ............................ 201 5.1.3 Allowing for the Transfer of Management Capacities ............................ 202 5.1.4 Improvement of the Reporting Framework ............................................. 204 5.1.5 Abolishment or Amendment of the Asset Lock Upon Dissolution .......... 205 5.1.6 Valuation Method in Case of Redemption or Repurchase of Shares ..... 208 5.2 Further Incentives to Attract Social Finance.................................................. 209 5.2.1 Developing Other Hybrid Corporate Forms ............................................ 210 5.2.2 Bringing in the Big Players ..................................................................... 212 5.2.3 Creating Tax Incentives ......................................................................... 214 5.3 Chapter Summary ......................................................................................... 216 Chapter 6: Conclusion ................................................................................................. 218 Bibliography .............................................................................................................. 231   x  List of Abbreviations  BC British Columbia BCBCA Business Corporations Act, cited in note 58 CAICE Act Company (Audit, Investigation and Community Enterprise) Act 2004 (UK), cited in note 342 CBCA Canada Business Corporations Act, cited in note 202 CCC Community Contribution Company CCCReg Community Contribution Company Regulation, cited in note 73 CICReg 2005 The Community Interest Company Regulations 2005, cited in note 368 CICReg 2009 The Community Interest Company (Amendment) Regulations 2009, cited in note 343 CSR Corporate Social Responsibility ESG ecological, social and governance etc. et cetera ff and following GIIN Global Impact Investing Network GIIRS Global Impact Investing Rating System IRIS Impact Reporting and Investment Standards RIA Responsible Investment Association s(s) section(s) SCC Supreme Court of Canada TSX Toronto Stock Exchange  xi  TSXV TSX Venture Exchange UK United Kingdom US(A) United States (of America) VCA Small Business Venture Capital Act, cited in note 783  xii  Acknowledgements  Many people have contributed to this thesis, my success in general and my personality, such as my family, my friends from university, military, hockey and else, my colleagues, and many more. I would not be where I am today without them. Hence, a big thank you belongs to all of them. Besides that, I would like to particularly mention the following persons and institutions.  First of all, I would like to thank the University of British Columbia, the Faculty of Law and its faculty and staff for offering me the opportunity to do my master of laws in the beautiful city of Vancouver and for the financial support through the International Tuition Awards. Spending some time in this city has always been a dream of mine since childhood which finally came true.  Furthermore, I offer my enduring gratitude to Professors Benjamin J Richardson and Ronald B Davis. Professor Richardson enlarged my vision on corporate social responsibility and social responsible investments and provided immeasurable support to structure my research. Professor Davis’ coherent and concise comments to my drafts efficiently supported the completion of this thesis and improved its quality tremendously. I owe him particular thanks for taking over as supervisor upon short notice and in a very pragmatic manner, which was and still is highly appreciated.   xiii  I also would like to thank Wenger & Vieli AG and its partners back home in Switzerland for allowing me to do this master. I owe particular thanks to Dr. Wolfgang Zürcher LL.M. and Dr. Beat Speck LL.M. for supporting me prior and during my leave. Working for and with them taught me many appreciated lessons and I am looking forward to joining them again.  A very big thank you belongs to my partner for her enduring support, patience, and… everything.   Special thanks are owed to my parents, who have supported me throughout my years of education, not only financially, but also and foremost morally and intellectually. Their penetrating questions have taught me to be critical while being respectful. They have always been excellent and inspiring examples, which I still strive to follow.  xiv  Dedication    to my dear parents    1  Chapter 1: Introduction 1.1 The Problem 1.1.1 The Emergence of a Demand for Hybrid Corporate Forms In recent years, a significant demand for corporate forms enabling social entrepreneurs and investors to combine achieving a social or ecological goal while making profits at the same time has emerged.1 This demand intends to overcome the traditional distinction between profit generation and charity. From a very high-level point of view, there are two different types of organizations, for-profit and not-for-profit (or non-profit) organizations.2 The paradigm of a for-profit organization is the for-profit corporation. The (for-profit) corporation is the most used corporate form in Canada.3 Investors in for-profit organizations usually expect to receive a financial return on investment. On the other hand, non-profit organizations such as charities and not-for-profit corporations intend to provide social or ecological services without focusing on profits. In case profits were generated, these would not be distributed to shareholders but kept in the organization in order to finance its going concern. Hence, “investments” in non-profit organizations have a more philanthropic character and they would qualify as donations rather than as                                             1 See e.g. Antony Bugg-Levine & Jed Emerson, Impact Investing: Transforming How We Make Money While Making a Difference (San Francisco: Jossey Bass, 2011) at 123-26; Jed Emerson, “The Blended Value Proposition: Integrating Social And Financial Returns” (2003) 45:4 Calif Management Rev 35 at 44 [Emerson, “Blended Value Proposition”]; Carol Liao, “Designing Social Value Architecture for the For-Profit Company” (2012) 67 The Canadian Review of Social Policy 85 at 85 [Liao, “Designing Social Value”]. 2 Robert Yalden et al, Business Organizations: principles, policies and practice (Toronto: Emond Montgomery Publications, 2008) at 2. 3 Ibid at 133.  2  investments.4 While some argue (on a rather theoretical level) that even for-profit corporations have some sort of extra-legal obligation to consider ecological and social factors when making business decisions,5 others would prefer to see legislators taking action and providing a corporate form that requires or at least explicitly allows the combination of profit making and achieving a social or ecological goal.6  Background of both these arguments is an old and still ongoing discussion on the business’ function and its contributions to society.7 Connected thereto is the question regarding the responsibility of corporate business entities (and its governing directors and managers) towards society, nowadays known as corporate social responsibility, whereas there is no consistent definition for this term.8   Several theories have emerged with regard to that question.9 On the one hand, it is argued that the managers of a for-profit company do only have one responsibility towards the shareholders, and that is to maximize their profit.10 This shareholder value                                             4 Since impact investments intended to generate a profit as well (see definition of impact investing in Section 2.1.1 below), the focus of this thesis will be on the for-profit organizations. 5 See the discussion of the different corporate social responsibility theories in Section 2.3.2.2 below. 6 See note 1 above. 7 Andrew Crane et al, “The Corporate Social Responsibility Agenda” in Andrew Crane et al, eds, The Oxford Handbook of Corporate Social Responsibility (New York: Oxford University Press, 2008) 3 at 3. 8 Archie B Carroll & Kareem M Shabana, “The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice” (2010) 12:1 International Journal of Management Reviews 85 at 89; Alexander Dahlsrud, “How Corporate Social Responsibility is Defined: an Analysis of 37 Definitions” (2008) 15:1 Corporate Social Responsibility and Environmental Management 1 at 1, 3. 9 See for a more detailed overview Domènec Melé, “Corporate Social Responsibility Theories” in Crane et al, supra note 7, 47 at 47 ff. 10 Milton Friedman, “A Friedman Doctrine: The Social Responsibility of Business Is to Increase Its Profit”, The New York Times Magazine (13 September 1970) SM 17.  3  theory is particularly influenced by the general theory of agency relationships in connection with the separation of ownership and control.11 Milton Friedman, the paramount supporter of the shareholder value theory, holds, among others, that expenditures to reduce the pollution caused by a company may not be made unless they were either in the best interest of that company or required by the law.12 Accordingly, if it were in the best interest of a company to contribute to a community’s welfare in order to attract employees, expenditures would be admissible.13 The theory argues that wealth is created for the community by conducting business in the company’s self-interest in a free and competitive market.14 Acting in such conditions requires a company to search for efficient production processes in order to cut costs and reduce prices, which in turn benefits the customers.15 In addition, the profits generated allow a company to make investments in its business, thereby creating additional jobs for the benefit of the community.16 On the other hand, other theories argue that for-profit corporations have other responsibilities towards society. These theories are based on several different concepts. For example, the corporate social performance theory is based on sociological reasons (“business has power and power requires responsibility”, the license to operate granted by society to business requires                                             11 Michael C Jensen & William H Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” (1976) 3:4 Journal of Financial Economics 305 at 308 ff. 12 Friedman, supra note 10 at 33. 13 Ibid at 124. 14 Melé, supra note 9 at 60. 15 Ibid at 60. 16 Ibid at 60.  4  business to serve society, etc.).17 The stakeholder theory is justified by ethical principles to respect the interests of all stakeholders in a corporation and the responsibility of managers for effects of corporate action on these interests.18 In addition, the corporate citizenship theory focuses on the fact that a corporation is part of a larger (political) community and hence assumes the same social responsibilities as individuals.19  Statutes in several jurisdictions follow a more or less rigid form of the shareholder value theory.20 Directors hence could be considered breaching their fiduciary duties towards shareholders if they did not entirely focus on generating profits. Canada follows a different path and requires that directors act in the corporation’s best interest, and not only in the interest of the shareholders.21 Directors of for-profit corporations are nevertheless often left in uncertainty to what extent they were allowed or even required to consider social or ecological aspects while generating profits, assuming that such consideration could lead to a potential reduction of profits. The consideration of such interests, however, is an important factor for investors seeking to avoid negative social or ecological impacts or even to make a positive impact with their investment. If a director had to achieve profit maximization regardless of any potential effects on the                                             17 Ibid at 49. 18 Ibid at 64. 19 Ibid at 70 ff. 20 Ibid at 60. 21 In Peoples Department Stores Inc (Trustee of) v Wise, 2004 SCC 68, 3 SCR 461 at para 42 [Peoples], the Supreme Court of Canada explicitly held that the “best interest of the corporation” should not be read as the “best interest of the shareholders” and that it is legitimate for directors to consider interests of stakeholders other than shareholders. See also Carol Liao, “The Next Stage of CSR for Canada: Transformational Corporate Governance, Hybrid Legal Structures, and the Growth of Social Enterprise” (2013) 9:1 JSDLP 53 at 64 ff [Liao, “Next Stage of CSR”].  5  society or the environment, that company would not qualify as investment opportunity for such investor. The alleged dichotomy between profit making and consideration of social and/or ecological aspects was the origin of the demand that new hybrid corporate forms were required in order to combine the two goals.22 The fact that the distinction between for-profit and non-profit organizations has evolved over time rather than being authoritatively installed supports this demand. As a brief glance at the history of the development of the corporations shows, the request that even for-profit corporations should have regard to ecological and in particular social issues is not a completely new concept.  1.1.2 Historical Overview By granting a Royal Charter or by enacting a special act, the Crown rendered to several individuals some sort of monopoly for exploration, trade and, especially in the 16th and 17th century, colonization purposes, whereas the company itself did not conduct any business, but rather its individual members.23 During the 17th century, such regulated                                             22 It has to be acknowledged that at least in theory this dichotomy might be particularly apparent in the short-term, but less in the long-term (Craig Mackenzie, “The scope for investor action on corporate social and environmental impacts” in Rory Sullivan & Craig Mackenzie, eds, Responsible Investment (Sheffield, South Yorkshire, GBR: Greenleaf Publishing, 2006) 20 at 29-30). Although empirical studies seem to fail to prove a general, positive connection between corporate social responsibility and financial performance in both the short- and the long-term (see Section 2.3.2.3 below), many authors argue that corporate social responsibility has a positive influence on a company’s profit in the long run (see e.g. Johan Graafland & Corrie Mazereeuw-Van der Duijn Schouten, “Motives for Corporate Social Responsibility” (2012) 160:4 De Economist 377 at 379; Kent Byus, Donald Deis & Bo Ouyang, “Doing Well by Doing Good: Corporate Social Responsibility and Profitability” (2010) 75:1 SAM Advanced Management Journal 44 at 44, 54). Without going into details, reasons for that may be the costs associated with the implementation of a CSR strategy and related measures (e.g. environmental protection measures), the time necessary to create a positive perception of the company from a consumer’s point of view, etc. 23 James D Cox, Thomas Lee Hazen & F Hodge O’Neal, Corporations: Volume I (Boston/New York: Little, Brown and Company, 1995) at content 2.2; J Anthony VanDuzer, The Law of Partnerships and Corporations, 3d ed (Toronto: Irwin Law, 2009) at 91; Yalden et al, supra note 2 at 217-218.  6  companies evolved from being mere umbrella organizations to operating their own business.24 Some of these chartered companies also performed governmental functions.25 In the late 18th century, these companies were enacted for the purpose of canal or railway construction and, later on, for the provision of gas, electricity, and tramway services.26 This indicates that the purpose of a company was to serve the public good and indeed a charter was presumed to be given only if the purpose of a company was in the public interest.27 The English Joint Stock Companies Act enacted in 1844 recognised for the first time joint stock companies as being different from ordinary partnerships.28 However, a particular purpose was not prescribed. In 1849, the incorporation of companies for purposes of building bridges and roads was allowed according to early Canadian statutes.29 Again, this suggests a certain intention to generate a positive impact for the people. One year later, an act was passed enabling joint stock companies to be incorporated for “Manufacturing, Mining, Mechanical or Chemical Purposes” without the necessity of a special act to be passed for the incorporation.30   Developments following thereafter up to now led to the emergence of more sophisticated corporate forms which could be incorporated fairly easy and with much                                             24 Ibid at 218. 25 Cox, Hazen & O’Neal, supra note 23 at content 2.3. 26 Ibid at content 2.4, 2.8 (companies in America). 27 David McBride, “General Corporation Laws: History and Economics” (2011) 74:1 Law & Contemp Probs 1 at 2-3. 28 Cox, Hazen & O’Neal, supra note 23 at content 2.6; Yalden et al, supra note 2 at 219. 29 VanDuzer, supra note 23 at 91. 30 Yalden et al, supra note 2 at 220.  7  less restrictions, especially regarding the corporate purpose.31 There is no requirement anymore to set out the purpose of a for-profit corporation or its business activities in its articles or its memorandum.32 At the beginning of the 20th century, it was emphasized that a company’s ultimate purpose was the profit maximization for the benefit of the shareholders, which has been confirmed and reinforced thereafter.33  In summary, it seems clear that corporations originally were intended to promote the public good. It was not until the late 19th and the 20th century when corporations turned towards the generation of financial profits as their main purpose. On the other hand, non-profit organizations were conceived as providing services to the benefit of the society or the environment. While some accuse the corporate world of lacking a social or ecological responsibility,34 others, and in particular impact investors, want to combine doing social or ecological good while making profits at the same time. The next Section briefly elaborates on why an impact investor wants that combination and what the issues are she faces in particular.                                              31 Cox, Hazen & O’Neal, supra note 23 at content 2.14-2.16; McBride, supra note 27 at 3-4; Yalden et al, supra note 2 at 220-222. 32 VanDuzer, supra note 23 at 166. 33 William H Clark & Elizabeth K Babson, “How Benefit Corporations are Redefining the Purpose of Business Corporations” (2012) 38:2 Wm Mitchell L Rev 817 at 825-828. 34 See e.g. Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Toronto: Penguin Canada, 2004) at 79-80.  8  1.2 Corporate Legal Issues from an Impact Investor’s Point of View As explained in much more detail in Section 2.1 below, impact investors intend to generate a positive social and/or ecological impact alongside a financial return.35 These two goals are equal, neither of which prevails. Like any investor, the impact investor wants to ensure that the funds she invests in a company are used for a defined purpose, i.e. the pursuit of a social or ecological goal alongside a financial return.   Achieving such positive impact goes further than avoiding negative impacts only.36 By implication, the former without the latter would not make any sense. For example, an impact investor who supports the production of more efficient solar panels in order to reduce the dependence on non-renewable energy sources (and ultimately to protect the environment) would want to make sure that the company does not pollute the environment at the same time (e.g. through its production process, through its waste management, etc.). Therefore, the avoidance of negative impacts is usually included in the goal to achieve a positive impact. For several reasons,37 it is in an impact investor’s interest that the directors consider other stakeholders’ interests (such as the environment, the society, the beneficiaries, etc.).38 This means that the corporate form in which the impact investor invests needs to allow for considering these other                                             35 See e.g. Bugg-Levine & Emerson, supra note 1 at 9; Eurosif, European SRI Study 2012 (Brussels, 2012) at 10; Global Impact Investing Network, “What is Impact Investing?”, online: GIIN <http://www.thegiin.org/cgi-bin/iowa/investing/index.html>; Social Investment Organization, Canadian Socially Responsible Investment Review 2012 (2013) at 8, 22. 36 See also Bugg-Levine & Emerson, supra note 1 at 8, 10; Canadian Task Force on Social Finance, Mobilizing Private Capital for Public Good (Toronto, 2010) at 5. 37 See e.g. Section 2.3.2.3 below. 38 See e.g. Tammy E Newmark & Michele Pena, Portfolio for the Planet: Lessons from 10 Years of Impact Investing (London: Earthscan, 2012) at 26-29, 81-83.  9  stakeholders’ interests. If necessary, the investor would want to be able to enforce the consideration of such interests.39 In addition, in case the directors used the funds not in accordance with the purpose the investment is made with, the investor would like to intervene and exercise some control rights.40   In a for-profit corporation, this would be in conflict with shareholders who intend to focus on financial profits, which in turn causes some problems for the directors of that company.41 Of course, the impact investor would like to ensure that the directors do not entirely focus on the other stakeholders’ interests and thereby sacrifice the goal to achieve a financial return entirely.42 However, this might not be enough for other shareholders. By claiming that they were oppressed or that the directors have breached their fiduciary duties, these shareholders might commence legal actions against the directors for liability.43 Considering that it is currently unclear who would be entitled to file an action for an oppression remedy other than shareholders,44 directors would have an                                             39 Newmark & Pena also emphasise that impact investments “required a more hands-on work with entrepreneurs than did traditional [venture] investing.” (ibid at 13). 40 See e.g. ibid at 59-60 (veto rights, board representation). 41 Bugg-Levine & Emerson, supra note 1 at 116-17. 42 It is still a widespread assumption that the consideration of social and/or ecological factors necessarily reduces the financial performance of a company (see Emerson, “Blended Value Proposition”, supra note 1 at 36-38; see also the discussion in Section 2.1.1 below). Newmark & Pena suggest that the social entrepreneurs might lack business experience and knowledge about related issues, but have a very deep understanding of, and an interest in, the environmental and social issues they want to challenge, whereby they would focus on them and neglect business considerations (see Newmark & Pena, supra note 38 at 89). While the consideration of these issues is likely to be beneficial for the company (see also the discussion in Section 2.3.2.3 below), the impact investor would want to have financial considerations made as well and hence would prefer a balance between ecological, social, and business considerations. 43 See generally VanDuzer, supra note 23 at 406-51. 44 While it is pretty clear that shareholders may file for an oppression remedy, it is a bit less clear regarding creditors and directors (at least some have been granted claimant status) and completely uncertain regarding other stakeholders (see ibid at 416-30).  10  incentive to neglect other stakeholders’ interests and to focus on the (majority) shareholders’ interests instead.  Although the corporate form needs to allow the consideration of the interests of stakeholders and such want to be able to participate in the decision making process by having their interests considered, these are not the only factors determining the appropriate corporate form for an impact investment.  For example, the impact investor wants to receive information about how the company and hence her investment is doing.45 While the calculation of the financial return is comparably straightforward, the determination of the social and/or ecological impact is much more difficult.46 Until now, effective measurement methods or evaluation systems have not been developed.47 Is it possible to attach a dollar value to a social or ecological improvement? Is this improvement part of the company’s profit at all or is it rather a benefit that belongs to a bigger group and hence should not be credited so a single company? These difficulties together with the belief that metrics other than just financial ones are required to capture what value has been created led to the proposition of alternative performance measurements. The triple bottom line concept proposes that the performance of a company should not only be evaluated based on the financial performance, but based on the success on all three bottom lines, i.e. the economic, the                                             45 Newmark & Pena, supra note 38 at 62. 46 Ibid at 111. 47 Bugg-Levine & Emerson, supra note 1 at 170 ff.  11  social and the environmental bottom line.48 This reporting system would provide additional information on the social and environmental performance that could be measured against the financial performance. The blended value proposition goes even further, suggesting that both financial and non-financial factors should be considered as “embedded value”.49 This proposition understands the measurement of a company’s performance “as a non-divisible combination of [economic, social, and environmental] elements.”50 The proposal suggests that the consideration of, and investment in, ecological or social factors does not result in a trade-off with regard to the financial return but in an increase of the combined economic, social and ecological performance.51 Without going into the details of the problems related to the measurement and the evaluation,52 an important part of the assessment of the social and/or ecological impact is the reporting system. Different corporate forms could be subject to different reporting obligations from which the impact investor could benefit.  In addition, the selection of the corporate form might depend on whether the impact investor wants to do equity or debt investments.53 If the directors of a certain corporate form were limited to take on debts or provide collaterals, that limitation would also restrict the possibilities for debt impact investments. If the corporate form (such as                                             48 Andrew W Savitz & Karl Weber, The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social, and Environmental Success - and How You Can Too (Somerset, NJ, USA: Jossey Bass, 2013) at 4-5. 49 Emerson, “Blended Value Proposition”, supra note 1 at 38. 50 Bugg-Levine & Emerson, supra note 1 at 10; see generally Emerson, “Blended Value Proposition”, supra note 1 at 40-43. 51 Ibid at 45. 52 See Section 1.4.4 below. 53 Newmark & Pena, supra note 38 at 56.  12  charitable organizations) was prevented from accepting equity investments, debt investments could be made only.54  These are just some of the issues an impact investor might face when determining the corporate form she wants to invest in.55 Nevertheless, they exemplify that the question, which corporate form is the most suitable one to do an impact investment, is of significance.  1.3 Has the Solution Been Found? As a response to the increasing demand for corporate forms enabling the combination of financial and social/ecological goals, British Columbia has led the path in Canada and implemented a hybrid corporate form, a so-called community contribution company (C3 or CCC).56 Such implementation was one of eleven recommendations made by the BC Social Innovation Council in order to foster social innovation in British Columbia.57 The respective amendment of the Business Corporations Act became effective and hence the new corporate form available to entrepreneurs on 29 July 2013.58 Nova Scotia has followed and implemented a community interest company by passing the Community                                             54 Bugg-Levine & Emerson, supra note 1 at 114-15. 55 See with regard to some other issues ibid at 111-19 (especially regulatory and tax issues). 56 British Columbia Ministry of Finance, “Community Contribution Companies”, online: Government of British Columbia <http://www.fin.gov.bc.ca/prs/ccc/>. 57 BC Social Innovation Council, Action Plan Recommendations to Maximize Social Innovation in BC (np: BC Social Innovation Counsil, 2012) at 11. 58 Business Corporations Act, SBC 2002, c 57 [BCBCA].  13  Interest Companies Act on 6 December 2012, but the respective act has not yet been proclaimed in force.59  The CCC was generally structured after the community interest company in the United Kingdom.60 It is not an entirely new corporate form, but rather an amendment to the existing for-profit corporation to which the provisions regarding the standard form of a (private or public) for-profit corporation will apply unless the particular provisions on the CCC provide otherwise.61  As far as impact investments in for-profit organizations are concerned, the (private or public) for-profit corporation has been identified to be most likely suitable for impact investments in British Columbia.62 Carol Liao suggests that the CCC could become a very attractive model to impact investors.63 Indeed, its features (e.g., the community purpose [s 51.92 BCBCA], the asset lock [s 51.95 BCBCA], the dividend cap [s 51.94 BCBCA] and the obligation to publish an annual community contribution report [s 51.96 BCBCA]) seem to address some of the issues an impact investor faces. On the contrary, at the same time, the dividend cap and the asset lock limit the possibility of the                                             59 Bill 153, An Act Respecting Community Interest Companies, 4th Sess, 61st General Assembly, Nova Scotia 2012 (assented to 6 December 2012). 60 Liao, “Next Stage of CSR”, supra note 21 at 57, 79. 61 British Columbia, Legislative Assembly, Official Report of Debates of the Legislative Assembly (Hansard), 39th Parl, 4th Sess, vol 35 No 5 (25 April 2012) at 11120 ff [British Columbia, Legislative Assembly, Committee Hearing]. 62 See with regard to for-profit corporations in general Dana Brakman Reiser, “Benefit Corporations: A Sustainable Form of Organization?” (2011) 46:3 Wake Forest L Rev 591 at 607 ff. 63 Liao, “Next Stage of CSR”, supra note 21 at 81.  14  impact investor to receive full or partial repayment of its investment plus a profit in form of dividends or interests, respectively.  Besides that, a corporation set up under the laws of British Columbia may opt to become a B Corporation, and to apply the standards set forth by B Lab, which is a Pennsylvania based non-profit organization.64 However, subject to these standards, the provisions governing a for-profit corporation according to the BCBCA would apply. B Corporations certified by B Lab are not a separate type of corporation, but are rather corporations that have been incorporated under a jurisdiction and that have obtained certification as B Corporation.65 As far as British Columbia is concerned, a (private or public) for-profit corporation incorporated under the BCBCA will always remain a for-profit corporation, even if it obtains certification as B Corporation. The impact investor hence could face the same problems as if she invested in a for-profit corporation.  The cooperative would be another, already existing hybrid form to combine profit making with a certain social or ecological goal and therefore would have to be considered in this thesis. However, the profits of a cooperative are usually distributed by way of price reductions when a member receives services, loans, or goods from the cooperative rather than by cash distributions. From an investor’s point of view, an investment and hence a membership in a cooperative would only be of interest if the                                             64 See generally B Lab, “Certified B Corporation”, online: B Corporation <http://www.bcorporation.net/>. 65 B Lab, “What are B Corps”, online: B Corporation <http://www.bcorporation.net/what-are-b-corps> [B Lab, “What are B Corps”].  15  products of the cooperative were useful to the investor. Since financial investors are usually more interested in a financial return instead of receiving products at a reduced price, the cooperative seems not to be attractive for impact investors. Hence, it will not be included in this research.  There is no clear understanding or indication if any of the aforementioned corporate forms is more suitable for an impact investment than the others, and if any, which one. Until now, a for-profit corporate form has been used and structured accordingly in order to achieve a social or ecological goal while making profit.66 The CCC has been particularly implemented to provide a hybrid corporate form. However, during the debates in parliament, skepticism has been expressed towards the community contribution company, although the amendment of the Business Corporations Act received broad support.67 One member of the Legislative Assembly suggested that the implementation of the CCC was a good starting point, but there were other things to be done in order to support social entrepreneurship.68 Furthermore, there are authors expressing concerns or at least raising questions about new hybrid corporate forms.69 For example, Brian Galle notes that the combination of profit seeking and pursuing                                             66 Liao, “Designing Social Value”, supra note 1 at 85 ff. 67 British Columbia, Legislative Assembly, Official Report of Debates of the Legislative Assembly (Hansard), 39th Parl, 4th Sess, vol 34 No 2 (16 April 2012) at 10654 ff, at 10655 (B. Ralston) and at 10658 (S. Simpson) [British Columbia, Legislative Assembly, Second Reading]. 68 Ibid at 10660 (G. Hogg). 69 See e.g. Brian D Galle, “Social Enterprise: Who Needs it?” (2013) 54:5 BCL Rev 2025 at 2031 ff; Liao, “Next Stage of CSR”, supra note 21 at 84.  16  charitable goals makes it more difficult for investors to monitor their investment.70 Dana Brakman Reiser adds that the dual mission of a company raises issues regarding the identification of metrics in order to assess such mission, whereby it becomes difficult for shareholders to enforce the fiduciary duties of the company’s directors.71 Moreover, Galle emphasises limitations regarding the investor’s exit options, but deems them less problematic due to the possibility to convert the hybrid company into a standard corporation.72 It has to be mentioned, that the Community Contribution Company Regulation73 currently does not permit the conversion of a CCC into a standard corporation according to s 51.911(2) BCBCA, whereby the exit options indeed could be limited. In addition, although generally supporting the emergence of new hybrid corporate forms, Liao advocates for caution not to simply copy new developments in other jurisdictions that might be meaningless in Canada.74 Referring to the SCC’s decision in Peoples,75 she particularly highlights the differences regarding fiduciary duties of directors in the United States and in Canada in order to show that US solutions might not add anything to the Canadian corporate legal landscape.76 But what about the adaption of an UK solution, i.e. the implementation of the CCC modelled after the UK community interest company? Among others, this thesis intends to answer this question.                                             70 Galle, supra note 69 at 2032. See also the discussion on the issues of the impact investor in Section 1.2 above. 71 Brakman Reiser, supra note 62 at 612. 72 Galle, supra note 69 at 2040-41. 73 Community Contribution Company Regulation, BC Reg 63/2013 [CCCReg]. 74 Liao, “Next Stage of CSR”, supra note 21 at 82, 84-85. 75 Peoples, supra note 21. 76 Liao, “Next Stage of CSR”, supra note 21 at 84.  17  There is a considerable amount of literature with regard to social responsible investments in general and impact investing in particular. A big part of the impact investing literature is dedicated to microfinance as a paradigm form of impact investments.77 Part of that literature deals with corporate legal aspects and supports the demand for new hybrid corporate forms.78 However, to the extent apparent, there is no scholarly work on a detailed analysis of the CCC and a comparison of the CCC with for-profit corporations as to the suitability for an impact investment.79 Hence, it remains unclear whether the CCC is or will become the appropriate solution for impact investors. An in-depth research with regard to the corporate forms of impact investing is expected to provide clarification. In particular, this research is expected to help entrepreneurs to choose a corporate form that is generally attractive to impact investors, or at least does not obstruct or even prevent impact investments.  1.4 Methodological Remarks 1.4.1 Objectives / Research Questions The objective of this research is to provide a contribution to the academic discussion of impact investing in general in the form of a scholarly analysis of the new corporate form available for impact investments in British Columbia. Besides that, it hopes to provide guidance for potential impact investors, entrepreneurs, fund managers, practitioners,                                             77 See Bugg-Levine & Emerson, supra note 1 at 41; Newmark & Pena, supra note 38 at 2. 78 See e.g. and especially MaRS, “Legally Incorporating your Social Venture”, online: MaRS <http://www.marsdd.com/articles/legally-incorporating-your-social-venture/> (provides an overview regarding and a high level comparison between the available corporate forms, but does not include CCC); Bugg-Levine & Emerson, supra note 1 at 123-26. 79 See also Liao, “Next Stage of CSR”, supra note 21 at 58.  18  etc. and ultimately to support impact investments in British Columbia. As discussed in Section 2.2 below, impact investments can help solving or at least approaching social and/or ecological problems and hence need to be facilitated where possible and reasonable. Considering that only a marginal fraction of 0.2% of the total assets under management in Canada of close to $3,000 billion was invested as impact investing as of 31 December 2011,80 any attempt to lower the doorstep and to foster impact investing is worth the effort.   Following the outline of the problem, the research intends to answer the following questions: 1. Which corporate features demarcate the CCC from the for-profit corporate forms of interest in this research? 2. Which corporate form is more suitable for impact investments from a corporate legal point of view? 3. Are there potential improvements or incentives that could facilitate impact investments? The corporate features of the community contribution company, which has been implemented in order to provide entrepreneurs and investors with a hybrid corporate form, are of particular interest. It remains to be seen whether these features have the potential to attract impact investors or not.                                              80 See Section 2.1.3 below.  19  It is acknowledged that besides the corporate features, other circumstances could have an influence on the choice of the appropriate corporate form. For example, the applicable jurisdiction is likely to have the most influence by providing the available corporate forms and imposing statutory obligations on the companies. The diversity of jurisdictions depending on the culture and the respective country’s societal attitude towards social and ecological concerns creates this potential influence.81 However, since the research is intended to focus on the laws of British Columbia only, this factor will not be discussed.  Moreover, the economic sector in which the company intends to exercise its business may have an influence on the determination of the appropriate corporate form. On the one side, the applicable legislation could require a specific corporate form in order to conduct business in a certain economic sector. For example, if an entrepreneur wants to engage in the business of commercial lending, the Trust and Loan Companies Act requires that, among others, this corporate body is incorporated as company under this act.82 On the other hand, a certain corporate form could be prescribed by the economic sector for extra-legal reasons. One example here would be the need for financing. If a company intends to engage in a capital intense business, it will likely have to sell shares to the public at one point in time in order to receive financing that high net-worth individuals, venture capitalists or private equity investors alone cannot provide                                             81 Jeremy Moon & David Vogel, “Corporate Social Responsibility, Government and Civil Society” in Crane et al, supra note 7, 303 at 306; Cynthia A Williams & Ruth V Aguilera, “Corporate Social Responsibility in a Comparative Perspective” in Crane et al, supra note 7, 452 at 454 ff. 82 Trust and Loan Companies Act, SC 1991, c 45, s 461.  20  anymore.83 In this case, it would be necessary that the company is a corporate form that may issue securities to the public that can be listed on a stock exchange, or at least that it could be converted into such corporate form. However, the detailed analysis of extra-legal circumstances that influence the choice of the corporate form would go far beyond the scope of this thesis, and therefore, it shall be left to others to engage in such an analysis.  As far as the consideration of different stakeholders’ interests are concerned, as discussed in Section 1.2 above, the impact investor wants both to retain some sort of control as well as to have other stakeholder’s interests considered by the directors when making business decisions. By way of having their interests considered, stakeholders other than shareholders exercise some influence on the directors’ decisions. Considering that despite the SCC’s decision in Peoples84 the directors are left with some uncertainty,85 it remains to be seen whether one or several of the corporate forms of interest in this thesis provide any clarification to the issue regarding consideration of these stakeholders’ interests. In order to provide an overview, the research briefly has to touch upon the legal basis and the different corporate social responsibility theories about whether stakeholder interests may and/or shall be considered, but a detailed discussion would go beyond the scope of the research and hence will not be pursued. The amount of literature that has been written on corporate social responsibility is                                             83 VanDuzer, supra note 23 at 477-78. 84 Peoples, supra note 21. 85 See Section 1.1.1 above.  21  overwhelming.86 An in-depth discussion would require a detailed outline of the origin of business entities and their purposes, the consideration of all corporate social responsibility theories and their conceptual and philosophical background. In particular, it is not intended to make a further contribution to that discussion.   As indicated by Gordon Hogg during the second reading of the amendments to the BCBCA with regard to the CCC,87 the implementation of the new corporate form alone probably will not convince investors to allocate more funds to social or ecological purposes. Hence it needs to be discussed which corporate improvements or general incentives could be considered in order to further support social entrepreneurship.  1.4.2 Hypothesis The underlying hypothesis is that, from a pure corporate legal point of view, the community contribution company may provide the highest and most enduring social impact and hence might be more suitable for an impact investing, but depending on the interests of the investor, another corporate form might be more suitable.                                              86 See e.g. Crane et al, supra note 7 at 6-10. 87 See supra note 68.  22  1.4.3 Framework and Methodology 1.4.3.1 In General Besides legal scholars, this research is addressed to impact investors, entrepreneurs fund managers, practitioners, etc. who do or advise, respectively, impact investments. In order to determine the most suitable corporate form, and to support impact investments in British Columbia, under the current circumstances, the applicable legal provisions and the respective literature have to be analysed and hence a doctrinal textual analysis shall be conducted through a wide part of the research. With regard to the discussion of the different corporate forms, a comparative approach will be additionally applied. A normative approach shall be applied in order to determine desirable legal improvements or incentives in order to further facilitate impact investments. After outlining the author’s normative framework, it will be explained why this thesis focuses on British Columbia only. Thereafter, a discussion of the necessity to consider the impact investor’s interests will follow. Before closing with the structure of the thesis, some remarks on exclusions and limitations have to be made.  1.4.3.2 The Author’s Normative Framework Michael Pendleton put forward that “[l]egal writing inevitably reflects the writer’s jurisprudential assumptions and beliefs[,]88 and in the following paragraphs, I will briefly outline my normative framework.                                             88 Michael Pendleton, “Non-empirical Discovery in Legal Scholarship: Choosing, Researching and Writing a Traditional Scholarly Article” in Mike McConville & Wing Hong Chui, eds, Research Methods for Law (Edinburgh: Edinburgh University Press, 2007) 168 at 161.  23  I believe that the corporate world is capable of approaching, and suitable to address, social or ecological issues. Corporations and entrepreneurs embrace business opportunities and may flexibly adapt their business to the needs of the market.89 Such business opportunities can be seen in the existence of a social or ecological problem while funds provided by the government or philanthropic donators are not enough to solve the problem.90 For example, homelessness in Vancouver is still considered a problem and Vision Vancouver, the party of Mayor Gregor Robertson, intends to provide a solution to end homelessness.91 However, federal funding for housing co-ops has been cancelled and the search is on for alternative funding sources, with a particular focus on the provincial government.92 This opens room for innovative entrepreneurs to develop affordable housing solutions.93 Antony Bugg-Levine & Jed Emerson offer many more examples where private entrepreneurs and investors already have helped or may help in the future to provide solutions to social or ecological problems.94 I am convinced that entrepreneurial determination especially in small and midsized businesses can lead                                             89 See e.g. Newmark & Pena, supra note 38 at 67. 90 See e.g. Bridges Ventures, “Sustainable & Impact Investment: How we define the market” (August 2012) at 2, online: Bridges Ventures <http://www.bridgesventures.com/sites/bridgesventures.com/files/BV004-Bridges Ventures report UPDATE.pdf>; Keith Davis, “The Case for and against Business Assumption of Social Responsibilities” (1973) 16:2 Academy of Management Journal 312 at 317. See also Section 2.2.1 below. 91 See Vision Vancouver, “Solving Homelessness”, online: Vision Vancouver <http://www.votevision.ca/solving-homelessness>. 92 Sam Smith, “Co-op housing residents need new funding to replace lost federal dollars” (21 March 2014), online: Metronews <http://metronews.ca/news/vancouver/979820/co-op-housing-residents-need-new-funding-to-replace-lost-federal-dollars/>. 93 See e.g. CBC, “Tiny homes size of walk-in closet pushed by B.C. builder” (9 May 2013), online: CBC <http://www.cbc.ca/news/canada/british-columbia/tiny-homes-size-of-walk-in-closet-pushed-by-b-c-builder-1.1319471>; see also Tom Croft, “Targeted Responsible Investing” in Tessa Hebb, ed, The Next Generation of Responsible Investing (Dordrecht, NL: Springer Science+Business Media, 2012) 199 at 202. 94 See e.g. Bugg-Levine & Emerson, supra note 1 at 14-15, 93-104.  24  to the development of new products and hence potential solutions to ecological or social problems.95   This view is not uncontested. Joel Bakan emphasises that institutions providing basic services were intentionally operated by the government and not by corporations.96 Although he admits that private service providers might be more effective than public providers in some parts might, he generally rejects privatization as a sustainable solution to the problems of today’s society.97 He argues that “[u]nlike public institutions, whose only legitimate mandate is to serve the public good, corporations are legally required always to put their own interests above everyone else’s.”98 I admit that there is a threat for exploitation through business entities. However, in my opinion, these threats can be addressed by providing the appropriate legal framework.99  Besides that, it may be assumed that traditional investment principles also apply to impact investments. On the one hand, although highlighting the differences, Tammy Newmark & Michele Pena emphasise the proximity of impact investing to traditional venture capital throughout their work.100 On the other hand, Roger Frank is of the opinion that every traditional investor could be convinced to engage in impact investments if it were approached the traditional way, i.e. with a focus on the financial                                             95 See similar Mackenzie, supra note 22 at 20; Newmark & Pena, supra note 38 at 31-34. 96 Bakan, supra note 34 at 112-13. 97 Ibid at 117. 98 Ibid at 117-18. 99 See the discussion in Section 2.2.2 below. 100 See e.g. Newmark & Pena, supra note 38 at 7.  25  benefits.101 Even Newmark & Pena mention that it was their fiduciary duty as managers of an impact investment fund “to maximize [its] financial, environmental, and social returns[.]”102 Despite the impact investors’ intention to achieve a social or ecological goal, traditional and particularly financial considerations will always be a part of impact investing as well.  1.4.3.3 The Law in Focus The research will take into account the applicable laws in British Columbia, i.e. in particular the BCBCA, and the respective case law and literature. With regard to the B Corporations, the standards set forth by B Lab have to be considered as well. As far as the community contribution company is concerned, the starting point of the discussion of the CCC shall be the applicable statutory law, i.e. the BCBCA. The reports on the debates in the Legislative Assembly will provide insights on the background and intentions of the legislator with regard to the CCC.103 Due to the short time the CCC has been in existence now, there is no literature and particularly no case law on it. Hence, since the CCC has been structured after the community interest company in the United Kingdom, the respective literature, as well as the publications of the Regulator of Community Interest Companies (UK Regulator) is expected to provide indications how courts in British Columbia could construe the provisions in the BCBCA. However, there                                             101 Roger Frank, “Impact Investing: What Exactly Is New?”, Stanford Social Innovation Review 10:1 (Winter 2012) 17. 102 Newmark & Pena, supra note 38 at 110 [emphasis added]. 103 British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10645 ff; British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11118 ff.  26  is no case law available in the United Kingdom either.104 Criticism on the community interest company has to be considered as well.105  The focus on the laws of British Columbia is firstly justified by the fact that the comparative consideration of the federal laws of Canada and/or any other provincial legislation would go beyond the scope of this research. Second, due to its natural resources and its related industry, British Columbia has a strong relationship to its environment (e.g. the City of Vancouver has announced it intends to become the greenest city in the world by 2020) and hence is likely to be responsive for social responsible investments in general. Third, an empirical study conducted by Judith Madill, François Brouard and Tessa Hebb suggests that British Columbia hosts more social enterprises compared to other provinces in Canada.106 For the purposes of the study, the authors define “social enterprises as organizations created to pursue social missions or purposes that operate to create community benefit regardless of ownership or legal structure and with various degrees of financial self-sufficiency, innovation, and social transformation.”107 The definition of social enterprises as used in this study is very broad and encompasses social enterprises regardless of the corporate form. Since the study does not further elaborate on that aspect, no conclusion may be drawn regarding                                             104 Jaci Lewis, “Re: Questions regarding Appeal Officer”, Email (Office of the Regulator of Community Interest Companies 21 March 2014; available with the author upon request). 105 Adrian Ashton, “New legal structure has hidden dangers”, Regeneration & Renewal (13 October 2006) 14; Stuart R Cross, “The Community Interest Company: More Confusion in the Quest for Limited Liability” (2004) 55:3 N Ir Legal Q 302. 106 Judith Madill, François Brouard & Tessa Hebb, “Canadian Social Enterprises: An Empirical Exploration of Social Transformation, Financial Self-Sufficiency, and Innovation” (2010) 22:2 Journal of Nonprofit & Public Sector Marketing 135 at 141. 107 Ibid [emphasis added].  27  corporate forms chosen to operate a social enterprise. Furthermore, except for Nova Scotia, British Columbia is the only province in Canada having implemented a hybrid corporate form yet in order to enable the business to pursue both economic and social goals.  1.4.3.4 Considering the Impact Investor’s Interests Business entities nowadays face an increasing demand of stakeholders (and impact investors) to consider other interests in the decision making process than just focusing on profits. If and how these interests have to, or may, be taken into account, is not set out in the law. While the corporate statutes contain provisions on the formal director-shareholder-interaction in companies, the interaction in practice may go much further.108 This is particularly true for small and midsize companies.109 Hence, a basic understanding of the legal and theoretical background of the consideration of stakeholders’ interests has to be provided.  One of these stakeholders is the impact investor. As one potential source for additional funding for a company, she may be considered as one of the most important stakeholders. Therefore, and considering the target audience of this thesis, the impact investor’s intention needs to be taken into account in order to determine the most suitable corporate form. As outlined above, one of my basic assumptions is that                                             108 Mackenzie, supra note 22 at 27. 109 See generally Newmark & Pena, supra note 38 at 65-92; compare Mackenzie, supra note 22 at 27.  28  investment principles applied in traditional venture capital investments may also be applied in impact investing, subject to the necessary adaptions.110 The literature on venture capital investments thus may provide valuable insights on the investor’s intention.  1.4.4 Exclusions and Limitations In addition to the exclusions and limitations already mentioned earlier, the following exclusions have to be made.  By limiting the scope to investments, the acquisition of shares from an existing shareholder is excluded from being covered since the company will not receive any funds from an investor in case of such sale and purchase of shares. The research will focus on the issuance of new shares only, including by way of public offering. Furthermore, debt investments will not be covered either.  Philanthropic donations will not be included since a donator is not interested in, and will not receive, a financial return. They hence do not qualify as investments.  The definition of the investment universe shall not be covered either in this thesis since such is a more economical, ethical and political question. However, in order to                                             110 See Section 1.4.3.2 above.  29  demarcate impact investing from other social responsible investment strategies, these strategies shall be briefly discussed.  The research further will not touch upon the evaluation of the specific impact the investment generates. Effective measurement methods or rating systems are still missing nowadays111 and would have to be developed first. This would go far beyond the scope of this research.  Finally, since I was granted one year of unpaid leave from my employer law firm and am expected to be back in September 2014, this research faces considerable time constraints. Empirical researches will not be feasible within that period.  1.5 Structure of the Research Following the Introduction, Chapter 2 will discuss what impact investing is, defines the term and demarcates it from other social responsible investment strategies. Furthermore, the necessity of impact investing as well as the conditions under which a successful impact investment may be done will be elaborated. A last part of this Chapter will touch upon the stakeholders of a company that delivers a social or ecological impact and what the value of the consideration of such stakeholders’ interests may be.                                              111 Bugg-Levine & Emerson, supra note 1 at 170 ff.  30  Chapter 3 contains the detailed discussion of the corporate features of a CCC and the interpretation of the respective legal provisions set out in the BCBCA and the applicable regulation.  Chapter 4 then focuses on the comparison of these corporate features among all corporate forms of interest in this research.112  Before concluding this research with Chapter 6, potential legal improvements to further facilitate impact investments in British Columbia shall be discussed in Chapter 5.                                             112 See Section 1.1 above.  31  Chapter 2: Impact Investing 2.1 What is Impact Investing? 2.1.1 Definition Before elaborating on the different corporate forms, it is necessary to take a closer look at the definition of the term “impact investing”. The Canadian Social Investment Organization (now known as the Responsible Investment Association [RIA]) in its 2012 report defines impact investing as “targeted investments, typically made in private markets, aimed at solving social or environmental problems”, which “[include] community investing, where capital is specifically directed to traditionally underserved individuals or communities, or financing that is provided to businesses with a clear social or environmental purpose, or to enterprising (i.e., revenue-generating) non-profits.”113 A first remark relates to the notion of private markets. The definition of the RIA explicitly states that impact investments are “typically made in private markets.”114 Some authors support a broader definition, also including investments in public markets.115 According to Bugg-Levine & Emerson, “impact investors intend to create positive impact alongside various levels of financial return, both managing and measuring the blended value they create.”116 They also mention that impact investments may be done in any asset class.117 Although their definition does not limit impact investments to investments in private markets, they admit that impact investments in practice mainly “focus on                                             113 Social Investment Organization, supra note 35 at 21. 114 Ibid. 115 John Cook & Greg Payne, “Redefining Impact Investing”, Responsible Investing 11:4 (1 January 2013) 66 at 67. 116 Bugg-Levine & Emerson, supra note 1 at 9. 117 Ibid.  32  venture investing, private equity and direct lending[.]”118 However, since the RIA definition includes the term “typically”, it does not actually limit impact investments to investments in private markets. This notion only emphasizes the reality that impact investments are mainly made in private markets, but does not exclude investments in public market from falling under this definition.119  Another remark to be made is that the definition of the RIA explicitly mentions the solution of social or environmental problems only as aim of impact investments. In their definition, Bugg-Levine & Emerson state that an impact investor intends to achieve a “positive impact alongside [a] financial return[.]”120 This corresponds to the definition provided by the Global Impact Investing Network (GIIN), according to which impact investments are “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”121 Both targets, the social and/or environmental impact as well as the financial return, are of the same importance, neither of which prevails. The intention of the impact investor to achieve a financial return distinguishes the impact investment from pure philanthropy. Philanthropists usually intend to support a social or ecological goal with donations and do not expect a direct financial return at all.122 Although, besides a potential upside due                                             118 Ibid at 9-10; see also Gary M Stern, “Impact Investing”, Financial Planning 41:9 (September 2011) n/a. 119 See also Bugg-Levine & Emerson, supra note 1 at 9-10. 120 Ibid at 9 [emphasis added]. 121 Global Impact Investing Network, supra note 35 [emphasis added]. 122 See e.g. Bridges Ventures, supra note 90 at 3.  33  to a positive public reputation,123 they might receive a financial benefit by virtue of tax deductions for donations to non-profit organizations,124 this benefit would not be considered as direct financial return. These tax deductions may help the philanthropist to minimize its loss due to the donations, but are not likely to avoid a negative financial result of the donation. This distinguishes the philanthropist from the impact investor who does not primarily intend to minimize its loss, but to receive a profit on top of the repayment of her investment. Despite the fact that any investment in a young company is risky and therefore the investors want to mitigate these risks (and hence their financial loss),125 at least one of the primary intentions will always be the generation of profits. However, the intention to receive a financial return may vary from little through below market-rate returns to (above) market-rate returns.126 Assuming that the term “investments” at the beginning of the definition of the RIA includes the intention to achieve a financial return, omitting the explicit statement of this goal does not preclude this definition from being applied.   As far as the definition provided by the GIIN is concerned, in my opinion, it is too narrow since it seems to exclude any investments in (underserved) individuals from being qualified as impact investments. All definitions have in common that the investor intends to pursue both, a financial and a social/environmental goal, and hence focus on the                                             123 Elizabeth C Kurucz, Barry A Colbert & David Wheeler, “The Business Case for Corporate Social Responsibility” in Crane et al, supra note 7, 83 at 90. 124 Jed Emerson, The Nature of Returns: A Social Capital Markets Inquiry into Elements of Investment and The Blended Value Proposition, Working Paper (Harvard Business School, 2000) at 14. 125 See e.g. Newmark & Pena, supra note 38 at 57-60. 126 Eurosif, supra note 35 at 21.  34  intention of the investor. It is this intention to generate “blended value”, (i.e., a value understood as a non-divisible combination of economic, social and environmental components and generated by an investment and an individual or an organization who act to pursue their business),127 and not only a financial return, that distinguishes impact investments from investments in a more traditional sense (i.e., investing in order to generate a financial return). Any investment made with that intention should qualify as impact investment, regardless of the (corporate) form of the investee. Including a limited number of potential investees in the definition is neither appropriate nor helpful. The GIIN’s definition is hence not entirely accurate and shall not be taken as a basis for this thesis.  There is some indication that impact investing (and the consideration of ecological, social and governance factors when making investment decisions in general) requires the investor to accept some financial trade-off, meaning that the expected profit might be below market-rate returns due to the consideration of ESG factors.128 While all of the definitions discussed above contain the investor’s intention to generate a financial profit, none of them requires this profit to equal market-rate returns on investment. An impact investment can be deemed successful if it generates an impact (i.e. if a social or ecological problem is solved or at least alleviated) as well as a financial return.129                                             127 Emerson, “Blended Value Proposition”, supra note 1 at 43-50; Bugg-Levine & Emerson, supra note 1 at 9-11. 128 See e.g. Bridges Ventures, supra note 90 at 3 (nature of impact to be created may prevent market-rate returns); Emerson, “Blended Value Proposition”, supra note 1 at 38; Newmark & Pena, supra note 38 at 37-38.  129 See also Bugg-Levine & Emerson, supra note 1 at 10 (blended value as a non-divisible combination of economic, social and environmental value components).  35  However, the definition of the term impact investing does not refer to the actual success of the investment, but only to the intention of the investor. In particular, the qualification as impact investment does not depend on how big its impact really is. There is no (measurable) threshold of any kind to be achieved in order to qualify as impact investment. Likewise, it depends neither on whether the intended financial return equals at least market-rate returns or not nor on whether a return materializes at all. Of course, every impact investor has to determine for herself what financial trade-off she would be willing to accept in order to achieve an impact. Another option would be not to look at it as (financial) trade-off at all.130 If the blended value proposition was adopted,131 it would blur the distinction between financial and non-financial performance factors and hence no trade-off would be apparent.  Having said this, in the following, the term “impact investing” (or “impact investment”) shall have the meaning as defined by the RIA. However, due to the subject of this thesis, the focus will be on investments in corporations in British Columbia.  Microfinance, i.e. “the process of providing funding to poor people who have no access to traditional finance institutions, such as credit unions and banks”, has been considered the paradigm form and archetype of impact investing.132 By lending small amounts to such individuals, microfinance providers intend to generate a direct positive impact for                                             130 Emerson, “Blended Value Proposition”, supra note 1 at 38. 131 See Section 1.2 above. 132 Matthew R Marvel, ed, Encyclopedia of New Venture Management (Thousand Oaks: SAGE Publications, 2012) at 334; see also Bugg-Levine & Emerson, supra note 1 at 40-41.  36  the individual investee.133 When impact investments are made into companies or organizations, such have a respective (social or ecological) corporate purpose. Investments in clean-tech companies are paramount here.134 Although impact investments can generally be made in any asset class such as public companies, impact investors investing in companies usually focus on investments in start-up and privately held companies (venture capital and private equity).135 Newmark & Pena hold that the launch of a new product developed and produced by a young company is “one of the greatest impacts[.]”136  It is noteworthy that the definition of “community purpose” a CCC may adopt according to s 51.91(1) BCBCA is broader than the definition of impact investing provided by the RIA. While the RIA (and any other definition of impact investing) requires that the investor intends to achieve a social or ecological impact,137 a CCC may provide any service that benefits society at large or a certain group of the society.138 A non-exhaustive list of potential purposes includes “providing health, social, environmental, cultural, [or] educational […] services[.]”139                                              133 Marvel, supra note 132 at 334. 134 Newmark & Pena, supra note 38 at 2. 135 Bugg-Levine & Emerson, supra note 1 at 9 ff; Stern, supra note 118; Cook & Payne, supra note 115 at 67; Newmark & Pena, supra note 38 at 11 (list examples of potential asset classes). 136 Ibid at 73. 137 Social Investment Organization, supra note 35 at 21. 138 S 51.91(1) BCBCA. See also the discussion in Section 3.1 below. 139 S 51.91(1) BCBCA [emphasis added].  37  2.1.2 Demarcation from other Social Responsible Investment Strategies Without going into the details,140 many socially responsible investment (SRI) organizations recognize five major investment strategies: screening (negative screening, positive/best-in-class screening, and norm-based screening; some SRI organizations list these three sub-strategies as separate strategies),141 integration, sustainability themed investing, impact investing, and corporate engagement/shareholder action.142 A brief historical overview will show that SRI transformed from initially “avoiding the bad” to “doing good”.   SRI began with church investors in the 18th century who tried to reconcile financial investments with their beliefs.143 Most important, they intended to avoid certain types of                                             140 Since several terms such as “responsible investment”, “socially responsible investment”, “social investment” and “ethical investment” have emerged, there is some terminological ambiguity (see e.g. for a more detailed discussion Rory Sullivan & Craig Mackenzie, “Introduction” in Sullivan & Mackenzie, supra note 22, 12 at 14-15; Claire Woods & Roger Urwin, “Putting Sustainable Investing into Practice: A Governance Framework for Pension Funds” in Hebb, supra note 93, 27 at 29-33). 141 See e.g. Eurosif, supra note 35 at 10. 142 See e.g. Social Investment Organization, supra note 35 at 7-8; see also Eurosif, supra note 35 at 10-11. Literature on SRI strategies with reference to the USA commonly mentions three different strategies, i.e. social screening (which includes negative, positive and best-in-class screenings), community investing, and shareholder activism (see e.g. Scott J Budde, Compelling Returns: A Practical Guide to Socially Responsible Investing (Hoboken, NJ, USA: John Wiley & Sons, 2008) at 2; R Bruce Hutton, Louis D’Antonio & Tommi Johnsen, “Socially Responsible Investing: Growing Issues and New Opportunities” (1998) 37:3 Business and Society 281 at 285-86; Steve Schueth, “Socially Responsible in the United States” (2003) 43:3 Journal of Business Ethics 189 at 190-91). Again, the terminology is somewhat ambiguous. For example, Woods & Urwin insist on a distinction between sustainably-themed investments (to which they refer as environmentally targeted investments) and community investments (Woods & Urwin, supra note 140 at 38). However, looking at the definitions of community investments, it is unclear why they should not belong to a broader group of sustainably-themed investments (see e.g. Budde, supra note 142 at 63; Hutton, D’Antonio & Johnsen, supra note 142 at 285-86; Schueth, supra note 142 at 191). On the other hand, Tom Croft explains the concept of economically-targeted investments, which intend to generate competitive financial returns with benefits for society or the environment as a collateral (Croft, supra note 93 at 202, 203). These economically-targeted investments seem to be equivalent to thematic investments according to Bridges Ventures (Bridges Ventures, supra note 90 at 3). 143 Russel Sparkes, “A historical perspective on the growth of socially responsible investment” in Sullivan & Mackenzie, supra note 22, 39 at 42.  38  investments that would harm the investor’s or another’s body or mind.144 This technique would nowadays be characterized as negative screening or exclusion.145 Although the church investors also entered into dialogues with their investee companies, shareholder activism has not really gained traction until the 1960s/1970s when again church groups alongside student bodies followed by pension funds filed shareholder resolutions in connection with the Vietnam War and the Apartheid in South Africa.146 In the 1980s, positive criteria were added to the screening process and, towards the end of that decade, further developed to a best-in-class approach.147 At the same time, an environmental assessment was included in the analysis of an investment target (i.e. integration) and commercial SRI fund managers started engaging actively with the target company.148 In the late 1990s, socially responsible investors increasingly and actively used formal shareholder rights to exert influence on the corporate governance. They especially did so to take action against excessive executive payments and to cause the management to act in an environmentally and socially responsible manner.149 Impact investing had been around since the aftermath of World War II when the predecessor of the World Bank made loans to governments and later to private                                             144 Ibid at 42-43. 145 Ibid at 43; Hutton, D’Antonio & Johnsen, supra note 142 at 283. 146 Sparkes, supra note 143 at 43, 44; see also Hutton, D’Antonio & Johnsen, supra note 142 at 284. 147 Sparkes, supra note 143 at 45, 47; Hutton, D’Antonio & Johnsen, supra note 142 at 284. 148 Sparkes, supra note 143 at 47. 149 Ibid at 49-50.  39  companies in order to help rebuilding the countries.150 Since then, private investors as well as investment banks have followed suit by setting up impact investment funds.151   In the following, impact investing shall be demarcated from each of the other investment strategies. A clear demarcation might not always be possible due to terminological ambiguities.152 Hence many grey zones or overlapping areas might exist. Besides that, it is notable that several investment strategies may be combined.153 For example, an investment universe determined by a sustainability themed investment strategy may be further narrowed by applying a best-in-class screening strategy. Furthermore, as outlined in Section 1.2 above, an investor doing impact investments is likely to additionally apply an engagement/shareholder action strategy in order to pursue its dual mission goal.  Screening strategies include or exclude companies, sectors, practices, countries, etc. from the investment universe based on certain ecological, social and governance (ESG) criteria.154 In case a negative screening is applied, the investor will not invest in companies that are active in certain business sectors (e.g. pornography, tobacco,                                             150 Bugg-Levine & Emerson, supra note 1 at 22-23. 151 Ibid at 24-26. 152 See note 142 above. 153 See e.g. Newmark & Pena, supra note 38 at 25 (combination of preliminary negative and positive screening in order to evaluate potential candidates for an impact investment). 154 Budde, supra note 142 at 2, 47; Schueth, supra note 142 at 190; Eurosif, supra note 35 at 10; Social Investment Organization, supra note 35 at 8.  40  weapons, non-renewable natural resources, etc.).155 On the other hand, a positive screening includes only companies or sectors with a positive ESG performance compared to peers in an investment universe.156 An investor (additionally) applying a best-in-class screening would only include the best-performing company or sector based on ESG criteria in its investment universe.157 Norm-based screenings review potential investments as to their compliance with standards and practices stipulated by international norms covering ESG issues.158 However, although she might argue that her investment is made with the intention to indirectly effect a social or environmental change, the primary intention of an investor applying only a screening strategy remains to achieve a financial return.159 This is particularly apparent in case the investor applied a negative screening only, meaning that she simply intends to avoid ecologically or socially bad companies. She does not specifically intend to promote a social or ecological goal with her investment. An impact investor, however, intends to pursue a social or ecological goal alongside a financial return with her investment. Hence, it is the investor’s intention that distinguishes a screening strategy from an impact investing strategy. However, it has to be acknowledged that there is an overlapping area. An investor applying a positive screening (who actively exercises her rights as a shareholder) cannot be easily distinguished from an impact investor.                                             155 Hutton, D’Antonio & Johnsen, supra note 142 at 283, 289; Schueth, supra note 142 at 189-190; Sparkes, supra note 143 at 43-44; Eurosif, supra note 35 at 10; Social Investment Organization, supra note 35 at 8. 156 Hutton, D’Antonio & Johnsen, supra note 142 at 284, 289; Social Investment Organization, supra note 35 at 8. For an exemplary list of negative or positive factors see Hutton, D’Antonio & Johnsen, supra note 142 at 289. 157 Eurosif, supra note 35 at 10; Social Investment Organization, supra note 35 at 8. 158 Eurosif, supra note 35 at 10; Social Investment Organization, supra note 35 at 8. 159 See Hutton, D’Antonio & Johnsen, supra note 142 at 286.  41  Integration strategies include ESG criteria into the financial analysis of a potential investment.160 When evaluating an investment, the investor considers the potential impact of ESG risks and opportunities on the financials of a company or a fund.161 While an impact investor explicitly intends to achieve a social or ecological goal with her investment, the investor applying an integration strategy intends to avoid financial setbacks caused by ESG risks and to benefit financially from ESG opportunities. Her focus is on the financial return. The consideration of ESG factors is rather a means to a financial end. Again, the different investor’s intention distinguishes the two strategies from each other.   Sustainability themed investment strategies include investments made in themes or assets related to sustainability and its development, where the theme or asset focuses on certain or multiple ESG issues such as climate change, green technology, health, etc.162 Investors making investments in thematic funds or assets do not only intend to receive a financial return, but also inherently intend to “contribute to addressing social and/or environmental challenges[.]”163 Hence, the distinction between sustainability themed investments and impact investing is not very clear.164 The fact that there is no consistent definition of impact investing makes a clear distinction nearly impossible. For example, the investment firm Bridges Ventures, to which Eurosif refers in its 2012                                             160 Eurosif, supra note 35 at 10; Social Investment Organization, supra note 35 at 8. 161 Eurosif, supra note 35 at 10. 162 Ibid; Social Investment Organization, supra note 35 at 8. 163 Eurosif, supra note 35 at 10. 164 See also ibid at 21.  42  report, understands thematic investments as sub-category of impact investments.165 Within impact investments, Bridges Ventures distinguishes between impact first investments (i.e. investments in profitable business models that pursue social or ecological goals, but generates below market-rate returns) and thematic investments (i.e. investments in businesses that pursue social or ecological goals and generate market-rate returns).166 Acknowledging that there is at least an overlap between impact investments and thematic investments, no further attempt to provide a clear distinction shall be undertaken.  Investors adopting corporate engagement/shareholder action strategies use the powers as a shareholder to influence the behaviour of the corporation through engagement with the management and/or the board of directors and the exercise of shareholder rights such as proxy voting, filing shareholder proposals, etc., each in accordance with ESG guidelines.167 This strategy has little influence on the determination of the investment universe or the investment decision itself. The adoption of this strategy requires the possibility to exercise shareholder (or member) rights and hence excludes investments that do not grant such possibilities from the investment universe, but does no further                                             165 Bridges Ventures, supra note 90 at 3. 166 Ibid. Economically-targeted investments as described by Croft would fall into the latter category (see Croft, supra note 93 at 202). 167 Budde, supra note 142 at 2, 81; Hutton, D’Antonio & Johnsen, supra note 142 at 285; Schueth, supra note 142 at 190-91; Sparkes, supra note 143 at 44; Eurosif, supra note 35 at 10; Social Investment Organization, supra note 35 at 9.  43  influence the determination of this universe or the investment decision itself.168 Hence, it is rather an ongoing strategy during the holding period of an investment.169 On the other hand, by adopting an impact investing strategy, the investor intends to pursue a social or ecological goal, and therefore, it has great influence on the determination of the investment universe and the final investment decision. Besides that, although most impact investors may be expected to make sure that the management and/or the board of directors considers ESG factors in its decision-making process,170 they will not be satisfied by only doing so. They intentionally want to achieve a certain social or ecological improvement with their investment that goes beyond the impact the pure consideration of ESG factors would have.171 Hence, impact investing goes further than pure shareholder activism.  2.1.3 Market Data According to the 2012 report of the RIA, an aggregate amount of $5.34 billion has been invested as impact investing in Canada as of 31 December 2011.172 In the previous reporting period, an aggregate amount of $4.44 billion had been invested as impact investing.173 This means an increase of $0.9 billion, or 20%, which is mainly due to the                                             168 C.f. Budde, supra note 142 at 81-83 (voting rights are automatically attached to equity investments, does not refer to the determination of the investment universe at all). 169 Eurosif, supra note 35 at 10. 170 See e.g. Newmark & Pena, supra note 38 at 26-29, 81-83. 171 Bugg-Levine & Emerson, supra note 1 at 8, 10; see also Canadian Task Force on Social Finance, supra note 36 at 5. 172 Social Investment Organization, supra note 35 at 21. Unfortunately, neither the RIA report nor the study conducted by Madill, Brouard & Hebb elaborates on the corporate form of the investees or of the social enterprises, respectively (Madill, Brouard & Hebb, supra note 106). 173 Social Investment Organization, supra note 35 at 21.  44  increase of funds invested by Community Loan Funds/Social Venture Capital investors as well as by Credit Unions by approximately $400 million each.174  The RIA report also shows that the total assets invested in Canada in accordance with socially responsible guidelines amount to an aggregate of approximately $600.9 billion as of 31 December 2011.175 Based on the RIA’s own calculation, this amount corresponds to roughly 20% of the total assets under management in Canada, which amounted to $2,981 billion.176 This means that less than 0.2% of the total assets under management were invested as impact investing as of 31 December 2011. If only 0.1% of the total assets under management were shifted to impact investing, an additional amount of roughly $3 billion would be available to address social or ecological problems in Canada. But why should it be necessary to allocate further funds to impact investing? What could it achieve? Moreover, what are the conditions that have to be met that an investment can have an impact? The following Sections turn to these questions.                                              174 Ibid. The report does not elaborate on whether the number of Community Loan Funds/Social Venture Capital funds or Credit Unions, respectively, has increased or whether the existing institutions have increased the amounts invested. A combination of both could be realistic as well. 175 Social Investment Organization, supra note 35 at 6, 27. 176 Ibid at 4, 27.  45  2.2 Why is Impact Investing Necessary? 2.2.1 In General From a very high-level point of view, impact investing is necessary wherever substantial funds are lacking in order to solve a basic social or ecological problem.177 It is particularly necessary where private service providers have not stepped in yet. The solution of many basic problems or the satisfaction of basic needs (e.g. operating water utilities, provide health care services, operating educational and cultural institutions as well as security institutions such as police, courts, firefighters and military) traditionally has been left to public institutions.178 These problems or needs had been considered as being too essential as to leave them to private institutions (i.e. private for-profit companies) due to the threat of exploitation of the people in need by such organizations.179 Other problems are addressed by private non-profit organizations such as charities relying on philanthropic donations to operate.180 However, the effort of either public institutions or private non-profits, or both combined, might not be sufficient to solve the problems due to missing adequate funding. Governments and philanthropic donators might be unable (or unwilling) to provide the financing necessary to operate the respective service providers.181 Impact investors can fill this gap.182                                              177 See e.g. Bugg-Levine & Emerson, supra note 1 at 86; Madill, Brouard & Hebb, supra note 106 at 136; Davis, supra note 90 at 316; Frank, supra note 101 at 18. 178 Bakan, supra note 34 at 112-13. 179 Ibid. 180 Bridges Ventures, supra note 90 at 2; Madill, Brouard & Hebb, supra note 106 at 136. 181 Bugg-Levine & Emerson, supra note 1 at 86-87; Madill, Brouard & Hebb, supra note 106 at 136. 182 Bugg-Levine & Emerson, supra note 1 at 87; Frank, supra note 101 at 18.  46  This situation, the existence of basic problems which cannot be solved due to missing public or philanthropic funding and for which solution people would be willing to pay a price,183 may create commercial opportunities for investors to generate revenues, probably even above market-rate returns.184 These commercial opportunities are less likely to occur where funding provided by the government together with philanthropic donators is sufficient to solve the underlying social or ecological problem. Publicly or philanthropically funded institutions may offer their services without the requirement to make profits and hence at a lower price or at no price at all. Any consideration for the services could range from zero up to a cost-bearing amount. As long as services are available at such conditions, private service providers seeking profits will abstain from offering the same services. The same applies where people are simply not willing to pay a price at all for these services. If nobody were willing to pay for the services, investors would be deterred due to the absence of commercial opportunities.  Furthermore, these economic opportunities would vanish or be limited where other private service providers had already entered the market and provided solutions. In this the case, impact investing would no longer be as necessary as before other providers entered the market. The investment could still have a positive impact, but probably not as big as if there was no other private service provider. In general, it may be held that                                             183 Newmark & Pena, supra note 38 at 81. 184 Bridges Ventures, supra note 90 at 2; see generally Davis, supra note 90 at 317.  47  where the government and charitable donators are either unable or unwilling to provide the necessary funds and services, private market solutions may step in.185   Moreover, impact investors are determined to achieve a positive social and/or ecological impact while other SRI investors primarily intend to avoid negative impacts, in particular if compared to investors pursuing a corporate engagement/shareholder action strategy in order to ensure that the company they invested in meets its corporate social responsibility.186 As discussed above, a corporate engagement/shareholder action strategy intends to ensure that the board of directors or the management when making business decisions considers ESG factors.187 The consideration of ESG factors will always be limited by the purpose of the company and the business it is engaged in. The following, arguably rather extreme example may illustrate such limitation.  Assume that an investor pursues only a corporate engagement/shareholder action strategy without applying any other SRI strategy, in particular no negative screening. Assume further that this investor acquires a stake in BP plc, a British public company limited by shares, which allows the investor to engage with the management. BP describes itself as a provider of “sustainable, secure, diverse and reliable energy solutions” and is “committed to creating value through responsible performance,                                             185 Bugg-Levine & Emerson, supra note 1 at 86-87; see also Bakan, supra note 34 at 114. 186 See note 171 above and accompanying text. 187 See Section 2.1.2 above.  48  protecting [the] environment and the communities in which [it] operate[s].”188 The investor may try to engage with the management in order to ensure that it considers ESG factors when making business decisions and might even be successful in doing so. However, despite its alternative energy segment,189 BP is still highly engaged in the exploration, production and processing of oil and natural gas.190 Although the investor might achieve that the management considers the environment when planning, developing and constructing a new oil production site, BP still engages in the production of non-renewable energy sources which threats to harm the environment (e.g. through oil spills such as the one in the Gulf of Mexico in 2010, carbon emission, etc.). The impact investor, on the other hand, wants more than the mere consideration of ESG factors by the management. She would rather support businesses that intend to develop and produce technologies that would allow relying entirely on renewable energies. Hence, she would invest in such a company rather than in BP in order to create the bigger impact.  After having discussed why impact investing is necessary, we shall now turn to the conditions under which an impact investing can be successful, i.e. provide a financial return as well as a social or ecological impact.                                              188 BP, “Socially Responsible Investment”, online: bp <http://www.bp.com/en/global/corporate/investors/socially-responsible-investment.html>. 189 BP, “BP Alternative Energy”, online: bp <http://www.bp.com/en/global/corporate/about-bp/company-information/group-organization/bp-alternative-energy.html>. 190 BP, “About BP”, online: bp <http://www.bp.com/en/global/corporate/about-bp.html>.  49  2.2.2 Conditions for Impact Investing Besides the inability or unwillingness of governments and/or philanthropic donators to provide sufficient financing, in my opinion, the following conditions have to be met in order for an impact investment to be made and to be successful or at least promising:191  a) Private persons or companies must be allowed to enter the market sector and to provide the respective services; and b) Profits in order to repay lenders or to distribute them to investors have to be possible according to business models.192  First of all, impact investing requires that the government and the society generally allow private persons or companies to provide services in a specific sector.193 If private companies are excluded from providing certain services since they are reserved for the government, impact investing is automatically precluded. Most services traditionally reserved for the government to provide address basic services.194 The provision of services hence may not, or no longer, be restricted to the government.  Although the provision of basic services through private persons or companies might offer promising investment opportunities, in particular where the government fails to provide these services, it simultaneously bears the threat for exploitation of the people                                             191 The question when an impact investment will be deemed successful is discussed in Section 2.1.1 above. 192 See also Bugg-Levine & Emerson, supra note 1 at 86. 193 Ibid. 194 Bakan, supra note 34 at 112-13.  50  suffering from that problem.195 Hence, it is a rather ethical and/or political question whether private persons or companies should, or should be allowed to, enter into these sectors at all.196 Bakan emphasises that institutions providing basic services were intentionally operated by the government and not by corporations.197 He further accuses corporations of having undertaken enormous efforts to enter these sectors in order to exploit the profit opportunities.198 By way of privatization, governments have given up control over these sectors and let the private corporations in.199 Although he admits that private service providers might be more effective than public providers in some parts, he generally rejects privatization as a sustainable solution to the problems of today’s society.200 He argues that “[u]nlike public institutions, whose only legitimate mandate is to serve the public good, corporations are legally required always to put their own interests above everyone else’s.”201  This refers to the duty of the directors and officers of a company to act in the best interests of the company according to s 122(1)(a) of the Canada Business Corporations Act (CBCA)202 as well as to s 142(1)(a) BCBCA. Bakan thus fears that corporations will only provide services to the public good as long as they benefit from doing so, and will                                             195 Ibid at 122; Davis, supra note 90 at 318-19. 196 See in general ibid (provides arguments in favour and against such entrance). 197 Bakan, supra note 34 at 112-13. 198 Ibid at 113. 199 Ibid. 200 Ibid at 117. 201 Ibid at 117-18. 202 Canada Business Corporations Act, RSC 1985, c C-44 [CBCA].  51  immediately refrain from it as soon as it better serves their interest.203 In other words, promoting the public good is only a means to a corporation’s end, but never the end itself.  Without going into the details of this ethical and/or political discussion, but advocating in favour of the permission of private service providers to address at least some of the basic problems, the following remarks shall be made. First, it has to be kept in mind, that the solicitation by corporations might not be the only reason for privatization. Other factors such as financial, efficiency, personnel, or organizational reasons may have an influence as well.  Second, promoting the public good and generating profits at the same time do not necessarily preclude each other. Particularly impact investors intend to achieve both at the same time, pursuing a social or ecological goal while making profit. When privatizing certain services, it would be the government’s task to prevent the corporations from abusing the profit opportunities by setting the appropriate legal framework. The government could give up ownership of the respective service provider, but could retain control rights and hence influence the behaviour or the business entity.204                                              203 Bakan, supra note 34 at 118. 204 Bakan does not distinguish between ownership and control when stating that governments have given up control over the relevant sectors and does not further elaborate on that (see note 199 above). However, it has to be admitted that depending on the business sector and the investor, the latter might wish to control the privatized service provider without the government being able to intervene.   52  Related thereto and in addition, the purpose of a company in which impact investors invest in at least implicitly contains the solution of a social or ecological problem and hence intends to serve the public good.205 For example, a company that has the purpose to develop, construct, and operate low-cost apartment buildings for affordable housing ultimately pursues a social goal, i.e. to relieve the budget of people with low income or to reduce homelessness.  Finally, it has to be determined in each case whether it would be in the public’s interest to exclude private service providers who could provide a solution to a basic problem, and whether such interest outweighs the consequence that such problem remains not being addressed (properly).206 In my opinion, this would hardly be the case. If a basic problem could be solved sustainably and at reasonable costs by providing people in need with the necessary services, even if they had to pay for it, private service providers should be permitted to enter the market. The risk of exploitation mentioned by Bakan207 is already limited by the fact that a company is very likely to face a considerable reputational damage if it engaged in exploitative behaviour.208 Even rumors of such could harm the company. If necessary, the risk of exploitation could be reduced or even eliminated by appropriate legislation.                                               205 See Section 1.1 above. 206 Davis, supra note 90 at 321. 207 See supra note 195 and accompanying text. 208 See the discussion of the business cases for CSR in Section 2.3.1 below.  53  In summary, each society has to determine for itself and for each market sector, whether it wants private persons or corporations to promote the public good or not.209 As a condition for impact investments, such may only be expected where private service providers are not prevented from promoting the public good. The respective society and government have to grant private persons or corporations the possibility to provide these services.210  Second, the business model of the private service provider who intends to address the social or ecological problem has to be profitable.211 As discussed above in Section 2.1.1, any impact investor intends to achieve a profit with its investment. This requires that either the private service provider is already profitable or at least the business model realistically predicts profits in the future.212  Bugg-Levine & Emerson mention a third condition, which is that mainstream investors have not been attracted yet.213 They argue that “impact investment is too precious a resource to spend on deals where [impact investors are] not needed[,]” i.e. where other                                             209 At the same time, it has to be determined what the public good actually is. Every society would define the public good differently and in accordance with its own needs and interests, although scholars emphasise that the public good is more than just the sum of the private interests (for an overview of the discussion as well as a literature review on the public good see generally Amanda M Olejarski, “Public Good as Public Interest?” (2011) 13:4 Public Integrity 333 at 333-37). A more detailed discussion of the public good would go beyond the scope of this thesis. 210 Bugg-Levine & Emerson, supra note 1 at 86. 211 Ibid at 86, 88. 212 Newmark & Pena, supra note 38 at 38. 213 Bugg-Levine & Emerson, supra note 1 at 86, 89.  54  (mainstream) investors have already invested in and impact investors may not make that big a difference.214  In my opinion, this is not a condition for a successful or at least promising impact investment. On the one hand, the fact that a mainstream investor has already invested does not necessarily make the company unprofitable or limit its impact and hence render the investment unsuccessful. Au contraire, the participation of a mainstream investor may be regarded as an indication for the profitability of the company and hence for the satisfaction of the condition outlined in the preceding paragraph. On the other hand, the presence of a mainstream investor might indeed limit the impact of further investments or even make them superfluous.215 However, in this case, it would be a question of whether the investment of an impact investor would still be necessary (or useful) rather than whether it would be successful or not.  In conclusion, an impact investment can be successful where funding for the solution of a basic social or ecological problem is missing, private service providers are allowed to step in and the business model realistically predicts profits in the future. The absence of a mainstream investor, as suggested by Bugg-Levine & Emerson,216 is not regarded as a prerequisite for the success of an impact investment.                                              214 Ibid at 89. 215 See Section 2.2.1 above. 216 Bugg-Levine & Emerson, supra note 1 at 86, 89.  55  Before turning to the detailed discussion of the CCC, attention now shall be paid to the stakeholders of a potential investment target. As indicated in Section 1.4.1 above, one of the factors that may influence the selection of a certain corporate form for an impact investment is the possibility to consider the interests of stakeholders. The next Section will provide a general overview on the legal and theoretical basis of the consideration of stakeholders’ interests in general. This overview will show that directors of for-profit corporations are allowed to consider other stakeholders’ interests, and accordingly, such corporate form could be used for an impact investment in principal.  2.3 The Stakeholders of a Company Delivering a Social or Ecological Impact and How their Interests Can Be Considered As outlined earlier, besides having her own interests as a shareholder considered by the directors, an impact investor wants to ensure that other stakeholders’ interests are being taken into account as well, e.g., that the company does not pollute the environment by disposing of its waste in an un-ecological manner, that it pays attention to the needs of the beneficiaries of the services provided by the company, etc.217 But may directors consider other stakeholders’ interests at all when making business decisions instead of only focusing on the interests of the company’s shareholders? If yes, do the interests of a special group of stakeholders (e.g. the shareholders) prevail nevertheless?                                              217 See Section 1.2 above.  56  The answers to these questions indirectly influence the selection of the appropriate corporate form for an impact investment. Remember that the CCC is a hybrid corporate form and has been implemented to enable social and ecological considerations while making business decisions in order to generate profits.218 If the answer to the first question mentioned before was no, i.e. that directors were not permitted to consider other stakeholders’ interests, the selection of a CCC probably would be a very promising (or even the sole) solution for an impact investor. On the other hand, if the answer was yes, and shareholders’ interests did not prevail, the investor would not be limited in her options and could consider a (public or private) for-profit corporation as well.  The following Sections intend to provide a general overview on the discussion regarding the consideration of stakeholders’ interests. After defining the term “stakeholder”, the legal and theoretical basis for such consideration will be elaborated, followed by a discussion of who the (internal and external) stakeholders might be. Section 4.5 below will then compare the ability or even duty of directors of the different corporate forms to consider other stakeholders’ interests.                                              218 See Sections 1.1 and 1.3 above.  57  2.3.1 Definition of Stakeholders In 1963, the term stakeholder was used for the first time and was defined as “[the] groups without whose support the organization would cease to exist.”219 Since this definition was very broad, the term was subject to further discussion and developed over time, until R Edward Freeman & David L Reed provided a more distinct definition two decades after its first appearance.220 Although several authors further developed the definition,221 Freeman & Reed’s definition shall be adopted in this research since it is one of the broadest and hence does not exclude certain persons or groups depending on a specific criterion. According to their definition, the stakeholder group was divided into stakeholders in a wider sense (i.e. “[a]ny identifiable group or individual who can affect the achievement of an organization’s objectives or who is affected by the achievement of an organization’s objectives”) and in a narrow sense (i.e. “[a]ny identifiable group or individual on which the organization is dependent for its continued survival”).222 This distinction was made to limit the group of stakeholders whose interests were strategically important for the company and on which the management should focus.223 Following Freeman & Reed’s proposal, when used hereinafter, the term stakeholder generally refers to the definition of stakeholders in the wider sense.224                                              219 R Edward Freeman & David L Reed, “Stockholders and Stakeholders: A New Perspective on Corporate Governance” (1983) 25:3 Calif Management Rev 88 at 89. 220 Ibid at 91. 221 See generally Ronald K Mitchell, Bradley R Agle & Donna J Wood, “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts” (1997) 22:4 Academy of Management Review 853 at 855-63. 222 Freeman & Reed, supra note 219 at 91. 223 Ibid. 224 Ibid at 91-92.  58  However, for the purpose of this research, the group of stakeholders in the wider sense shall be split into two subcategories different from those proposed by Freeman & Reed, i.e. into internal and external stakeholders. On the one hand, there are the stakeholders which are usually granted certain rights by the law to actively participate in a company’s decision making process, and to whom legal means are available to enforce corporate rights or duties, both as granted by the BCBCA. As far as the participation rights are concerned, these may be rights to take influence directly (e.g. voting rights [s 173(1) BCBCA], participation in meetings [s 140(1) BCBCA], etc.) or indirectly by having one’s interests considered. For example, the oppression remedy (s 227 BCBCA), which entitles eligible complainants to seek relief from an oppressive or unfairly prejudicial behaviour of the company or the directors, acts as an incentive to consider the interests of these eligible complainants. Procedural enforcement rights would include, among others, the right to obtain a compliance or restraining order (s 228 BCBCA), to get a corporate mistake remedied (s 229 BCBCA), and to seek relief from oppression (s 227 BCBCA). Besides that, rights to claim damages (e.g. for the breach of duties of directors according to ss 154(1) and (2) as well as 232 BCBCA) would also be included. Such groups of stakeholders shall be referred to as internal stakeholders. As discussed in more detail in Section 2.3.3 below, paradigms of internal stakeholders would be the shareholders, the directors, and the managers.   On the other hand, there are stakeholders who are interested in, and affected by, the company and its business, but are usually not granted any participation rights by statutory law or else. In addition, procedural rights granted by corporate law are, with  59  some exceptions, usually only available to shareholders and/or directors225 and are limited in scope as well (e.g. the compliance with the BCBCA and the articles, obtain relief from oppression), which is why their benefit to other stakeholders is very little. In particular, whether other stakeholders than shareholders would be granted standing to file for relief from oppression according to s 227 BCBCA is very uncertain and maybe even unlikely.226 Hence, such group of stakeholders shall be considered as external stakeholders. Examples for external stakeholders would be the government, (aboriginal) communities, the environment, etc. For the avoidance of any doubt, this distinction is made for the purpose of this research only and does not correspond with the distinction between stakeholders and non-stakeholders based on the attribute of power as suggested by Ronald K Mitchell, Bradley R Agle & Donna J Wood.227 Acknowledging that the distinction made herein is highly debatable (as might be many other distinctions), it does not claim universal application at all, but is only intended to help structuring this research.  Before elaborating on the different stakeholders, it has to be discussed why the managers or directors of a company should consider the interests of the stakeholders when making business decisions. Such consideration is closely linked to a company’s responsibilities towards society and the environment. As mentioned before in the                                             225 See generally VanDuzer, supra note 23 at 568-71. 226 Ibid at 430. See also the remarks in Sections 2.3.2.1, 2.3.3, and 2.3.4 below. 227 Mitchell, Agle & Wood, supra note 221 at 865-66.  60  Introduction, the corporate social responsibility discussion has been a long and ongoing one.228   2.3.2 The Legal and Theoretical Basis for Consideration of Stakeholders’ Interests Following a short outline of the legal basis, a brief overview on the different corporate social responsibility theories shall be provided in order to find out whether directors or managers have an obligation to consider the different stakeholders’ interests. Thereafter, it will be discussed why it could be beneficial for the corporation and thus the impact investor to do so even if there was no legal obligation. This will also explain why impact investors want to have other stakeholders’ interests considered.  2.3.2.1 The Legal Framework Besides other obligations, s 142(1)(a) BCBCA requires directors of (for-profit) corporations to “act honestly and in good faith with a view to the best interests of the company” when acting in the function of a director of the company, i.e. on behalf of the company. Furthermore, s 142(1)(b) BCBCA sets forth that directors have to “exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances.” The former is commonly referred to as “fiduciary duty”, the latter as “duty of care”.229 These provisions apply as well to directors of a CCC.230 In                                             228 See Section 1.1 above. 229 BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 36, 3 SCR 560 [BCE]; VanDuzer, supra note 23 at 338-39.  61  addition and as discussed in more detail in Section 3.5 below, s 51.93(2) BCBCA sets forth that the directors of a community contribution company “must act with a view to the community purposes of the company set out in its articles.” B Corporations do not have a separate corporate legal status of their own.231 It is rather a private label a corporation is entitled to use as soon as it is certified by B Lab, a non-profit organization based in Pennsylvania.232 The B Corporation is still subject to the laws of the jurisdiction of incorporation, whereby ss 142(1)(a) and (b) BCBCA apply to B Corporations in British Columbia.  When applying ss 142(1)(a) and (b) BCBCA, courts in British Columbia regularly refer to the decisions of the Supreme Court of Canada (SCC) with regard to ss 122(1)(a) and (b) CBCA, which requests directors of corporations incorporated under the CBCA to act in the best interest of the corporation and to act carefully and diligently. In its landmark decisions in Peoples Department Stores Inc (Trustee of) v Wise233 and BCE Inc v 1976 Debentureholders234, the SCC held that the phrase the “best interest of the corporation” is not to be understood as the “best interest of the shareholders” and that, in order to determine the “best interest of the corporation”, the board or the management may not                                                                                                                                             230 S 51.93(2) BCBCA; see British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11120 ff. 231 Brakman Reiser, supra note 62 at 594. 232See B Lab, “What are B Corps”, supra note 65; B Lab, “The Difference Between Benefit Corporations and Certified B Corps”, online: B Corporation <http://www.bcorporation.net/what-are-b-corps/legislation>. 233Peoples, supra note 21. 234 BCE, supra note 229; for cases in British Columbia referring to these two cases see e.g. Schlenker v Torgrimson, 2013 BCCA 9 at para 46, 358 DLR (4th) 383; Hundal v Border Carrier Ltd, 2012 BCSC 447 at para 75, 1 BLR (5th) 121; Columere Park Developments Ltd v Enviro Custom Homes Inc, 2010 BCSC 1248 at para 82, 94 CLR (3d) 85.  62  only consider the interests of the shareholders, but also other stakeholders’ interests.235 However, this does not mean that board members and managers have to consider these other stakeholders’ interest.236 While directors mandatorily have to consider the best interest of the corporation, it is “not mandatory […] to consider the impact of corporate decisions on shareholders or particular groups of stakeholders.”237 One could argue that they have a legal obligation to take into account these interests if it is in the best interest of the corporation. Considering that the question whether they have to consider other stakeholders’ interests or not arises in connection with the determination of the company’s best interest,238 this seems to be a circular argument.  Furthermore, it could be argued that the oppression remedy according to s 227 BCBCA indirectly imposes an obligation on the directors to consider other stakeholders’ interests. Eligible complainants who are affected by an oppressive or unfairly prejudicial behaviour of the directors may claim for relief under s 227 BCBCA.239 However, besides shareholders, only “person[s] whom the court considers to be an appropriate person to make an application” would have complainant status.240 While creditors and directors or officers occasionally have been granted complainant status by courts, the group of potential claimants might not be expanded due to the courts’ reluctance to grant                                             235 Peoples, supra note 21 at para 42; confirmed in BCE, supra note 229 at para 39. 236 Edward Waitzer & Johnny Jaswal, “Peoples, BCE, and the Good Corporate Citizen” (2009) 47:3 Osgoode Hall LJ 439 at 461; see also Michael Kerr et al, Corporate Social Responsibility: A Legal Analysis, Chip Pitts, ed. (Markham, Ont.: LexisNexis Canada, 2009) at 120. 237 BCE, supra note 229 at para 39 [emphasis in original]. 238 See BCE, supra note 229 at para 40. 239 See with regard to the oppressive behaviour generally VanDuzer, supra note 23 at 431-47. 240 S 227(1) BCBCA. See generally N’Quatqua Logging Co v Thevarge, 2006 BCSC 1122 at para 25, 20 BLR (4th) 275.  63  standing in oppression remedy proceedings.241 It is hardly feasible to predict whether the courts will expand the complainant status to other stakeholders or not.242 At least for the time being, a broad obligation of directors to consider other stakeholders’ interests may not be derived from the oppression remedy. Hence most corporate social responsibility theories argue that the directors and managers have some kind of extra-legal obligation to consider other stakeholders’ interests.  2.3.2.2 Theories Concerning Corporate Social Responsibility According to Melé, among all theories, the following four theories may be considered as “contemporary mainstream theories”: corporate social performance theory, stakeholder theory, corporate citizenship theory, and shareholder value theory.243 Besides these four theories, although it has to be considered as general theory of corporate law rather than a specific CSR theory, the team production theory developed by Margaret M Blair & Lynn A Stout has to be mentioned since it directly questions the underlying assumption of the shareholder value theory, i.e., that the shareholders own the assets and the directors act as their agents.244                                               241 VanDuzer, supra note 23 at 423-30. As far as British Columbia is concerned, the discussion on the claimant status of non-shareholder stakeholders is summarized in Gateway Building Management Ltd v Randhawa, 2013 BCSC 1662 at para 96-100 (available on LexisNexis), Although Burnyeat J concluded that the applicant was a shareholder, he alternatively relied on the applicant’s capacity as “unsecured creditor” (see ibid at para 100). 242 VanDuzer, supra note 23 at 430. No attempt to elaborate further on the claimant status or to provide a reasonable prediction or an argument in favour or against such expansion shall be made due to the scope of this thesis. 243 Melé, supra note 9 at 48-49. 244 Margaret M Blair & Lynn A Stout, “A Team Production Theory of Corporate Law” (1999) 85:2 Va L Rev 247 at 250-51.  64  Influenced by ethical thoughts, the corporate social performance theory bases on a synthesis of principles, processes and outcomes, whereas the principles of CSR are understood as institutional, organizational, and individual principles.245 The institutional principle goes back to Keith Davis, who argued that society enabled business, and if business does not meet society’s expectations, society may revoke or at least amend any powers granted to business.246 Consequently, and following the “Iron Law of Responsibility”, if business wants to keep its social power and role, it has to address society’s needs and expectations.247 This concept has been further developed in to a social license to operate.248 As a response to social (and probably also environmental) risk concerns, this license was developed in the mining industry in the mid-1990s.249 It is understood as non-governmental or extra-legal right to operate a business granted through the acceptance of its activities by society in general or the local community.250 Any company would be required firstly to inform the affected community in full about its intended activities and secondly to respect that community’s expectations regarding sustainable development.251 The lack of a social license might not cause an immediate- shut down of the operations (what could be the consequence if a governmentally or                                             245 Donna J Wood, “Corporate Social Performance Revisited” (1991) 16:4 Academy of Management Review 691 at 694. 246 Davis, supra note 90 at 314; S Prakash Sethi, “Conceptual Framework for Environmental of Analysis of Social Issues and Evaluation of Business Response Patterns” (1979) 4:1 Academy of Management Review 63 at 64-65. 247 Davis, supra note 90; Sethi, supra note 246 at 65. 248 Kurucz, Colbert & Wheeler, supra note 123 at 90. 249 Kieren Moffat & Airong Zhang, “The paths to social licence to operate: An integrative model explaining community acceptance of mining” (2014) 39 Resources Policy 61 at 61. 250 Kathleen M Wilburn & Ralph Wilburn, “Achieving Social License to Operate Using Stakeholder Theory” (2011) 4:2 Journal of International Business Ethics 3 at 4. 251 Ibid at 4.  65  legally required license was missing), but the practical consequences could either have the same effect over time or lead to increased regulations and restrictions.252  The organizational principle is based on the idea that business and society are not separate and independent systems, but “interpenetrating systems”, whereas business entities should care for the environment they share with others and be responsible for their outcomes.253 The individual principle concerns the managers of the business entity and argues that, since directors are moral persons and since they have discretion managing the business, they are required to exercise this discretion responsibly and towards a respective output.254 The process of corporate responsiveness then adds how companies react to assessments of the environment, analyze stakeholder relationships and manage them correctly as well as deal with (external or internal) issues, which lead to a determinable outcome.255  On the other hand, the stakeholder theory is based on the understanding that a business entity is a nexus of interests, and argues that a business entity and its managers shall not violate any rights of its stakeholders to determine their future.256 According to this theory, a corporation has “to be managed for the benefit of its                                             252 Ibid at 7. For a more detailed discussion of the social licence to operate concept see generally Moffat & Zhang, supra note 249. 253 Wood, supra note 245 at 697. 254 Ibid at 698-99. 255 Ibid at 703, 708 ff. 256 William M Evan & R Edward Freeman, “A Stakeholder Theory of Modern Corporation: Kantian Capitalism” in Tom L Beauchamp & Norman E Bowie, eds, Ethical Theory and Business (np: Englewood Cliffs, 1988) 75, cited in Melé, supra note 9 at 64.  66  stakeholders” whose rights and long-term stakes have to be respected and considered.257 This theory is generally based on ethical and Kantian approaches.258  Rather influenced by political studies, the corporate citizenship theory generally sees business entities as an “integral part of society”, whereas they are required to “contribute to the common good of society” as good citizens.259 Contributing to the common good has earlier been understood as, and done by way of, “philanthropic activities and donations.”260 The theory has since developed from being a part of CSR to an understanding of the business as part of the society, although “a full theory” has not emerged yet.261  By contrast, the shareholder value theory provides a completely different view. The theory argues that a business entity has only one single responsibility, and that is to maximize the profits of its shareholders within the boundaries of the law.262 The argument goes back to the more general theory of agency costs, which argues that the principal in a principal-agent-relationship will always suffer costs in order to ensure that her agent acts in her best interest.263 Considering that a principal-agent-relationship is given where control is separated from ownership, this theory regards shareholders                                             257 Ibid. 258 See generally Melé, supra note 9 at 64-65. 259 Ibid at 70. 260 Ibid at 68-69; see also Carroll & Shabana, supra note 8 at 96. 261 Melé, supra note 9 at 69-70. 262 Friedman, supra note 10 at 33. 263 Jensen & Meckling, supra note 11 at 308.  67  (owners of the business entity) as principals and the managers as their agents.264 A decrease in profits would hence be considered as agency costs. Managers, as agents, have a fiduciary duty towards the shareholders as owners.265 The avoidance or at least the reduction of agency costs can be seen as part of this fiduciary duty, which results in Friedman’s conclusion that maximizing profits for the shareholders is the only responsibility of a business entity.266 Following the SCC’s holdings in Peoples and BCE, this theory seems not to be the theoretical basis of Canadian corporate law.267  The team production theory developed with regard to US American corporate law directly contradicts the underlying assumption of the shareholder value theory, i.e. that the shareholders are the owners of the corporation’s assets. It argues that the assets belong to the corporation itself as “the fictional legal entity that, under the law, holds title to the firm’s assets.”268 Knowing that a corporation could potentially act contrary to the interests of the shareholders, but at the same time assuming that the cooperation with others would provide a higher return than trying to operate their own business, the individuals voluntarily give up control over their “firm-specific inputs” and transfer them to a corporation guided by an elected board of directors.269 Hence, a team production                                             264 Ibid at 309. 265 Melé, supra note 9 at 59. 266 Friedman, supra note 10 at 33. 267 Ian B Lee, “Peoples Department Stores v. Wise and the ‘Best Interests of the Corporation’” (2005) 41:2/3 Can Bus LJ 212 at 213, 216 ff. 268 Blair & Stout, supra note 244 at 250-51, 269; see also Lee, supra note 267 at 218. 269 Blair & Stout, supra note 244 at 255, 277-78.  68  project and a mediating hierarchy in the form of a corporation are created.270 At the top of this hierarchy is the board of directors as “trustee for the corporation itself” who has to mediate between, and hence consider, the interests of the different team members without being under the command of any group of team members.271  Despite the above theories and any ethical, moral, or other obligation that arguably may exist, neither directors nor managers are obliged generally and legally to consider other stakeholders’ interests.272 So why should they? The business case for CSR tries to give an answer to this question that does not depend on the ethical, moral, and political considerations outlined above but rather on an economic justification.  2.3.2.3 The Business Case for Corporate Social Responsibility A considerable amount of literature has argued in favour of the consideration of other stakeholders’ interests, promoting the so called “business case for Corporate Social Responsibility[.]”273 The business case for CSR can be described as its economic justification, i.e. the increase of the financial performance through the engagement in                                             270 Ibid at 275-76. 271 Ibid at 281 [emphasis in original]. 272 See BCE, supra note 229 at para 39; Waitzer & Jaswal, supra note 236 at 120. However, companies could be ordered to consider certain stakeholders’ interests by special legislation or by a governmental authority (see e.g. Government of British Columbia, “Proponent Guide to Coordinated Authorizations for Major Mine Projects” at 19, online: British Columbia Business <http://www.for.gov.bc.ca/ftp/major_projects/external/!publish/web/mining/Proponent_Guide_Major_Mine_Projects.pdf> [Crown’s obligation to consult with First Nations, but proponents are expected to engage with First Nations themselves]). 273 Kurucz, Colbert & Wheeler, supra note 123 at 84; see also Carroll & Shabana, supra note 8.  69  CSR.274 Elizabeth C Kurucz, Barry A Colbert & David Wheeler have conducted a review of the theoretical and empirical literature on the business case and note that the results of the surveys reviewed are mixed.275 They conclude that a general connection between CSR and financial performance may not be drawn.276 Hence, they outline four different, more nuanced business cases, i.e. “cost and risk reduction, profit maximization and competitive advantage, reputation and legitimacy, and synergistic value creation.”277 Considering that an impact investor intends to achieve a positive social or ecological goal with her investment, it may be assumed that the reasons below are at least additional reasons for her to make sure that the directors and managers of an investee company take into account other stakeholders’ interests.  The cost and risk reduction business case argues that mitigating potential threats created by demands of stakeholders essentially support the generation of profit.278 Among others, the disregard for and, following thereafter, the damage to stakeholders’ interests (e.g. the pollution of the environment, poor working conditions, etc.) might lead to legal actions and damage payments, which in turn would generate costs and have a negative effect on the profit of the company. In addition, being environmentally proactive                                             274 Kurucz, Colbert & Wheeler, supra note 123 at 84; Carroll & Shabana, supra note 8 at 92. 275 Kurucz, Colbert & Wheeler, supra note 123 at 84-85; see also Abagail McWilliams & Donald S Siegel, “Corporate Social Responsibility and Financial Performance: Correlation or Misspecification?” 21:5 Strategic Management Journal 603 at 604. 276 Kurucz, Colbert & Wheeler, supra note 123 at 85; see also Carroll & Shabana, supra note 8 at 94. 277 Kurucz, Colbert & Wheeler, supra note 123 at 86 [emphasis in original]. Their distinction was adopted by Carroll & Shabana, supra note 8 at 95, 97-100. 278 Kurucz, Colbert & Wheeler, supra note 123 at 88.  70  may reduce the costs of the adaption to future environmental regulations.279 It has to be mentioned that this is only true as long as the cost savings due to the consideration of CSR factors outweigh the costs of the implementation of CSR activities.  The competitive advantage argument suggests that companies should consider the interests of stakeholders in order to gain a competitive advantage over its business rivals and hence should allocate resources thereto.280  Furthermore, the case for reputation and legitimacy, which is linked to the corporate social performance theory outlined above, on the one hand argues that business would lose its “licence to operate” if it didn’t act responsibly.281 However, it remains unclear what this exactly means and what the consequences of the withdrawal of such “licence” would be. On the other hand, and perhaps more convincingly, it is argued that the consideration of CSR factors enhances a company’s reputation.282 Producing goods in a social and ecological manner and marketing them accordingly (“do good and talk about it”) could lead to an increase of sales and hence revenues due to a shift of the consumers’ views on the company compared to its contenders.283 In addition, such reputation could attract SRI investors, which could lead to an increase of the company’s                                             279 Carroll & Shabana, supra note 8 at 97. 280 Kurucz, Colbert & Wheeler, supra note 123 at 88-89; Laurence E Harribey, “Strategic Value of Corporate Citizenship” in Samuel O Idowu & Céline Louche, eds, Theory and Practice of Corporate Social Responsibility (Berlin: Springer-Verlag, 2011) 23 at 29; see also Carroll & Shabana, supra note 8 at 97-99. 281 Kurucz, Colbert & Wheeler, supra note 123 at 90; see also Davis, supra note 90 at 314. 282 Kurucz, Colbert & Wheeler, supra note 123 at 90; see also Carroll & Shabana, supra note 8 at 99. 283 Kurucz, Colbert & Wheeler, supra note 123 at 90.  71  market valuation.284 An increased number of investors interested in becoming shareholders in the company could also mean security for further financing rounds. Moreover, the positive reputation could increase the attractiveness for talented employees.285 All these examples of enhanced reputation would also provide the company with a competitive advantage over its business rivals, which is why they could also serve as examples for such competitive advantage.286 Conversely, a bad reputation could turn the aforementioned advantages into respective disadvantages, and thus the negative developments could lead to a decrease of profits.287  Finally, the synergistic value creation argument suggests that the connection of different stakeholders’ interests and their consideration would enhance a company’s overall performance.288  2.3.2.4 Summary In summary, directors and managers are entitled, and sometimes even legally obliged, to consider the interests of stakeholders in a wider sense when making business decisions. An impressive amount of literature has been written about CSR that provides moral, ethical, political, empirical, and economic arguments in favour of the consideration of stakeholders’ interests and the engagement in CSR activities. Although                                             284 Ibid. 285 Harribey, supra note 280 at 32; Kurucz, Colbert & Wheeler, supra note 123 at 90. 286 C.f. Carroll & Shabana, supra note 8 at 98. 287 See generally Harribey, supra note 280 at 32-34. 288 Carroll & Shabana, supra note 8 at 100; Kurucz, Colbert & Wheeler, supra note 123 at 91-92.  72  supporting these arguments in general, a more detailed discussion of CSR and its business case would go far beyond the scope of this research.  It seems that the possibility to consider other stakeholders’ interests does not necessarily prescribe the adoption of a hybrid corporate form, i.e. the CCC, under the existing laws in British Columbia. Such interests can (and sometimes even must) be considered by the directors of for-profit corporations. While it remains to be seen whether the adoption of a CCC might provide other advantages with regard to this issue,289 a general conclusion in favour of the CCC may not be drawn at this point in time.  Despite the SCC’s decisions in Peoples and BCE,290 directors retain a considerably broad discretion.291 On the one hand, this affects the impact investor. The directors may determine how and to what end the assets of the company are being used, and the funds invested by the impact investor are subject to the same discretion. Thus, the investor is interested in retaining some sort of control in order to ensure that the invested funds (as well as the assets of the company in general) are being used in accordance with her intention, i.e. the pursuit of a social and/or ecological goal while generating profits. On the other hand, the different stakeholder groups want to make sure that their interests are considered (and maintained). However, this in turn might                                             289 See Sections 3.5 and 4.5 below. 290 Peoples, supra note 21; BCE, supra note 229. 291 C.f. s 136(1) BCBCA. See also VanDuzer, supra note 23 at 255-57.  73  negatively affect the investor’s goal to receive a profit besides achieving a social or ecological impact, and hence she will strive to exercise her influence towards maintaining a balance between the two goals. After having elaborated on the stakeholders and the consideration of their interests in general, we now turn to the question of who the internal and external stakeholders might be.  2.3.3 Internal Stakeholders Following the (arguably debatable) distinction set out in Section 2.3.1 above, internal stakeholders shall mean stakeholders which are commonly granted certain rights to actively participate in a company’s decision making process and which are granted procedural rights to enforce corporate rights. First, this encompasses directors and officers of the company. While the directors and managers are the ones who would have to consider all stakeholders’ interests, they are stakeholders themselves. Considering that they are responsible for managing the business of the company and hence are furnished with very broad powers, they may be deemed as the most powerful ones.292 According to s 136(1) BCBCA, it is the directors’ task to “manage or supervise the management of the business and affairs of the company.” Based on s 137(1) BCBCA, this task, which also includes considerable powers, may be transferred to one or several other persons (i.e. the management) who will then assume the same duties and powers of the directors (s 137(2)(a) BCBCA). S 141(1) BCBCA entitles directors to appoint officers and to specify their duties. The BCBCA contains provisions regarding                                             292 Ibid at 5, 255.  74  how to deal with conflicts between director’s interests and the ones of shareholders or other stakeholders.293 In order to enforce its rights, every director may apply for a court order to remedy failures to comply with the BCBCA or with the company’s articles and with the proceedings in connection with shareholders’ or board meetings.294 Due to their distinct function within a company, all these persons are granted (more or less significant) powers to influence the internal decision making process and hence are considered to be internal stakeholders.   A second but not less important group of internal stakeholders would be the shareholders. Unless set out otherwise in the BCBCA, the memorandum or the articles of the company, the shareholders of the company are given the right to vote in person or by proxy in the shareholders’ meeting (s 173(1) BCBCA). However, unless set out otherwise in the articles, the shareholders’ vote is binding only with respect to a limited set of topics. As far as business decisions are concerned, the only items where the shareholders’ approval is required would be the sale of all or substantially all undertakings outside the company’s ordinary course of business (s 301(1)(b) BCBCA) as well as certain business combinations or reorganizations (e.g. ss 51.6(1)(b), 271(1), 289(1) and 308(2) BCBCA). Other topics, for example, relate to amendments of the notice of articles and the articles themselves (ss 51.31(2)(a) and 51.97(2) BCBCA), the                                             293 See ss 147-153 BCBCA, in particular s 149(2) BCBCA (a director who has a discloseable interest is not entitled to vote on a respective resolution). 294 Ss 228 and 229 BCBCA. While subsection (2) entitles any interested person to apply for an order under s 229 BCBCA, s 228 BCBCA is only available to shareholders or “person[s] whom the court considers to be an appropriate person to make an application[.]”  75  alteration of the share structure and the rights connected to the shares (ss 54(3), 58(2), 68(2)(b) and 74(1)(b) BCBCA), and the voluntary dissolution of the company (ss 314(1)(a) and 319(1) BCBCA). The only but probably most important right of the shareholders with regard to influencing business decisions of directors is the right to elect or remove (s 128(3) BCBCA) the directors.295 As far as the CCC is concerned, it is noteworthy that any declaration of dividends requires the prior approval by the shareholders (s 51.94(1)(b) BCBCA).  Shareholders have a wide variety of procedural rights available to enforce their rights, such as compliance or restraining orders or orders remedying corporate mistakes in order to enforce rights provided by the BCBCA or the articles (s 228 and 229 BCBCA) and the oppression remedy (s 227 BCBCA).296 In addition, shareholders are entitled to file derivative actions on behalf of the company in order to enforce its rights, in particular against directors for damages due to a breach of their duties (s 232 BCBCA).297  Furthermore, potential investors in general and particularly the impact investors are also considered as being internal stakeholders for the purpose of this thesis. Depending on the form of the investment (e.g. debt or equity investment, type of securities, etc.), the                                             295 See VanDuzer, supra note 23 at 255, 275-76; Yalden et al, supra note 2 at 532-33. Remarkably, the BCBCA does not explicitly require the shareholders to elect the directors. S 122(1) BCBCA only sets forth that the directors “must be elected or appointed in accordance with this Act and with the memorandum and articles of the company” (compare s 106(3) CBCA, which requires the shareholders to elect the directors). 296 See generally VanDuzer, supra note 23 at 451-52 (compliance and restraining order), 412-50 (oppression remedy). 297 Ibid at 406-12.  76  investor could be granted rights to influence the decision making process within the company. An equity investment through the acquisition of shares would grant the investor the same enforcement and voting rights of a shareholder, unless she acquired non-voting shares.298 Although this might not be applicable to all potential investors and would highly depend on the circumstances, in Csak v Aumon, even prospective shareholders were granted standing in an application for an oppression remedy.299 Since the right to vote at a shareholders’ meeting is attached to the shares, a debt investor would not automatically obtain voting rights. However, the debt investment agreement could furnish the investor with some control rights that would provide her with some influence. For example, the discretion of directors to declare a dividend could be restricted in order to ensure that the funds remain with the company for further business development or the investor could be granted voting rights to elect a certain number of directors in the vicinity of insolvency.300 A pledge of a majority of the company’s shares as collateral for a debt financing could also furnish the investor with voting rights.301 Considering that the scope of this research is limited to equity investments,302 debt investments will not be covered further.                                              298 See ss 58(2)(a) and 173(1) BCBCA. See also VanDuzer, supra note 23 at 236. 299 Csak v Aumon (1990), 69 DLR (4th) 567, 20 ACWS (3d) 372, (Ont HCJ). 300 Yalden et al, supra note 2 at 359. 301 Newmark & Pena, supra note 38 at 54. 302 See Section 1.4.4 above.  77  2.3.4 External Stakeholders External stakeholders are understood as stakeholders in the wider sense (i.e. any person or organization which is affected by the business operation of a company), but which are usually granted neither any rights to actively participate in the decision-making processes within the company nor any enforcement procedures.303 With the occasional exception of creditors, the oppression remedy has not been made generally available to stakeholders other than shareholders or directors.304 The oppression remedy was originally intended to provide additional protection to minority shareholders, but the broad wording in s 238(d) CBCA (which corresponds to the wording in s 227(1) BCBCA) allowed courts to grant standing to other non-shareholder stakeholders, although they have used this discretion reluctantly.305 Whether courts will extend the access to the oppression remedy in the future may not be reliably predicted at this point in time.306  Examples of external stakeholders would be legion. The composition of the group of stakeholders depends on the respective company and could change over time.307 As examples for probably quite common stakeholders, the SCC mentions “employees, suppliers, creditors, consumers, governments and the environment” as groups whose interests could be considered other than the ones of shareholders.308 As far as employees are concerned, one could argue that “employees [were] a company’s most                                             303 See Section 2.3.2.1 above. 304 VanDuzer, supra note 23 at 424-27, 430. 305 Ibid at 416-17, 424. 306 Ibid at 430. 307 See generally Mitchell, Agle & Wood, supra note 221 at 868. 308 Peoples, supra note 21 at para 42 in fine; see also VanDuzer, supra note 23 at 343.  78  valuable asset”309 and hence should be considered as internal stakeholders. However, they are usually at the receiving end of orders without or with very limited power to influence the decision before it is made, and thus they are considered as external stakeholders within the meaning ascribed to this term above.  Regarding creditors, it has to be mentioned that banks may hold a special position since they could be considered as internal stakeholders, depending on how the respective financing agreement was structured.310 Such financing agreement could grant the bank rights regarding certain activities of the company, based on which it could influence the decision making process. In addition, creditors have already been granted complainant status with regard to the application for an oppression remedy.311 However, due to the reluctance of courts to grant standing to creditors in general, many creditors will be left with their contracts as legal basis to enforce their rights.312 Although not impossible, this makes it unlikely that a broad range of creditors could derive a right to have their interests considered based on the oppression remedy provisions. Unless a creditor had a position comparable to a debt investor (e.g. to a debt obligation holder), she would be considered as external stakeholder for the purpose of this research. Moreover, another argument to consider banks and creditors in general as external stakeholders within the meaning assigned to this term in Section 2.3.1 above would be that the rights granted to                                             309 Harribey, supra note 280 at 34. 310 VanDuzer, supra note 23 at 562. 311 Ibid at 423-27. 312 Ibid at 423-24.  79  influence the decision making process derive from the financing contracts, and not from the BCBCA.   A special group of external stakeholders to be mentioned would be the beneficiaries of the company’s social or environmental activity. On the one hand, the beneficiaries could be the customers. Suppose a company intends to construct apartments and to rent them at a very low rent to deserving people in order to reduce homelessness. In this case, the beneficiaries of the services provided by that company, i.e. the homeless, would be the customers as well. On the other hand, the beneficiaries could be a group of stakeholders of their own. This would usually be the case where the pursuit of a social or ecological goal is not the purpose of the company stated in the articles, but rather the indirect purpose. An example would be a company that intends to develop, produce and sale more efficient batteries for electric cars in order to increase their power, which could cause more people to switch to electric cars instead of fuel powered cars. If the company were successful, the ultimate beneficiary would be the environment. Being the group of stakeholders most affected by the business of the company, the beneficiaries are probably the paramount external stakeholders of a company.  2.3.5 Summary A company has plenty of stakeholders, i.e. groups that are essential for the existence of a company. While some stakeholder groups may be quite common for several or even all companies, others would be rather specific depending on the company. For the  80  purpose of this research, the stakeholders are split into internal and external stakeholders based on the legally granted ability to influence the decision making process and to enforce their corporate rights. While directors, officers, and shareholders (incl. the impact investor doing an equity investment) form the internal stakeholders, all other stakeholders would be considered as external ones. The corporate legal landscape in Canada does not prohibit the consideration of other stakeholders’ interests. Directors of for-profit corporations may, and sometimes even have to, take into account interests other than the ones of shareholders in order to determine the best interest of the corporation. Several corporate social responsibility theories provide various moral, ethical, political, or other arguments in favour of such consideration. Besides that, taking into account other stakeholders’ interests also provides economic benefits to a corporation (and hence an impact investor).  After having defined the term impact investment and outlined the background of the consideration of stakeholders’ interests by corporate directors, the table is set to turn to the heart of this thesis, the detailed analysis of the CCC. In the following Chapters, the corporate features of the CCC will be thoroughly described and then compared with the corporate features of (private or public) for-profit corporations and of B Corporations.  81  Chapter 3: The Community Contribution Company After the introductory and general remarks, this and the following Chapter will provide an analysis of the CCC and comparison of the corporate forms available, i.e. the community contribution company, the (private or public) for-profit corporation and the B Corporation. The comparison will enable an evaluation of these corporate forms as to their suitability for an impact investment. Since the CCC is a new corporate form; it will be important and necessary to outline its characteristics before it can be compared to other corporate forms. Hence, this Chapter will focus on a detailed description and analysis of the CCC. The discussion will be split into several subtopics and will include the corporate purpose, voting rights, transfer restrictions regarding shares, board composition and representation, the duties of the directors, reporting issues, the distribution of profits and the liquidation proceeds, and potential exits for a shareholder to liquidate its investment. Since it is intended to highlight the distinct characteristics of the CCC, remarks to corporate law in general will only be made if and to the extent necessary. For example, the voting rights will only be discussed if and to the extent the BCBCA contains specific provisions, but shall not be discussed in detail as far as general principles on voting rights are applicable. In addition, comments regarding suitability of the CCC with regard to impact investments will be postponed until Chapter 4. The comparison of the corporate forms with regard to each of the aforementioned subcategories will allow much more informed elaborations on the suitability. This Chapter hence will focus on the description and interpretation of the corporate features of the CCC.   82  3.1 Corporate Purpose As mentioned earlier,313 one of the distinct features of a CCC is its community purpose. S 51.92 BCBCA requires that “[o]ne or more of the primary purposes” of a CCC needs to be a community purpose, which must be set out in the company’s articles. The term “community purpose” is defined as “purpose beneficial to (a) society at large, or (b) a segment of society that is broader than the group of persons who are related to the community contribution company[.]”314 “[P]roviding health, social, environmental, cultural, educational or other services” are listed as examples of potential community purposes, whereas prescribed purposes are excluded.315  This definition of community purpose is apparently very broad and inclusive. As acknowledged by British Columbia’s Minister of Finance (Minister) during the committee hearing of the proposed CCC legislation, the broadness of the definition was intended.316 Although entrepreneurs and investors might appreciate some flexibility, the broadness raises several issues. First, what would be considered as community purpose, i.e. as beneficial to society of a group of persons larger than the related persons, and what not? Need the purpose be directly beneficial to society or such group of persons, or may the benefit be achieved indirectly? Would a purpose beneficial to the environment be acceptable as well? Second, considering that there is no regulatory oversight                                             313 See Section 1.3 above. 314 S 51.91(1) BCBCA. 315 Ibid. Neither the BCBCA nor the CCCReg currently excludes any purposes. Thus the reference to prescribed purposes at the end of the definition of community purpose in s 51.91(1) BCBCA has no relevance for the time being. 316 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11119 (Hon. K. Falcon).  83  comparable to the one for the community interest company in the UK,317 does it matter at all?  3.1.1 The Scope of Beneficiaries of a CCC The beneficiaries according to the definition of community purpose are either the society or “a segment of society that is broader than the group of persons who are related to the community contribution company[.]”318 The term “society” is used elsewhere in the BCBCA, but is defined nowhere. S 29(5) BCBCA uses the term “society” within the meaning of professional associations rather than within a broad understanding as s 51.91(1) “community purpose” (a) BCBCA suggests. Although there is no indication in the parliamentary materials regarding how “society” has to be understood and, in particular, what it would consist of, an educated assumption would be that it should be understood as “[a] community of people, as of a state, nation, or locality, with common cultures, traditions, and interests.”319 This broad understanding would comply with the legislative intention to frame the definition of community purpose as broad as                                             317 Liao, “Next Stage of CSR”, supra note 21 at 80, 82. Without going into the details, while the UK Regulator sees its tasks mainly in providing guidance and assistance in order to facilitate the incorporation of community interest companies, it is also furnished with investigatory and enforcement powers (see generally Office of the Regulator of Community Interest Companies, Chapter 11: The Regulator (Cardiff, UK: Department for Business Innovation & Skills, 2013) at 4-9 [Office of the Regulator of Community Interest Companies, Chapter 11]). As far as the incorporation is concerned, the UK Regulator has to review the purpose and to ensure that the community interest test is satisfied (see Section 3.1.5 below). Thereafter, the UK Regulator is mandated to make sure that the “[community interest company] continues to serve the community it was set up to benefit and that it is not operating in breach of the asset lock” (ibid at 8). Besides appointing or removing directors and ordering the transfer of shares, the enforcement powers of the UK Regulator also includes initiating civil proceedings in the name of the company and applying to the court for the dissolution of a community interest company (ibid at 8-9). 318 S 51.91(1) BCBCA. 319 Black’s Law Dictionary, 9th ed, sub verbo “society”.  84  possible.320 In addition, the fact that the CCCReg does not contain any restriction regarding the community purpose or even a prescribed purpose supports a broad understanding of the term “society”.321 The lack of clarity regarding the legislator’s understanding of “society” might be of little harm due to the minimum threshold in s 51.91(1) “community purpose” (b) BCBCA.  At the lower end of the range of potential beneficiaries, s 51.91(1) “community purpose” (b) BCBCA requires that the beneficial segment of society must be “broader than the group of persons who are related” to the CCC. Persons related to a CCC may be directors, officers and shareholders of the CCC, beneficial owners of shares in a CCC, associates or affiliates of the CCC, directors or officers of a corporation that is itself related to the CCC, or associates or affiliates to any of the aforementioned.322 As far as the term “associate” is concerned, reference is made to s 192(1) BCBCA, which defines it as:  “(a) a partner, other than a limited partner, of the person, (b) a trust or estate in which the person has a substantial beneficial interest or for which the person serves as trustee or in a similar capacity, (c) a spouse, son or daughter of the person, or (d) a relative of the person or of the person’s spouse, other than a relative referred to in paragraph (c), who has the same home as the person[.]”                                              320 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11119 (Hon. K. Falcon). 321 The Minister reserved the possibility to enact further regulation that may limit the scope of the definition (ibid at 11119 [Hon. K. Falcon]; see also the wording excluding prescribed purposes, which has not been defined, in s 51.91(1) BCBCA at the end of the definition of “community purpose”). 322 S 51.91(2) BCBCA.  85  The term “affiliate” is defined in s 1(1) BCBCA and refers to s 2(1) BCBCA, according to which two corporations are affiliated with each other if (a) one is the subsidiary of the other, (b) both companies are subsidiaries of the same company, or (c) each is controlled by the same person.   The range of beneficiaries may not only contain related persons within the meaning set out above, but must be broader.323 However, a first remark to be made is that these related persons could be beneficiaries as well. The wording in s 51.91(1) “community purpose” (b) BCBCA merely prohibits that the beneficiaries of a CCC consist of related persons only. It does not exclude them generally from becoming beneficiaries of a CCC.324 Second, neither the BCBCA nor the parliamentary materials include any indication regarding how much broader the circle of beneficiaries must be. Considering that it could be argued that this requirement would be fulfilled if just one additional, non-related person was included as beneficiary, this lack of clarity could open room for abuse. For example, the directors plus one non-related person could be dedicated as beneficiaries of the services what would render the company’s purpose an abusive character.   Another but somewhat related concern was raised by a member and, to some extent, acknowledged by the Minister during the committee hearing, i.e. the prevention of                                             323 See s 51.91(1) “community purpose“ (b) BCBCA. 324 It is important to keep that in mind since it does not preclude having a representative of the beneficiaries on the board of the CCC. A director would be considered as related person (s 51.91(2) BCBCA).  86  people abusing a CCC.325 The Minister indicated that three measures are intended to prevent an abuse, and to enforce that a CCC is operated for the benefit of all its beneficiaries (and hence in accordance with its purpose). These are namely the community contribution reports according to s 51.96 BCBCA, the remedies available to shareholders,326 and the asset lock according to ss 51.94(1) and 51.95(2) BCBCA.327 In addition, s 51.93(1) BCBCA requires a CCC to have at least three directors, which is intended to provide additional protection.328 While it remains to be seen if and how well these measures work to enforce that the directors act in accordance with the company’s purpose, in my opinion, it has to be doubted whether these measures prevent people from setting an abusive purpose.   Considering that a CCC was designed to benefit the society or a segment of it, a community purpose could be considered as being abusive if it explicitly or de facto provided benefits primarily to related persons.329 This has to be distinguished from the situation where a community purpose indeed benefits the society or a segment of it, but the directors do not act with a view to this purpose and rather manage the company for the benefit of related persons.330 As seen in Section 2.3.3 above, the remedies available to shareholders tend to enforce either the shareholders’ rights or the directors’ duties.                                             325 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11120-21 (B. Ralston) and 11121 (Hon. K. Falcon). 326 See Section 2.3.3 above. 327 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 328 Ibid. 329 See the more detailed discussion in the following paragraph. 330 These issues will be discussed in Section 3.5 below.  87  Hence, these remedies would help in case the directors were not to operate the company for the benefit of the beneficiaries indicated in the company’s purpose. On the other hand, if assets were spent in a way that benefits the company’s beneficiaries, the shareholders’ remedies would prove powerless since the directors complied with the company’s purpose. This would be true even in case the range of beneficiaries mostly included related persons. Therefore, these measures may help enforcing the duty of directors to comply with the stated community purpose, but they may not prevent people from setting an abusive purpose.  In order to determine how big a segment of the society has to be to meet the requirement of s 51.91(1) “community purpose” (b) BCBCA, courts may turn to the developments in the Canadian trust law with regard to charitable trusts. In the absence of a legal definition of charity,331 courts long had to determine whether a trust had a charitable purpose or not. The basis of this case law is a landmark decision of the UK House of Lords from 1891.332 In this decision, it was held that in order to qualify as charitable, a trust had to be set up for either the “[…] relief of poverty; […] the advancement of education; […] the advancement of religion; [or] other purposes beneficial to the community, not falling under any of the preceding heads.”333 Besides that, each activity had to benefit “the public, or some significantly large section of [it].”334                                             331 Donovan WM Waters, Mark R Gillen & Lionel D Smith, Waters’ Law of Trusts in Canada, 4th ed (Toronto: Carswell, 2012) at 721. 332 Special Commissioners of Income Tax v Pemsel, [1891] AC 531 HL (Eng) [Pemsel]. 333 Ibid at 583. 334 Waters, Gillen & Smith, supra note 331 at 722.  88  While the definition of community purpose in s 51.91(1) BCBCA does not require such to fall within one of these four categories, a CCC has to be operated for the benefit of the society at large or a segment of it. Hence, the case law on the public benefit requirement applicable to charitable trusts may be of assistance to courts.  One option to characterize the group of beneficiaries would be to refer to a geographical area.335 With regard to poverty trusts in favour of relatives, it was held that such had to benefit a class of relatives instead of a group of individuals.336 While “[a]n enumerated list of persons” would not be sufficient, a class of persons could be determined by the root of a common ancestor or probably also by a common employer.337 In particular, it is not the size of the group that actually receives something from the trust, but rather the size of the group eligible to benefit from the trust that determines its charitable character.338 Another way of determining the beneficiaries is to refer to institutions such as schools or universities.339 It is not intended to engage in an in depth analysis of the available case law on charitable trusts in this thesis. The case law discussed by Donovan WM Waters, Mark R Gillen & Lionel D Smith indicates that the charitable character has to be determined on a case-by-case basis. The same might be true regarding the determination of whether a community purpose of a CCC complies with the requirement to benefit the society at large or a segment of it.                                              335 See e.g. Re McNab (1925), 56 OLR 676 at 11, 22, 2 DLR 1100 (Ont SC (AD)). 336 Waters, Gillen & Smith, supra note 331 at 731. 337 See generally ibid at 731-34. 338 Ibid at 735. 339 Ibid at 743-44.  89  The combined notion of society and a segment of it in s 51.91(1) BCBCA indicates that the group of persons benefiting from a CCC is meant to be broader than just related persons plus one non-related. This concurs with corresponding remarks made during the second reading of the proposed legislation340 as well as during the committee hearing.341 It would also comply with the interpretation of the range of beneficiaries adopted by the UK Regulator based on the wording in s 35(5) of the Companies (Audit, Investigations and Community Enterprise) Act 2004342 and in s 4 of The Community Interest Company (Amendment) Regulations 2009.343 S 4 CICReg 2009 defines a section of the community as group of individuals that “share[s] a common characteristic which distinguishes them from other members of the community” and which might be considered as a section of the community by a reasonable person. This characterization makes it very difficult to narrow the group of beneficiaries to certain related persons plus one non-related individual. The examples of sections within a community listed by the UK Regulator indicate that a broader range is required.344 In case a community interest company was intended to benefit its members, it would have to prove that it delivers some sort of wider benefit.345 Although the wording in s 35(5) CAICE Act and in s 4                                             340 See e.g. British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10658-59 (S. Simpson; references to communities, neighbourhoods, etc.), 10661 (G. Hogg; disabled, seniors, etc.). 341 See e.g. British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11119 (Hon. K. Falcon; “achieving a broader public good”). 342 Companies (Audit, Investigations and Community Enterprise) Act 2004 (UK), c 27 [CAICE Act]. 343 The Community Interest Company (Amendment) Regulations 2009, SI, 2009/1942 [CICReg 2009]; Office of the Regulator of Community Interest Companies, Chapter 2: Preliminary Considerations (Cardiff, UK: Department for Business Innovation & Skills, 2012) at 4, 6 [Office of the Regulator of Community Interest Companies, Chapter 2]. 344 Ibid at 6. 345 Office of the Regulator of Community Interest Companies, Chapter 4: Creating a Community Interest Company (Cardiff, UK: Department for Business Innovation & Skills, 2013) at 18 [Office of the Regulator of Community Interest Companies, Chapter 4].  90  CICReg 2009 considerably differs from s 51.91(1) BCBCA, the UK Regulator’s interpretation is relevant since the CCC has been modelled after the UK community interest company.346 Considering that the legislative intention points in this direction,347 it may be assumed that courts in British Columbia would also construe the range of eligible beneficiaries accordingly, i.e. broader than only related persons plus an insignificant number of non-related persons.348  Since s 51.91(1) BCBCA lists only the society and a segment of it as potential beneficiaries, it is unclear whether other stakeholders not being a group of persons could be eligible as beneficiaries.349 Despite the intentionally broad wording of the definition of community purpose,350 it seems to be quite clear with regard to this question. In particular, with few exceptions,351 most remarks made in the parliamentary discussion refer to “social enterprise”, to groups of persons as potential beneficiaries (e.g. communities, neighbourhoods, etc.) and to activities of which human beings would benefit only (e.g. education, affordable housing, support of disabled and/or seniors, etc.).352 Hence, a purpose beneficial to stakeholders not consisting of a group of persons                                             346 See Section 1.4.3.3 above. 347 See notes 340 and 341 above. 348 Hence, a CCC would have an abusive community purpose if it either explicitly or at least de facto first and foremost benefited related persons. 349 Remember that society was defined as a community of people at the beginning of this Section. 350 See note 320 and accompanying text. 351 British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10658-59 (S. Simpson; “approach that looks at social, economic and environmental concerns.”); British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11119 (Hon. K. Falcon; “or some environmental benefits in the community”). 352 See e.g. British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10660 (S. Simpson), 10661 (G. Hogg) [emphasis added]. See also the exemplary list of services in s 51.91(1) BCBCA and the discussion in Section 3.1.3 below.  91  (e.g. the environment) seems to be precluded. One might argue that such purpose would benefit the “society at large” within the meaning of s 51.91(1) “community purpose” (a) BCBCA. However, while other stakeholders would directly benefit from the services of the CCC, the society would only benefit indirectly. Does that mean that a CCC would not be available to entrepreneurs (and investors) who intend to provide services to such other stakeholders? This would be the case if s 51.91(1) BCBCA were construed in a way that the purpose had to be directly beneficial to society or a segment of it. On the other hand, if it were allowed to have a purpose that provided an indirect benefit, there would be no such restriction. This distinction is developed further in the following Section.  3.1.2 Direct or Indirect Benefits The BCBCA does not specify in its s 51.91(1) whether the purpose of a CCC has to be directly beneficial to the eligible beneficiaries or not. In order to enable CCCs to provide services beneficial to stakeholders other than persons (e.g. the environment), it could be argued that such purpose would be recognized as community purpose within the statutory definition if the society or a segment of it at least indirectly benefited from these services.353 For example, assume that an entrepreneur intends to develop a new wastewater management system that is capable of recycling much more wastewater than any other treatment so far. While the direct beneficiary would be the water cycle                                             353 As far as charitable trusts are concerned, the UK House of Lords already held back in 1981 that the benefits of a charity have to be either direct or indirect (Pemsel, supra note 332 at 583).  92  and hence the environment, the indirect beneficiary would be the society at large, or at least the communities affected by the waste water released into the water cycle. Neither the BCBCA nor the CCCReg would preclude such interpretation. In particular, considering that the community purpose has to be at least one of many primary purposes,354 several primary purposes could be formulated including both the direct benefit to the environment and the indirect benefit to society.  This interpretation would correspond to the understanding of the UK Regulator with regard to the community interest company in the UK. According to the UK Regulator, “[i]t is not necessary that each activity carried on by the [community interest company] in itself be directly beneficial to the community.”355 On the one hand, the UK Regulator mentions that the benefit to the community could be provided by donations to “charitable or other community benefit purposes.”356 The engagement in any sort of activities would be considered as mean to a beneficial end, i.e. the benefit of the community. On the other hand, a community interest company may be incorporated in order to benefit its members as long as it can prove that it will provide “some wider benefit.”357 As far as the UK regime is concerned, indirect benefits seem to be clearly accepted, but the UK Regulator does not state whether the direct purpose of the company, which indirectly benefits the community or part of it, has to be beneficial itself.                                             354 See s 51.92 BCBCA as well as the discussion in Section 3.1.4 below. 355 Office of the Regulator of Community Interest Companies, Chapter 4, supra note 345 at 17 [emphasis added]; see also Office of the Regulator of Community Interest Companies, Chapter 2, supra note 343 at 7. 356 Office of the Regulator of Community Interest Companies, Chapter 4, supra note 345 at 17. 357 Ibid at 18.  93  For example, could a company that ultimately intends to provide affordable housing solutions build its residences on sensitive land or, in order to save money, go without an expensive heating system depending on renewable energies and rely on non-renewable energies instead?358 As stated above, there is no case law at all regarding the community interest company.359 This question hence has not been answered since Stephen Lloyd raised it back in 2010.360  Regarding the CCC, although most examples mentioned during the second reading in parliament refer to direct benefits to persons,361 nothing in the parliamentary materials indicates an explicit intention to limit the benefits to be generated by a CCC to direct benefits. Au contraire, the intentionally broad wording of the definition of community purpose362 suggests that indirect benefits should be encompassed as well. Moreover, the Minister expressly mentioned during the committee hearing that a CCC could “provide […] some environmental benefits in the community.”363 However, neither the BCBCA nor the parliamentary materials contain anything regarding the question whether the activities that indirectly benefit the society have to be beneficial themselves, and if yes, for whose benefit.                                              358 See also Stephen Lloyd, “Creating the CIC” (2010) 35:1 Vt L Rev 31 at 35. 359 See note 104 above and accompanying text. 360 Lloyd, supra note 358 at 35. 361 See e.g. British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10656-57 (Hon. S. Cadieux), 10658-59 (S. Simpson), 10661 (G. Hogg). 362 See note 316 above with accompanying text. 363 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11119 (Hon. K. Falcon).  94  In my opinion, it was clearly not the intention of the legislator to enable a CCC to harm the environment or any other stakeholder on purpose in order to ultimately provide a benefit to society. Hence, if one of a company’s primary purposes included engaging in activities with the intention to harm the environment or any other stakeholder for the benefit of at least a segment of society, such company should not be eligible to qualify as CCC. On the other hand, it cannot be said that it was the legislator’s intention to impose more obligations on a CCC to protect other stakeholders’ interests than on other companies (e.g. to make sure that only renewable energy is used, that all materials used or consumed are recycled, etc.). Throughout the parliamentary discussion, there was a sense of enabling and encouragement rather than regulating and prescribing certain behaviours.364 Therefore, a CCC should be subject to the same environmental, social security and other legislation applicable to any other corporate form that has been enacted in order to protect the society or a segment of it. Unless the activities indirectly beneficial to society or a segment of it are carried out to harm the environment or other stakeholders, they would not have to be beneficial themselves. This is particularly true since just one of several primary purposes has to be a community purpose and hence beneficial, whereas other purposes could be non-beneficial.365  In summary, while the ultimate beneficiary always has to be the society at large or a segment of it, the benefits provided could be of direct or indirect nature. Hence, a CCC                                             364 See e.g. British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10654-55 (Hon. K. Falcon), 10656-57 (Hon. S. Cadieux). See also Liao, “Next Stage of CSR”, supra note 21 at 80. 365 See s 51.92 BCBCA and Section 3.1.4 below.  95  could provide services that benefit the environment or any other stakeholder not being a group of persons as long as they somehow benefit the society or a part of it.  3.1.3 The Beneficial Services The definition of “community purpose” in the BCBCA lists some examples of the beneficial services a CCC may provide.366 Among others, these services include “health, social, environmental, cultural, [or] educational services[.]”367 Neither the BCBCA nor the CCCReg contains any restrictions regarding services a CCC might offer. In addition, limiting the activities a CCC could carry out has not been considered during the parliamentary discussions. The broad wording allows a CCC to provide any service beneficial to the society or a subgroup within it as discussed above.  According to s 35(4) CAICE Act, in the UK, certain activities can be prescribed as not being considered as activities for the benefit of the community by regulations. Political activities are generally excluded as being activities for the benefit of the community.368 Furthermore, the CICReg 2005 stipulates that “an activity is to be treated as not being an activity which a reasonable person might consider is an activity carried on for the benefit of the community if, or to the extent that, a reasonable person might consider that that activity benefits only the members of a particular body or the employees of a                                             366 S 51.91(1) BCBCA. 367 Ibid. 368 S 3 of The Community Interest Company Regulations 2005, SI, 2005/1788 [CICReg 2005].  96  particular employer.”369 While only the exclusion of political activities depends on the nature of the activity itself, the more general exclusion depends on the beneficiaries of the activity. Besides that, neither the CAICE Act nor any of the regulations contain further provisions regarding activities.370 Hence, it may be concluded that a community interest company could carry out any activity except for political activities as long as it benefits the community or a part of it. Considering the broad wording in s 51.91(1) BCBCA, the same seems to be true with regard to a CCC.  3.1.4 Other Purposes According to s 51.92 BCBCA, one or several primary purposes have to be community purposes. The community purpose is given a paramount role. It needs to be one of the primary purposes of the CCC, not just a subordinated or even parenthetical purpose. Besides that, a CCC may have other (primary or secondary) purposes, including in particular, but not limited to, economic or ecological purposes.  While this explicitly allows for the combination of social and economic or ecological purposes, neither the BCBCA nor the CCCReg contains any provision regarding the relationship between two potentially contradicting primary purposes. A primary purpose presumably would prevail over a contradicting secondary purpose, but directors could face difficulties when balancing two contradicting purposes of equal importance.                                             369 S 4 CICReg 2005 [emphasis added]. 370 See also Office of the Regulator of Community Interest Companies, Chapter 4, supra note 345 at 18 (mentions two kinds of activities only).  97  However, considering that impact investors have two equally important goals, i.e. the pursuit of a social or ecological goal alongside a financial profit,371 this could be exactly what impact investors were looking for.372  3.1.5 The Relevance of the Lack of Clarity One of the main differences between the CCC and the community interest company in the UK is the regulatory overview.373 Not only had the UK Regulator an important role in explaining, administrating and promoting the community interest company, it was also mandated to regulate and overview the new corporate form.374 One of these regulatory tasks is to decide whether the company applying for registration as community interest company is eligible for such status or not.375 In doing so, the UK Regulator has to apply the community interest test according to s 35(2) CIACE Act, i.e. it has to decide whether “a reasonable person might consider that [the company’s] activities are being carried on for the benefit of the community.”376 This means that before a community interest company comes into existence, a regulatory authority examines the company’s proposed activities and its purpose and decides whether it benefits the community or not. In British Columbia, such regulatory overview has not been implemented. Neither                                             371 See Section 2.1.1 above. 372 That issue will be discussed in detail in Section 4.1 below. 373 Liao, “Next Stage of CSR”, supra note 21 at 80-82. 374 Ss 27(3) and 41-51 CAICE Act; see generally Office of the Regulator of Community Interest Companies, Chapter 11, supra note 317; see also Liao, “Next Stage of CSR”, supra note 21 at 80. 375 Ss 36(4) and 38(3) CAICE Act. 376 Stuart Cross emphasised that the broadness of the wording of the community interest test might lead to confusion and uncertainty and was rather sceptical towards the test in general (Cross, supra note 105 at 307-10). The information provided by the UK Regulator added some clarification, but remained quite broad (Office of the Regulator of Community Interest Companies, Chapter 4, supra note 345 at 17-18). As stated earlier, case law in the form of decisions of the Appeal Officer is not available (see note 104 above and accompanying text).  98  has a specialized regulatory authority been established nor has another authority been mandated to exercise such overview, whereas the CCC is only subject to self-regulation, same as other companies.377 In particular, the BCBCA does not explicitly require an examination of the CCC’s designated community purpose prior to its registration. There is no equivalent to the community interest test in the UK.  One could argue that s 408(1)(a) BCBCA requires the Registrar of Companies to examine whether the designated purpose of a company complies with the requirement of s 51.91(1) BCBCA. According to s 408(1)(a) BCBCA, the Registrar of Companies has to be “satisfied that the record and the information contained in it appear to meet the applicable requirements[.]” However, the amendments to this section were considered as rather technical amendments.378 An intention of the legislator to mandate the Registrar of Companies with the task to examine the proposed community purpose of an applying CCC is not evident.379 This is particularly true considering that the Minister refers to self-regulatory measures only during the committee hearing.380 Hence, it has to be concluded that neither Registrar of Companies nor any other authority has been mandated to examine the proposed community purpose of a CCC.381                                              377 Liao, “Next Stage of CSR”, supra note 21 at 80-81. See also British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121, 11122 (Hon. K. Falcon). 378 Ibid at 11127 (Hon. K. Falcon). 379 Ibid at 11121 (B. Ralston), 11121-22 (Hon. K. Falcon). 380 Ibid at 11121 (Hon. K. Falcon). 381 See Liao, “Next Stage of CSR”, supra note 21 at 80-81. The Registrar of Companies does not seem to interpret its role as being mandated to conduct such review (BC Registry Services, “Steps to Incorporating a Community Contribution Company in British Columbia” (2013), online: BC Registry Services <http://www.bcregistryservices.gov.bc.ca/local/bcreg/documents/forms/reg50ccc.pdf>).  99  Having said this, as far as the incorporation process is concerned, the lack of clarity with regard to the community purpose does not seem to have any negative effect. Since the adequacy of the proposed community purpose is not subject to review prior to the registration of the CCC, it would be registered even if the purpose did not entirely comply with s 51.91(1) BCBCA. At least for the time being, it would have the community purpose as stated in its articles in accordance with s 51.92 BCBCA. However, it is unclear if and to what extent the community purpose would be subject to judicial review later on and who would be entitled to request such review.382 Considering that there are measures in place that intend to ensure that the directors comply with the community purpose set forth in the CCC’s articles,383 an instrument to make sure that this purpose itself complies with the definition set forth in s 51.91(1) BCBCA is currently missing, but would be necessary. Other issues relate to the question of what the consequences would be if a court ruled that the purpose did not comply with s 51.91(1) BCBCA. Considering that a reclassification into another corporate form would raise several major issues (e.g. for-profit or non-profit corporate form, effect on the investments made by investors who wanted to invest in a CCC, etc.), the only option in such case seems to be the dissolution of the CCC. Since many procedural issues would affect this discussion, which would go far beyond the scope of this research, it shall be left to others (especially the courts) to clarify these questions. As far as impact investors are concerned, it may be argued that the lack of a regulatory authority that reviews the                                             382 The group of persons entitled to request such review does not necessarily need to be the same as the one entitled to hold directors accountable for not acting with a view to the community purpose (see Section 3.5 below). 383 See Section 3.5 below.  100  proposed community purpose at the incorporation does not have an influence on the investor’s investment decision. If a CCC were incorporated for the benefit of primarily related persons, no impact investor would invest in this CCC since an impact investor wants to address social or ecological problems.384  3.1.6 Summary In conclusion, the intentionally broad definition of community purpose allows the incorporation of a CCC that (at least indirectly) benefits the society at large or a segment of it, which has to be much broader than just persons related to the CCC. In order to achieve its purpose, a CCC may engage in any activity supporting the achievement. No regulatory authority reviews the proposed community purpose before the registration of the CCC. While measures were put in place to protect the CCC’s assets and to ensure that they are used in furtherance of the community purpose, there is no mechanism in place yet that makes sure that the community purpose itself complies with s 51.91(1) BCBCA. It remains to be seen whether courts will put more substance to the definition, thereby narrowing it, or not, and whether they will allow for a judicial review of the purpose. If they do so, they will have to determine the consequences of a purpose not complying with the then narrowed definition of community purpose. We now leave the discussion of the community purpose and move to the voting rights granted to shareholders of a CCC.                                              384 See the definition of impact investments in Section 2.1.1 above.  101  3.2 Voting Rights First of all, it is worth noting that s 51.94(1)(b) BCBCA requires that shareholders vote on and approve the distribution of a dividend before it is declared.385 Without such approval, the declaration of a dividend would not be in accordance with the BCBCA and the directors could be held liable.386 The approval requires the affirmative vote of at least a majority of the votes cast according to s 51.94(1)(b) in connection with s 1(1) “ordinary resolution” (a) BCBCA. Conversely, this means that only a majority of the votes cast could prevent a CCC from declaring a dividend. If a dividend proposal were approved, at least theoretically, it would still be in the director’s discretion to declare it or not.387 However, considering that it would be highly unlikely for directors not to declare a dividend after shareholders having approved one upon a proposal of the directors themselves, the power to declare a dividend in a CCC is de facto shifted from the directors to the shareholders.388 In this case, the actual declaration of the dividend becomes a mere formality.  Second, if a company intends to alter its articles in order to become a CCC, all shareholders, “whether or not their shares otherwise carry the right to vote”, have to                                             385 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11123 (Hon. K. Falcon). 386 S 154(1)(f) BCBCA. 387 This discretion would be no longer theoretical in case the shareholders’ vote was cast upon a shareholders’ proposal in accordance with ss 187 ff. BCBCA. In this case, it would be the directors’ responsibility to verify whether a dividend would comply with s 51.94 BCBCA, the CCCReg and the articles. If one of these conditions were not met, the directors would have either to recommend rejection of the dividend proposal to the shareholders or, in case the shareholders approved a dividend despite contravening the restrictions, to not declare a dividend, otherwise they would become liable (s 154(1)(f) BCBCA). 388 See with regard to the traditional allocation of such power s 70 in connection with s 136(1) BCBCA. See also VanDuzer, supra note 23 at 231-32.  102  approve such alteration according to s 51.97(2) BCBCA. The same applies in case a proposed amalgamation would result in a CCC.389 Due to the restrictive provisions governing a CCC, these two provisions grant every shareholder a veto right regarding a transformation, or amalgamation resulting in a CCC.390  Besides that, the provisions on voting rights applicable to any corporation under the BCBCA apply to the CCC as well.391 Since this Chapter focus on the particularities of a CCC, reference shall be made to the existing literature on voting rights in a corporation.392  Although limited to fundamental issues, voting rights grant the shareholders a statutory instrument to participate actively in the management of a company.393 The requirement to obtain shareholders’ approval prior to the declaration of a dividend provides the CCC and its shareholders with additional protection that it cannot be stripped of its assets through random dividend declarations, at least theoretically.394  3.3 Transfer Restrictions Regarding the Shares Provisions that restrict the transferability of shares might be boon and bane at once for an impact investor, in particular with regard to an investment in a private company.                                             389 S 51.98(2)(b) BCBCA. 390 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11125 (Hon. K. Falcon). 391 See note 61 above with accompanying text. 392 See e.g. VanDuzer, supra note 23 at 6-40. 393 See ibid at 255-56. 394 See Section 4.2 below.  103  While they may prevent shareholders who are also actively engaged in the company’s business and whose contribution to such business is of essence from leaving, they may restrict an investors’ ability to liquidate her investment.395  Except for s 51.941 BCBCA,396 no other statutory provision restricts the transferability of shares in a CCC. Hence, the shares can be freely transferred among shareholders or to third parties unless the company’s articles or a unanimous shareholders’ agreement sets out otherwise.397 For example, if the articles provided for a class or series of shares that could only be hold or beneficially owned by qualified entities in order to allow an unrestricted distribution of dividends according to s 5 CCCReg,398 these shares could only be transferred to other qualified entities. Since there are no statutory restrictions regarding the transferability of shares, one could include any imaginable restriction in the articles or a shareholders’ agreement.399 The articles of a CCC or an agreement among its shareholders could be drafted in any way to meet the specific needs of an impact investor.400  Although there are no statutory transfer restrictions, the shares of a CCC could be subject to factual transfer restrictions in the market. First, because a CCC is governed                                             395 See generally VanDuzer, supra note 23 at 164. Concerning the exit possibility, see Section 3.8.1 below. 396 This exemption relates to the redemption or repurchase of shares only and will be discussed in more detail in Section 3.8 below. 397 VanDuzer, supra note 23 at 164-65. See also s 58(1)(b) BCBCA. 398 See Section 3.7.1 below. 399 See VanDuzer, supra note 23 at 225 (“characteristics that may be given to shares are restricted only by the imagination of the person drafting the articles”). 400 See generally ibid at 226, 292-94.  104  by rather restrictive provisions (e.g. the dividend and interest cap, the asset lock, etc.), the interest in buying shares in a CCC could be lower than with regard to a regular private corporation. Hence, it could be harder to find a potential purchaser for these shares.401 Second, the restrictions regarding dividends, asset distributions and share redemption would be taken into account in the calculation of the price for the shares and are likely to negatively affect the price per share.402 A detailed discussion of the valuation of a company’s share price and of factual transfer restrictions in general would go beyond the scope of this research. Nevertheless, it may be concluded that unless the articles of a CCC require that a class or series of shares may only be held by qualified entities, its shares are not subject to any legal transfer restrictions.  Although transfer restrictions do not contribute anything to the protection of a CCC’s assets, they are nevertheless relevant from an investor’s point of view with regard to investments in private companies. On the one hand, she wants to ensure that the original entrepreneur who developed the business idea, started the business, and remains essential to its continuance cannot leave the company by simply selling its shares. On the other, she wants to be able to sell her shares as freely as possible when liquidating her investment.403 The CCC framework grants flexibility by not prescribing or precluding any transfer restrictions.                                              401 Ibid at 164, 293. 402 See Lloyd, supra note 358 at 37. 403 See generally VanDuzer, supra note 23 at 164.  105  3.4 Board Composition and Representation S 51.93(1) BCBCA requires a CCC to have at least three directors.404 While a public company within the meaning of s 1(1) BCBCA is also required to have a minimum of three directors, any other private company is allowed to have fewer directors, but at least one.405 The intention behind this raise of the bar compared to other private companies was to make sure that a CCC is indeed operated for the benefit of the community as set out in its articles.406 All those three directors would be liable to ensure that the CCC achieves its purpose, which is intended to implement some sort of self-regulation.407 The duties of directors, which will be elaborated in detail in the following Section, equally apply to all directors.  As far as the personal qualification of a prospective director is concerned, no other limitations or restrictions than set out in s 124 BCBCA apply.408 A CCC is hence subject to the same provisions as any other for-profit corporation.  Besides the requirement of at least three directors and the general restrictions regarding qualification as director, the BCBCA does not contain any provision concerning the                                             404 The UK legislation with regard to the community interest company does not contain any provision concerning the composition of the board of directors. According to the UK Regulator, the company law’s general provisions on directors apply to a community interest company as well (Office of the Regulator of Community Interest Companies, Chapter 9: Corporate Governance (Cardiff, UK: Department for Business Innovation & Skills, 2013) at 3 [Office of the Regulator of Community Interest Companies, Chapter 9]). 405 S 120 BCBCA. 406 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). See also the discussion in Section 3.1.1 above. 407 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 408 Ibid. See generally VanDuzer, supra note 23 at 273-75.  106  composition of the board of directors of a CCC. In particular, there is no requirement for a CCC to have an independent director.409 On the one hand, this means that, although not being excluded from becoming a director,410 the beneficiaries are not entitled by the statute to a mandatory board representation. Getting a board representative would be up to negotiations with the CCC and/or its shareholders and, in any case, subject to the latter’s approval by voting in favour of that representative’s election. Considering that the legislator intended to rely on self-regulation in order to protect the CCC from abuse, granting such mandatory board representation would have been a powerful tool to ensure that it achieves its purpose. The same would apply to a request for a representative by an impact investor. On the other hand, the absence of any further restrictions leaves considerable flexibility to the shareholders of a CCC and potential investors to agree on the composition of the board.  In conclusion, the requirement to have at least three directors may indeed be expected to provide some additional protection to the assets of a CCC. The passing of board resolutions in a CCC will usually require the consent of at least two directors, and these two directors would be liable for any transfer of assets that did not comply with the BCBCA.411 However, considering that most corporations will have three or more directors after having exceeded a certain size, this requirement would not have any                                             409 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 410 See Section 3.1.1 above. 411 See the discussions in Sections 3.5 and 3.7 below.  107  significance anymore thereafter. Hence, besides the increased number of directors, the duties these directors are subject to are intended to provide further protection.  3.5 Duties of the Directors As indicated in the beginning of s 51.93(2) BCBCA, the general duties of a director outlined in s 142(1) BCBCA apply to directors of a CCC as well. In particular, this includes the fiduciary duty, i.e. the duty to act in the best interest of the corporation (s 142(1)(a) BCBCA), as well as the duty to care, i.e. to exercise the director’s mandate carefully and diligently (s 142(1)(b) BCBCA).412   In addition to the duties imposed on directors of a CCC by s 142(1) BCBCA, s 51.93(2) BCBCA requires them to “act with a view to the community purposes of the company set out in its articles.”413 The purpose of this provision is to link the fiduciary duty to the community purpose.414 In particular, the legislator intended to ensure that “there is a heightened sense of fiduciary obligation for directors and officers in this case.”415 What this exactly means for a CCC’s directors needs some more elaboration.                                              412 See generally VanDuzer, supra note 23 at 340-89. See also the discussion in Section 2.3.2.1 above. 413 As far as the community interest company in the UK is concerned, there is no specific provision imposing direct duties on directors of such company. However, the UK Regulator is entitled to exercise its supervisory powers in certain circumstances, which indirectly impose obligations on the directors (e.g. and in particular to ensure that the company continues to satisfy the community interest test, see s 41(3) CIACE, see also Office of the Regulator of Community Interest Companies, Chapter 9, supra note 404 at 4). 414 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121-22 (Hon. K. Falcon). 415 Ibid at 11122 (Hon. K. Falcon).  108  First, a director’s actions would have to “match” the community purpose of the CCC.416 If interpreted narrowly, one could argue that any action of a CCC’s director that does not directly contribute to the community purpose could be considered as a breach of its duty. For example, assume a CCC intends to provide affordable housing solutions to poor people. Assume further that one of several tendered project proposals was adopted. Soon after the beginning of the excavation phase, the directors become aware that the project would cost much more than expected. Regardless of the consequential delay, they decide to stop the project and to tender new and especially cheaper proposals. By applying a narrow interpretation, one could now argue that by deciding to stop the project, the directors breached their duty to act with a view to the community purpose since the consequential delay of the construction also delays the achievement of the purpose and that therefore, they have not acted with a view to the community purpose. This could lead to litigation cases similar to the ones that arose under the ultra vires doctrine.  In brief, in the earlier days, a company was required to state in its articles what its objects are and what activities it could engage in.417 Any activity that did not comply with the objects set out in the company’s articles was considered ultra vires and obligations towards third parties entered into by the company were not enforceable.418 This doctrine was abolished by the CBCA in 1975 by declaring third party claims towards the                                             416 Ibid at 11121 (B. Ralston). 417 VanDuzer, supra note 23 at 92, 166. 418 Ibid at 166, 214 (note 46).  109  company as valid and enforceable regardless of any restrictions that might be stated in the company’s articles.419 There is no indication that s 51.93(2) BCBCA was meant to overrule s 33(2) BCBCA and to reinstate the ultra vires doctrine. However, if an action by a director was considered as not having been made with a view to the community purpose, the director could be held liable based on s 51.93(2) or s 154(1)(f) BCBCA.420   In my opinion, a narrow interpretation would be too restrictive and could not be read into the intention of the legislator to link the fiduciary duty to the community purpose. Rather, a broader interpretation would be desirable, according to which a director’s action would meet this raised standard, if, taking into account reasonable business considerations, it directly or indirectly contributed to the achievement of the community purpose or at least secured the operations of the CCC for the long term, and was in the best interest of the corporation. This interpretation would allow directors to make decisions that might not benefit the community purpose at the time the decision was made, but would ensure                                             419 Ibid at 94, 214 (note 46). The same applies in British Columbia (see s 33(2) BCBCA). See with regard to the possible continuance of this doctrine Christopher C Nicholls, Corporate Law (Toronto: Emond Montgomery Publications, 2005) at 182-84 [Nicholls, Corporate Law]. 420 S 154(1)(f) BCBCA provides for a liability of directors of a CCC for asset transfers that were made contrary to Part 2.2 of the BCBCA. This general reference would also include any transfers that were not made with a view to the community purpose, although the legislator primarily intended to enforce the dividend and asset transfer restrictions by implementing this liability, and not particularly the directors’ duty to act with a view to the community purpose (British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11125 (B. Ralston and Hon. K. Falcon)). Presumably, whether transfers not made with a view to the community purpose are included in s 154(1)(f) BCBCA might not be relevant in most cases. If the courts interpreted the reference in s 154(1)(f) BCBCA verbatim, directors would be liable under this provision or under s 51.93(2) BCBCA, alternatively, in case their powers were not exercised with a view to the community purpose. If possible, it would be recommendable for a liability claimant to ground its claim on s 51.93(2) BCBCA since a director could exculpate himself from liability under s 154 BCBCA based on s 157 BCBCA. But if the reference was interpreted narrower, i.e. as reference to the dividend and asset transfer restrictions only, directors could be held liable under s 51.93(2) BCBCA only. Therefore, since s 51.93(2) BCBCA provides the more preferable basis for a liability claim, claimants are expected to rely on this basis unless the circumstances forced them to rely on s 154(1)(f) BCBCA.  110  that the CCC is able to provide its services in the future. In addition, it would provide enough flexibility for courts to consider the facts of the respective case. The inclusion of the best interest of the corporation would make it clear that the direct or indirect contribution to the achievement of the community purpose is in addition to the traditional fiduciary duty. Finally, it would reduce the threat of being held liable for any action that does not directly contribute to the community purpose.  Second, s 51.93(2) BCBCA could be interpreted to require directors to mandatorily consider the interests of a certain group of stakeholders, i.e. the beneficiaries of the CCC. As discussed in Section 2.3.2.1 above, directors are not generally obliged to consider the interests of shareholders or other stakeholders. Since directors of a CCC are not only required to act in the best interest of the corporation, but also with a view to the community purpose, they need to be aware of the needs of the community for which the CCC intends to provide services. For example, given the same purpose as in the preceding example, the directors of that CCC would need to know what affordable means from the perspective of the poor people that are intended to move into these residences. Without knowing what the beneficiaries need, directors may not know whether their acts or decisions actually contribute to the achievement of the community purpose or not. Their decision-making process would be somewhat speculative. In conclusion, while directors still have to act in the best interest of the CCC itself, the requirement to act with a view to the community purpose should be interpreted to impose a mandatory obligation to consider the interests of a CCC’s beneficiaries when determining the best interest of the corporation. This extended interpretation would also  111  comply with the legislator’s intention to increase the fiduciary duties of the directors of a CCC.421 Furthermore, despite the possibility to invoke the “business judgment rule”, which will be discussed in the following paragraphs, courts should be able to examine whether the directors have considered the interests of the beneficiaries or not.  Third, the requirement to act with a view to the community purpose in s 51.93(2) BCBCA should be regarded as additional precondition to the application of the “business judgment rule”. The “business judgment rule”422 requires deference of the courts to business decisions of the directors if they “have been made honestly, prudently, in good faith and on reasonable grounds.”423 Courts usually lack the business experience directors have and hence should not interfere with the decisions made by the persons commissioned to manage the business of a corporation.424 Moreover, courts will always have the benefit of hindsight, but directors have to make a decision on                                             421 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11122 (Hon. K. Falcon). The UK legislator had refrained from including any specific provisions with regard to the duties of a community interest company’s directors (see Cross, supra note 105 at 313). The major concerns had been that it could raise issues with regard to the interaction between the general duties of directors, to which the directors of community interest companies are also subject, and the consideration of stakeholders’ interests, as well as with regard to the determination of the group of stakeholders (ibid at 313). However, the UK Regulator suggests that in practice, the directors would have to consider the interests of the community which should benefit from the services of the company in order to ensure that the company continues to satisfy the community interest test (Office of the Regulator of Community Interest Companies, Chapter 9, supra note 404 at 4; see also Cross, supra note 105 at 312, 314).  422 The term as well as the concept originate from the US and have been adopted by Canadian courts thereafter with some modifications (Peoples, supra note 21 at para 64; see generally VanDuzer, supra note 23 at 382-84). 423 CW Shareholdings Inc v WIC Western International Communications Ltd (1998), 39 OR (3d) 755 at para 59, 1998 CanLII 14838, (Ont Gen Div) [WIC cited to CanLII]. 424 Ibid; Peoples, supra note 21 at para 64; BCE, supra note 229 at para 40; see also VanDuzer, supra note 23 at 382-83.  112  beforehand in a timely manner and maybe without having all information available.425 In order to benefit from the “business judgment rule”, a decision by the directors must “have been made honestly, prudently, in good faith and on reasonable grounds.”426 While the “business judgment rule” should also be applied to decisions made by directors of a CCC,427 courts should examine whether a decision has been made with a view to the community purpose as a precondition to the “business judgment rule”.  As stated earlier, the requirement to act with a view to the community purpose was implemented in order to expand the fiduciary duty.428 Hence one could argue that the fiduciary duty (and also the duty to act with a view to the community purpose) is subject to full judicial scrutiny since the “business judgement rule” has been developed in connection with the duty of care according to s 122(1)(b) CBCA (which corresponds to s 142(1)(b) BCBCA).429 On the other hand, it could be argued that courts will refuse to second guess, and defer to the director’s business decisions if such are made prudently, diligently and on reasonable grounds, i.e. if the duty of care is fulfilled.430 In                                             425 Ibid at 383; Kevin P McGuinness, Canadian Business Corporations Law, 2nd ed (Markham, Ont.: LexisNexis Canada, 2007) at 935. See also WIC, supra note 423 at para 62. 426 Ibid at para 59; see also VanDuzer, supra note 23 at 383. 427 The parliamentary materials do not show any intention to make decisions of a CCC’s directors subject to judicial scrutiny from a business point of view. 428 See notes 414 and 415 above and accompanying text. 429 See Peoples, supra note 21 at para 64; see also VanDuzer, supra note 23 at 382. 430 The distinction made in Peoples is less apparent in BCE, supra note 229 at para 40. See also WIC, supra note 423 at para 59 (“In assessing whether or not directors have met their fiduciary and statutory obligations […] Canadian courts have generally approached the subject on the basis what has become known as the “business judgment rule”.”) and Maple Leaf Foods Inc v Schneider Corp (1998), 42 OR (3d) 177 at para 36, 44 BLR (2d) 115, (Ont CA). Interestingly, the latter is cited in Peoples, supra note 21 at para 65. Nicholls and McGuinness also mention that as long as the directors have followed an appropriate process (i.e. have acted honestly, prudently, carefully, etc.), they would not have to justify the decision itself (Nicholls, Corporate Law, supra note 419 at 306; McGuinness, supra note 425 at 961).  113  this case, if the requirement to act with a view to the community purpose were regarded as being part of the fiduciary duty according to s 142(1)(a) BCBCA, the “business judgment rule” would give directors an opportunity to prevent courts from examining whether their decisions complied with that requirement as long as they proved that they met their duty to care. This would render the legislator’s intention unsatisfied. Hence, the requirement of s 51.93(2) BCBCA cannot be understood as being included in the fiduciary duty, but rather as additional duty.431 Therefore, the appropriate time to examine whether directors have acted with a view to the community purpose would be when reviewing the preconditions of the application of the “business judgment rule”.  The proposal that the “business judgment rule” should generally apply to decisions made by a CCC’s directors does not suggest that the existing case law restricting the application of the rule should not be applicable. For example, courts have refused to apply the “business judgment rule” in case a director had a clear conflict of interest and did not inform the board sufficiently.432 On other occasions, the application of the “business judgment rule” was rejected as far as the compliance with legal obligations is concerned.433 There is no reason apparent why directors of a CCC should benefit from the “business judgment rule” where directors of regular corporations would not, in                                             431 The broad interpretation proposed earlier in this Section would consider this. 432 See e.g. UPM-Kymmene Corp v UPM-Kymmene Miramichi Inc (2002), 27 BLR (3d) 53 at para 13, 214 DLR (4th) 496, (Ont Sup Ct J); affirmed in UPM-Kymmene Corp v UPM-Kymmene Miramichi Inc (2004), 42 BLR (3d) 34 at para 5-7, 250 DLR (4th) 526, (Ont CA). 433 See e.g. Kerr v Danier Leather Inc, 2007 SCC 44 at para 55, 3 SCR 331.  114  particular considering that a CCC’s directors are intended to be subject to a “higher level of accountability[.]”434   In summary, when determining whether decisions of directors of a CCC were made with a view to the community purpose, courts should apply a broad interpretation since a narrow interpretation would mean that a decision or an act would be considered as a breach of duty if it did not directly contribute to the achievement of the community purpose. The requirement set out in s 51.93(2) BCBCA should be interpreted to also require directors to mandatorily consider the beneficiaries’ interests in order to determine the CCC’s best interests, which should be subject to judicial scrutiny. However, if the directors acted prudently, diligently, on reasonable grounds and with a view to the community purpose, they could benefit from the “business judgment rule”.   It is questionable to whom the duty to act with a view to the community purpose is owed and, related thereto, who would be entitled to hold directors accountable. As elaborated earlier, liability claims could be based on either s 51.93(2) or s 154(1)(f) BCBCA.435 Under the latter provision, the claimant either is the CCC itself or, based on s 232(2) BCBCA, every shareholder in the name and on behalf of the CCC. S 51.93(2) BCBCA does not state to whom the duty to act with a view to the community purpose is owed.                                             434 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 435 See note 420 above.  115  The proximity to the fiduciary duty suggests that it is owed to the company as well.436 In this case, it would be the company and, again based on s 232(2) BCBCA, the shareholders on behalf of the company who could enforce this duty and claim damages. In order to ensure that the directors act with a view to the community purpose, the legislator relied primarily on the existing remedies available to shareholders.437 In addition, the requirement to have at least three directors was supposed to increase the level of accountability.438 Despite the proposed interpretation regarding the consideration of the beneficiaries’ interests as stated earlier in this Section, an intention of the legislator to expand the group of persons who are entitled to claim damages on behalf of the company or even on their own behalf is not apparent. Hence, it is assumed that it is still only the company or the shareholders who could hold the directors accountable for not complying with the community purpose. However, it cannot be excluded that courts could grant standing in liability litigation to the beneficiaries of a CCC. In this case, they would also have to determine whether the beneficiaries could only claim liability in the name and on behalf of the company (similar to s 232(2) BCBCA), damages for their own personal losses, or even both. Due to the proposed interpretation that the duty to act with a view to the community purpose should be considered as to be owed to the company, it is not intended to elaborate further on this (at least for the time being) hypothetical scenario.                                             436 The Minister referred to the intention “to expand the fiduciary duty to include the community purposes” (British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121-22 (Hon. K. Falcon) [emphasis added]). See generally with regard to the beneficiary of the fiduciary duty VanDuzer, supra note 23 at 339. 437 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 438 Ibid; see Section 3.4 above.  116  According to s 51.93(3) BCBCA, s 137 BCBCA does not apply to a CCC, which means that the powers of directors of a CCC neither may be transferred nor restricted. This prevents a CCC from implementing a more sophisticated management structure.439 A provision in the articles transferring or restricting, or enabling the directors to transfer or restrict, the powers to manage or supervise the management could not be implemented. Although the board of directors may appoint other persons to provide support, it cannot delegate its powers based on s 137 BCBCA. Furthermore, the shareholders may not attract these powers to themselves, which would be possible according to s 137(1) BCBCA.440 The power to manage the CCC hence remains, and has to remain, with the directors.  As indicated by the Minister,441 one way to ensure that the directors act and make decisions that contribute to the achievement of the community purpose is the obligation of the directors to produce and publish a community contribution report according to s 51.96 BCBCA. Although a duty of the directors, it will be discussed together with the reporting in general in the following Section.  3.6 Reporting The financial statements are one of the most common reporting tools. Unless exempted according to s 197 BCBCA, like the directors of any regular corporation, the directors of                                             439 Compare VanDuzer, supra note 23 at 282. No such restriction applies to a community interest company in the UK (see Office of the Regulator of Community Interest Companies, Chapter 9, supra note 404 at 3-4). 440 VanDuzer, supra note 23 at 295 (note 105). 441 See note 327 above with accompanying text.  117  a CCC are required to produce and publish financial statements with regard to the latest completed financial year.442 In short, each financial statement has to be produced in accordance with the applicable regulations (s 198(4) BCBCA), approved by the directors before being published (s 199(1)(a) BCBCA), and, unless waived by all shareholders based on s 203(2)(a) BCBCA, audited by the company’s auditors. The audit report has to be attached to the financial statements published (s 199(2)(a) in connection with s 212(1)(a) BCBCA). The preparation, auditing, and publication of the financial statements of a CCC follow the general provisions applicable to financial statements.443 However, as prescribed by s 51.951 BCBCA, the shareholders cannot waive the production and publication of financial statements based on s 200 BCBCA.444 According to the Minister, the financial statements are an important mean to monitor the CCC in order to ensure that it complies with the asset lock and the dividend restrictions.445  In addition to the financial statements, s 51.96(2) BCBCA requires the directors of a CCC to annually produce and publish a so-called community contribution report. In this report, the directors have to disclose, among others, the manner in which the                                             442 S 198(2) BCBCA. 443 See ss 197-226 BCBCA. This approach corresponds to the one taken with regard to the community interest company in the UK (see Office of the Regulator of Community Interest Companies, Chapter 8: Statutory Obligations (Cardiff, UK: Department for Business Innovation & Skills, 2013) at 3 [Office of the Regulator of Community Interest Companies, Chapter 8]). 444 The possibility to waive the appointment of auditors remains available to a CCC since s 51.951 BCBCA does not preclude the application of s 203(2) BCBCA. 445 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11124 (Hon. K. Falcon). In the UK, every company is required to prepare individual financial statements for every year according to s 394 Companies Act 2006 (UK), c 46. There is no possibility for shareholders to waive the financial statements. See also Office of the Regulator of Community Interest Companies, Chapter 8, supra note 443 at 3.  118  company’s business benefited society including the assets transferred to contribute to the community purpose, the purpose of such transfer, the dividends declared during the financial year and details on the remuneration and position of persons whose remuneration during the financial year was at least $75,000.446 According to s 9(b) CCCReg, the financial statements have to be attached to the community contribution report. The requirement to produce and publish a community contribution report intends to increase transparency and enable public scrutiny.447 It corresponds to the UK requirement of community interest companies to produce a community interest company report.448 While the items to be disclosed in the community contribution report are very similar to the ones according to ss 26-28 CICReg 2005, community interest companies in the UK are additionally required to provide details on how it consulted with their stakeholders on its activities and what the outcome of such consultation was.449 A CCC is not required to do such disclosure. With the necessary amendments, the model                                             446 A detailed list of items to be included is set out in s 51.96(2)(a)-(g) BCBCA and s 9(1) CCCReg. 447 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11124 (Hon. K. Falcon). 448 S 34 CAICE Act; see also Office of the Regulator of Community Interest Companies, Chapter 8, supra note 443 at 3-4. 449 S 26(1)(b) CICReg 2005. See also Office of the Regulator of Community Interest Companies, Chapter 8, supra note 443 at 4. Cross mentions that there would be the possibility that directors merely affirm that they have engaged with stakeholders (Cross, supra note 105 at 314). First of all, s 26(1)(b) CICReg 2005 requires more than just that. The directors do not only have to disclose the fact that they have engaged with stakeholders, but also what the outcome of such consultation was. In addition, the UK Regulator may follow up with the company on issues in the report (see Office of the Regulator of Community Interest Companies, Chapter 11, supra note 317 at 5). However, another concern raised by Cross that has more merit addresses the question of the enforceability of the consideration of stakeholders’ interests, either through the UK Regulator or through the stakeholders themselves (Cross, supra note 105 at 312-15).  119  reports provided by the UK Regulator with regard to community interest companies may help directors of a CCC to produce their community contribution report.450  Despite the similarities, there are two very important differences between the community contribution report according to s 51.96(2) BCBCA and the community interest company report required by s 34 CAICE Act. The first difference relates to the publication of the report, whereas the second one, although connected, relates to its examination.  First, community interest companies in the UK are required to file their community interest company report together with the annual financial statements with the registrar of companies in the UK.451 The BCBCA does not provide for a similar filing. It only requires the publication of the report.452 As defined in s 51.96(1) in connection with s 1(1) BCBCA, “publish” means that the report has to be placed before the shareholders at an annual general meeting and to be deposited in the company’s record office. Hence, a CCC is only required to publish its community contribution report in the same manner as its financial statements.453 However, in order to make the community contribution report available to a wider range of interested persons and hence to enable                                             450 Office of the Regulator of Community Interest Companies, “CIC34: community interest company report” (2013), online: Government of the UK <https://www.gov.uk/government/publications/form-cic34-community-interest-company-report>. 451 S 34(2) CAICE Act; Office of the Regulator of Community Interest Companies, Chapter 8, supra note 443 at 3. 452 S 51.96(2) BCBCA. 453 Liao, “Next Stage of CSR”, supra note 21 at 80.  120  the public to monitor the CCC,454 the report needs to be posted online on the company’s publicly accessible homepage, if any.455  The second significant difference is that the community interest company report in the UK is subject to review and examination by the UK Regulator.456 The report hence forms an important tool of the regulatory supervision. In particular, it allows the UK Regulator to examine on an ongoing basis whether the community interest company continues to satisfy the community interest test.457 The CCC is not subject to regulatory overview at all, whereas it is left to the public to monitor the company by obtaining the report from the company’s website.458   As far as time issues are concerned, the community contribution report needs to refer to the “most recently completed financial year[.]”459 This corresponds to the time frame required to be covered by the financial statements according to s 198(2)(a) BCBCA. The report is intended to provide additional information to the numbers disclosed in the                                             454 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 455 S 51.96(4) BCBCA. This does not require a CCC to have a website at all (British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11124 (B. Ralston and Hon. K. Falcon)). 456 S 34(4) CAICE Act requires the registrar of companies to forward the report to the UK Regulator. See also Office of the Regulator of Community Interest Companies, Chapter 8, supra note 443 at 4; Office of the Regulator of Community Interest Companies, Chapter 11, supra note 317 at 5; Liao, “Next Stage of CSR”, supra note 21 at 80. 457 Office of the Regulator of Community Interest Companies, Chapter 8, supra note 443 at 4; Liao, “Next Stage of CSR”, supra note 21 at 80. 458 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon), 11122 (Hon. K. Falcon), 11124 (Hon. K. Falcon); see also Liao, “Next Stage of CSR”, supra note 21 at 80. 459 S 51.96(2) BCBCA.  121  financial statements for the same period.460 Furthermore, according to s 51.96(2) BCBCA, the report has to be published the latest on the day “by which the annual general meeting is required to be held under section 182(2) [BCBCA.]”  As stated above, the report has to disclose the assets transferred and the dividends declared during a financial year (s 51.96(2)(b), (d) and (e) BCBCA). These disclosure requirements are intended to make sure that the directors of a CCC comply with the asset lock and the restrictions on dividend declarations, to which we turn now.  3.7 Distribution of Profits and Liquidation Proceeds While the CCC is a going concern, there are two mechanisms that protect it from being stripped of its assets, i.e. an asset lock in s 51.931 BCBCA and a restriction on dividends in s 51.94 BCBCA. The following paragraphs will deal with the dividend restriction first and thereafter with the asset lock since the latter will lead into the discussion of the distribution of assets upon dissolution of a CCC according to s 51.95 BCBCA.  3.7.1 Restrictions on Dividends According to s 51.94(1) BCBCA, the declaration of a dividend requires two things, i.e. that such “declaration is in accordance with the regulations” (subsection (a)) and that                                             460 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11124 (B. Ralston and Hon. K. Falcon).  122  the CCC’s shareholders have approved such declaration beforehand (subsection (b)). The shareholders’ approval was discussed earlier,461 whereas the compliance with the regulations is of interest here.  The CCCReg limits the dividend that may be declared to a maximum of 40% of the CCC’s profit for the completed financial year plus any unused dividend amount for any previous year.462 The “unused dividend amount” is defined in s 4(2) CCCReg as being the difference between the maximum amount that could have been declared to be distributed as dividend and the amount actually declared to be distributed. The following fictional numerical example shall illustrate the dividend calculation of a CCC as set forth by the CCCReg. Financial Year Profit (in $) Distributable Dividend (40%; in $) Aggregate Distributable Amount (in $) Dividend Declared (in $) Unused Dividend Amount (in $) 1 10,000 4,000 4,000 0 4,000 2 20,000 8,000 12,000 10,000 2,000 3 80,000 32,000 34,000 0 34,000 4 50,000 20,000 54,000 50,000 4,000  The unused dividend amount can always be added to the 40% share of the profit distributable according to s 4(1)(a) BCBCA. In case the aggregate amount distributable to the shareholders (i.e. 40% of the profit plus unused dividend amounts) exceeded the                                             461 See Section 3.2 above. 462 S 4(1) CCCReg.  123  profit generated in any financial year, the maximum distributable amount would be equal to that profit (see financial year 4).  In general, the dividend restriction has to be understood as an aggregate cap, i.e. the aggregate amount distributable according to s 4(1) CCCReg would be the amount distributable to any and all classes or series of shares.463 However, the aforementioned dividend restrictions would not apply to certain classes or series of shares if the CCC’s articles provided that the (beneficial) holders of such shares can only be qualified entities within the meaning of s 51.91(1) BCBCA in connection with s 2 CCCReg.464 In case a CCC had both, shares restricted to be held by qualified entities only as well as other shares, in my opinion, s 5 CCCReg would have to be understood as to operate in a way that the dividend to be declared to shares not to be held by qualified entities only would be subject to the restrictions as set out in s 4(1) CCCReg, but the dividend to be paid to qualified entity shareholders could be determined without any restrictions. For example, if the CCC in the numerical example stated above had such a share structure, the amount distributable to the shares not to be held by qualified entities would be $4,000 in the first financial year, and the remaining profit, i.e. $6,000, could be distributed to qualified entity shareholders. If that CCC had just one class of shares that could be held by any person, the dividend distributed to all shares would be subject to the restrictions set out in s 4(1) CCCReg.                                             463 S 4(1) CCCReg states that “the total amount of all dividends declared in relation to the shares of the company” may not exceed the amount to be calculated [emphasis added]. 464 S 5 CCCReg. It is remarkable that the UK legislator thought about implementing shares that would allow the distribution of an unrestricted dividend, but rejected it in the end (Cross, supra note 105 at 312).  124  Although the idea to restrict dividends has been taken over from the UK, the legislator decided not to take over the exact same system including the thresholds. The UK legislation provides for both a cap per-share as well as an aggregate dividend cap.465 While the aggregate dividend cap has constantly remained at 35% of the company’s profits, the per-share cap has been increased from “5% above the Bank of England base lending rate of the paid-up value of a share” to 20% of the paid-up value as of 6 April 2010.466 A currently ongoing discussion shows some indication that the per-share dividend cap should be removed entirely, which would leave only the aggregate dividend cap.467 The legislator in British Columbia apparently decided to implement the aggregate dividend cap only and, after having conducted a public consultation, set a slightly higher threshold.468  According to s 51.94(2) BCBCA, the articles could further restrict the declaration or distribution of dividends. Such further restriction could be a decrease of the percentage                                             465 S 17(1)(c) CICReg 2005. 466 S 22(1)(a) and (b) CICReg 2005. Office of the Regulator of Community Interest Companies, Chapter 6: The Asset Lock (Cardiff, UK: Department for Business Innovation & Skills, 2013) at 7-8 [Office of the Regulator of Community Interest Companies, Chapter 6]; Lloyd, supra note 358 at 36-37. Interestingly, the number of community interest companies in the UK nearly doubled in the two years following the implementation of the increased per share dividend cap (see Office of the Regulator of Community Interest Companies, Annual Report 2011/2012 (Cardiff, UK: Department for Business Innovation & Skills, 2012) at 13, 22 [Office of the Regulator of Community Interest Companies, Annual Report 2011/2012]; see also Liao, “Next Stage of CSR”, supra note 21 at 81). 467 Office of the Regulator of Community Interest Companies, Changes to the Dividend and Interest Caps for Community Interest Companies: Response to the CIC Consultation on the Dividend and Interest Caps (Cardiff, UK: Department for Business Innovation & Skills, 2013) at 9-10, 15-17, 20-22. Although the first increase of the dividend cap had a positive effect on the number of community interest companies, the UK Regulator seems to have not found yet the appropriate balance between the possibility to distribute dividends in order to attract investments and the protection of the profits for the benefit of the community (see Cross, supra note 105 at 311). The necessity to find the appropriate balance was also recognised by the Minister during the parliamentary discussion (British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11123 (Hon. K. Falcon)). 468 Ibid.  125  of distributable profits (e.g. to 20%) or even a prohibition to declare a dividend at all. In addition, s 58(2) BCBCA enables the implementation of different classes or series of shares with special rights or restrictions. For example, the implementation of a class of shares with preferential rights regarding dividends (so called preferred shares) would restrict the entitlement to dividends of other, non-preferred share classes.469  S 70(2) BCBCA contains different requirements that have to be met before a dividend can be declared. It is unclear whether these requirements also apply to a CCC in addition to s 51.94 BCBCA. In my opinion, this should not be the case. The provision governing the declaration of a dividend of a CCC has to be regarded as lex specialis to the provisions applicable to a regular corporation in general. While s 70(2) BCBCA protects the corporation from becoming insolvent through the declaration of a dividend, s 51.94 BCBCA ensures that enough financing is available to a CCC for further growth. Furthermore, neither s 51.94 BCBCA nor the CCCReg contains any reference to s 70(2) BCBCA. Finally, s 4(1)(a) CCCReg ties the declaration of a dividend to the profit of the CCC. S 70(2) BCBCA does not include any reference to the profit of the corporation and thus a dividend may be declared even if the company has not generated a profit at all. A CCC would be limited to its unused dividend amounts. For all these reasons, s 70(2) BCBCA should not apply in addition to s 51.94 BCBCA. Moreover, s 70(2) BCBCA would not be required to enforce a repayment of dividends that have been declared contravening s 51.94 BCBCA either. The directors’ obligation to restore to the company                                             469 See VanDuzer, supra note 21 at 230-32.  126  any declared dividends would in any case be based on s 154(1) BCBCA, which separately refers to s 70(2) and, indirectly, s 51.94 BCBCA.470 Hence, directors would be obliged to reimburse the company for dividends that contravened either s 51.94 or s 70(2) BCBCA. Shareholders who received such dividend could be ordered to repay the dividends in accordance with s 156(2)(a) BCBCA.471 Both ss 154(1) and 156(2)(a) BCBCA apply in case a dividend violates s 51.94 BCBCA.  On a side note, s 51.94(3) BCBCA prohibits a CCC to pay profit related interest in relation to debentures or other debts unless such payments are authorized by, and comply with, the regulations. However, the CCCReg does not contain any provision regarding profit related interests, whereby a CCC is precluded from paying such interests. Since this thesis focuses on equity investments, this shall not be discussed further.  3.7.2 Restrictions on Asset Transfers (Asset Lock) 3.7.2.1 The Transfer Restrictions in General Together with the dividend cap, the asset lock is one of the most distinct features of a CCC.472 S 51.931(1) BCBCA prohibits any transfer of money or other assets unless it is made “(a) for fair market value, (b) to a qualified entity, (c) in furtherance of the company’s community purposes, (d) for transfers contemplated by [the provisions on                                             470 See s 154(1)(c) and (f) BCBCA. 471 See 684417 BC Ltd (Trustee of) v Johnson, 2013 BCSC 1055 at 20, 21, 39, 5 CBR (6th) 213. 472 Liao, “Next Stage of CSR”, supra note 21 at 80.  127  the CCC, including dividends, etc.], or (e) for transfers [authorized by, and in accordance with, the regulations].”473 The term “transfer” is defined in s 51.91(1) BCBCA and includes any method to transfer money or other assets. Examples listed include pay, spend, distribute, dispose, assign, charge, lease, divest, release, etc. In addition, every commitment to do any of these would qualify as transfer within the meaning of s 51.91(1) BCBCA. The asset lock hence applies to, and therefore precludes, any transfer of assets, regardless of the method of transfer chosen by the parties.  3.7.2.2 Exempted Transfers The exemptions listed in s 51.931(1)(a)-(e) BCBCA apply alternatively, i.e. a transfer, including to related persons, is permitted in case any of these exemptions apply. First, a transfer would be permitted if it was made for fair market value, i.e. if the company received an adequate consideration at fair market value.474 It will be the directors’ duty to determine at the time of the transfer the fair market value of any consideration to be received by the CCC in order to ensure that the transfer complies with this requirement.475 Transfers to qualified entities are generally exempted, even if they were                                             473 In the UK, community interest companies are required to include provisions regarding the authorization of asset transfers in their articles (ss 7 and 8 CICReg 2005 in connections with Schedules 1-3). These authorizations roughly correspond to the exemptions in s 51.931(1) BCBCA (see Office of the Regulator of Community Interest Companies, Chapter 6, supra note 466 at 4). 474 S 51.931(1)(a) BCBCA. This is repeated in s 51.931(4) BCBCA, which does not seem to add anything substantial to the principle in subsection (1)(a), but makes it clear that the fair market value requirement also applies to transactions in the ordinary course of business. 475 With regard to regular corporations, it is noteworthy that depending on the circumstances, a transfer for which a corporation would not receive a fair market value consideration could be considered as a breach of fiduciary duty of the directors according to s 142(1)(a) BCBCA. While this may incentivise directors to make sure that transfers are made for fair market value, s 51.931(1)(a) BCBCA imposes an obligation to do that on directors of a CCC.  128  made not for fair market value.476 This exemption was implemented since, according to the Minister, the paradigm of such qualified entities would be charities that are subject to some sort of asset lock themselves.477 Hence, the assets would remain dedicated to contribute to the public good, which is one of the main purposes of a CCC. Furthermore, any transfer that is made to contribute to the achievement of a CCC’s community purpose is also permitted, regardless whether it is made for fair market value or to whom it is made.478 Again, this could be interpreted broadly or narrowly.479 For the same reasons given above in Section 3.5, it is argued that this requirement should be interpreted broadly, i.e. that a transfer should be permitted if it directly or indirectly contributed to the achievement of the community purpose or at least secured the operations of the CCC for the long term. Furthermore, s 51.931(1)(d) BCBCA makes it clear that any transfer contemplated by the provisions governing the CCC, such as dividends, distribution on dissolution, etc., is permitted. While this exemption raised some concerns during the parliamentary debate that it could be a loophole to transfer assets in an unrestricted manner as long as it was made under the title of a dividend, the dividend restrictions as outlined in Section 3.7.1 above offer the desired protection.480 The exemption stated in s 51.931(1)(e) BCBCA is irrelevant, at least for the                                             476 S 51.931(1)(b) BCBCA. 477 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11122, 11124 (Hon. K. Falcon). 478 S 51.931(1)(c) BCBCA. 479 See the discussion with regard to the duty of the directors to act with a view to the community purpose in Section 3.5 above. 480 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11122 (B. Ralston), 11123 (Hon. K. Falcon).  129  time being, since the current CCCReg does not contain any related provisions. Hence it does not add anything to the list of permitted transfers.  Particularly mentioned are transfers to related persons, which are generally prohibited unless they are permitted by subsection (1).481 In my opinion, this does not add anything to the general restrictions set out in s 51.931(1) BCBCA. The wording in this subsection would be broad enough to encompass transfers to related persons even if they were not specifically mentioned in subsection (2). A glance at the parliamentary materials could lead to the conclusion that transfers to related persons were intended to be subject to specific requirements.482 That might indicate that transfers to related persons were supposed to be subject to more rigorous restrictions than transfers to anybody else. If that was the intention of the legislator, it does not seem to be properly reflected in the statutory wording that allows transfers to related persons if such transfers comply with at least one of the exemptions in subsection (1).  3.7.2.3 Transfers by Way of Financial Assistance The transfer of assets by way of financial assistance is subject to further requirements. If financial assistance were granted to a related person, such person would have to be a                                             481 S 51.931(2) BCBCA. 482 The Minister mentioned that “as a general rule, [transfers may not be made] to persons related to the company during the existence of the corporation or upon its dissolution, unless it’s specifically provided for in this part or in the regulations” (British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11122 (Hon. K. Falcon) [emphasis added]).  130  qualified entity or a prescribed class of persons in prescribed circumstances.483 Since the CCCReg currently does not contain any provisions regarding either prescribed classes or persons or prescribed circumstances, a related person would have to be a qualified entity in order to be eligible for financial assistance granted by a CCC.484 Besides that, financial assistance may only be granted to any other person, i.e. to non-related persons, if such grant is in furtherance of the CCC’s community purpose.485 This means, if none of its community purposes included the grant of financial assistance to non-related persons, a CCC would be precluded from making financial assistance grants and hence a transfer of money or other assets under such title would be prohibited.486   This subsection (3) might create some confusion. In general, according to s 51.931(1) BCBCA, all transfers within the broad meaning of s 51.91(1) BCBCA are subject to the restrictions, regardless of the title they are made under. This would theoretically include transfers by way of financial assistance, which, according to s 195(2) BCBCA, could be made in any form, including by way of loan or guarantee. However, s 51.931(3) BCBCA has to be regarded as lex specialis in case a transfer was made under the title of financial assistance, whereas the exemptions stated in subsection (1) will not apply. For example, unless one of a CCC’s community purposes was to provide financial                                             483 S 51.931(3)(a) BCBCA. 484 See also British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11122 (Hon. K. Falcon). 485 S 51.931(3)(b) BCBCA. 486 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11122 (B. Ralston and Hon. K. Falcon).  131  assistance to non-related persons, it would be precluded from granting such assistance even if it received fair market value consideration in exchange. Likewise, a CCC would not be able to provide financial assistance to a qualified entity (i.e. a charity) unless it was either a related person or a designated beneficiary according to the company’s community purpose. This seems to be quite restrictive, but since neither the relationship between subsections (1) and (3) of s 51.931 BCBCA nor the reasons for the more rigorous restrictions in subsection (3) have been elaborated during the parliamentary discussion,487 the legislator’s intention cannot be properly assessed. It is somewhat confusing that the provision of financial assistance should be subject to more rigorous restrictions than any other transfer of assets.  Furthermore, the BCBCA does not define the term “financial assistance”. Whether a transfer qualifies as financial assistance (in which case it would be subject to the restrictions in subsection (3)) or not (in which case it would “only” be subject to the restrictions in subsection (1)) has to be assessed first by the directors and second by the courts under the applicable circumstances.488 Hence, a transfer that would comply with subsection (1) could be determined by courts to fall within the scope of subsection (3), which could render the transfer non-compliant. Considering the personal                                             487 See ibid at 11122-23 (B. Ralston and Hon. K. Falcon). 488 See e.g. Olafson v Twilight Cariboo Lodge Ltd (1966), 55 WWR (NS) 385 at para 9-10, (BCCA) [Olafson], in which Davey JA held that a mortgage granted to the former shareholders as vendors qualified as financial assistance in connection with the acquisition of the shares in the company according to s 152(1) Companies Act, RSBC 1960, c 67, as repealed by the BCBCA [Companies Act]. This decision was overturned on appeal by the SCC (Olafson v Twilight Cariboo Lodge Ltd, [1966] SCR 726). In Drayton v W.C.W. Western Canada Water Enterprises Inc (1991), 36 CCEL 157, 26 ACWS (3d) 947, (BCSC), Hutchinson J held that a share warrant agreement does not qualify as “financial assistance in the way that that term [had] been defined,” but does neither state such definition nor refer to other cases which would contain a definition.  132  consequences for directors in case the transfer restrictions were not complied with,489 directors of a CCC would be tempted to comply with the restrictions set forth in subsection (3) in order to avoid a personal liability.  3.7.2.4 Consequences in Case of Non-Compliance As far as the consequences of a transfer that does not comply with s 51.931 BCBCA are concerned, for several reasons, a transfer should not be automatically invalid. First, in my opinion, an intention to require courts to mandatorily set aside such transfer and order the assets to be retransferred to the CCC cannot be read into the provisions regarding the transfer restrictions.490 Second, despite its broad supervisory powers, not even the UK Regulator of community interests companies may do that.491 Third, other provisions in the BCBCA explicitly state that an act by a company is not automatically invalid because of some specific deficiencies.492  The origins of these provisions were the difficulties faced by third parties when dealing with corporations, i.e. to determine whether the other person really had the authority to                                             489 See s 154(1)(f) BCBCA. 490 This remedy was not mentioned at all during the parliamentary discussion (c.f. British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11125 (B. Ralston and Hon. K. Falcon). 491 Compare Office of the Regulator of Community Interest Companies, Chapter 11, supra note 317 at 8-9. 492 For example, an act is not invalid just because it contravenes restrictions set out in the company’s articles (s 33(2) BCBCA). A similar rule applies in case of irregularities in connection with the election of a director or of a “defect in the qualification of that director” (s 143 BCBCA). These rules followed the “indoor management rule” developed in the 19th century. According to this rule, a third party engaging in business transactions with a corporation did not have to ensure that the internal processes prescribed by a company’s articles, by-laws, other contracts, policies, etc. had been complied with (Royal British Bank v Turquand (1856), 6 E and B 327, 119 ER 886 (Ex Ct); see generally VanDuzer, supra note 23 at 209-21).  133  represent and to bind the corporation.493 Third parties were deemed to have knowledge about all restrictions set out in publicly available records such as articles.494 This also applied to provisions in the articles making a transaction subject to conditions. For example, the articles of a company could make certain transactions subject to approval by the board of directors. The “indoor management rule” was developed to mitigate the risks associated with the constructive notice rule.495 While actual restrictions on the authority of board members stated in a company’s articles or other publicly available documents continued to be deemed to be known to and binding for the public, a third party did not have to enquire if internal conditions such as board approval or compliance with certain procedures have been satisfied.496 As far as the transfer restrictions with regard to a CCC’s assets are concerned, despite the formal abolishment of the constructive notice rule,497 one could argue that these restrictions are actual and known to the public. Hence, a transfer that does not comply with the restrictions would be invalid and would have to be set aside. Although the restrictions set forth in each of s 51.931(1) and (3) BCBCA would be clear enough in itself to justify such consequence, it would be disproportional in the light of the uncertainty created by the interaction between these two subsections.                                              493 Ibid at 211-12. 494 This rule was referred to as the “constructive notice rule” (ibid at 214 (note 46) and accompanying text). 495 See note 492; VanDuzer, supra note 23 at 214. 496 Ibid at 214-15. 497 S 421 BCBCA.  134  A fourth reason in favour of the proposition made at the beginning of this Section would be that a glance at the regime governing the breach of duties of directors in general shows that such a severe consequence is not automatically applied in these situations either. S 151 BCBCA explicitly states that a contract is not automatically invalid because a director had a conflict of interest.498 Although courts could set aside a transaction if they deemed it appropriate under the given circumstances,499 the remedy for other breaches of duties is usually a liability of the neglecting director.500 This is also the main and in particular, the only explicitly foreseen remedy for asset transfers that did not comply with s 51.931 BCBCA.501 Finally, given the uncertainties regarding the interaction between subsections (1) and (3) of s 51.931 BCBCA, the automatic invalidity of a transfer would not be a proportionate remedy.  Based on the available case law on financial assistance in a corporate legal context, it could be argued that the invalidity of transfers not complying with s 51.931(3) BCBCA would be appropriate and consistent with such case law. Referring to statutory provisions that prohibited transfers of a company’s assets by way of financial assistance                                             498 See with regard to the development of the judicial treatment of conflict of interests generally VanDuzer, supra note 23 at 345-52. 499 For example, this possibility is explicitly stated with regard to the orders a court could make when asked for relief under an oppression remedy (s 227(3)(j) BCBCA). Another reason to set a transaction aside would be that the director has acted without authority (s 146 BCBCA, especially subsection (2); see generally VanDuzer, supra note 23 at 216-21). 500 See ibid at 341. 501 S 154(1) BCBCA. See also British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11125 (B. Ralston and Hon. K. Falcon).  135  in order to purchase shares in that company,502 courts held that such transfer was ultra vires and void.503 However, this case law may be distinguished from s 51.931(3) BCBCA in that it is limited to cases where the company granted financial assistance in order to enable a purchaser to buy shares in that company. The financial assistance mentioned in s 51.931(3) BCBCA is not restricted to these situations, but encompasses any financial assistance regardless of the purpose for which it is granted. Due to that broader wording, the automatic invalidity would be too harsh.  Having said this, acknowledging that courts still would have the discretion to decide that a transfer in contravention of s 51.931 BCBCA could be invalid depending on the circumstances, in my view, the personal liability of the directors according to s 154(1)(f) BCBCA is the only and appropriate remedy. It remains to be seen how courts will deal with such transfers. As far as practice is concerned, probably the most recommendable way to avoid problems with regard to the qualification would be to include the provision of financial assistance to (non-related) persons as separate community purpose. If the grant of financial assistance were included as (at least a subsequent part of the) community purpose, any transfer would be permitted either under subsection (1) or subsection (3). The directors would still be liable to hold the company harmless for any                                             502 See e.g. s 152(1) Companies Act; s 14(1) The Companies Act, RSA 2000, c C-21; s 38(1) Companies Act, RSNB 1973, c C-13. 503 See e.g. Kristiansen v Baden (2 March 1999), Vancouver, C973067 at para 20 (BCSC); Olafson, supra note 488 at para 11; Trustee of Estate of Thibault Auto Ltd v Thibault (1962), 33 DLR (2d) 317 at para 63 (NBSC (AD)); affirmed in Thibault v Thibault Auto Ltd (Trustee of), [1963] SCR 312.   136  damages in case a transfer was not in the best interest of the CCC and thereby constituted a breach of fiduciary duty according to s 142(1)(a) BCBCA.  3.7.3 Restrictions on Asset Transfers Upon Dissolution In addition to the transfer restrictions during the lifetime of the company, the assets of a CCC are also protected when its operation comes to an end. In short, 60% of the CCC’s net assets available for distribution have to be transferred to one or more qualified entities in accordance with s 51.95(2)(b) BCBCA in connection with s 8 CCCReg. The remaining 40% may be distributed to the company’s shareholders. In the following, the distribution regime only will be discussed in more detail. The liquidation process applicable to all corporations in general shall not be elaborated in detail since the focus shall be on the particularities of the CCC.504  Upon dissolution of the CCC, the liquidator first has to determine the distributable assets. The distributable assets are defined as follows:  [T]he company’s money and other assets that remain after payment or provision for payment has been made of  (a) all of the company’s liabilities and the costs, charges, and expenses properly incurred in relation to the dissolution, and (b) any money that, under the regulations, must be paid to the shareholders of the company on dissolution before making a transfer referred to in subsection (2)(b).505                                             504 Regarding the liquidation process applicable to corporations see generally ss 314-345 BCBCA; VanDuzer, supra note 23 at 329-34. 505 S 51.95(1) BCBCA [emphasis added].  137  S 51.95(2)(b) BCBCA then requires the liquidator to transfer to one or more qualified entities all or at least the prescribed percentage of the company’s distributable assets. This percentage is 60%.506 The remainder then may be paid out to the company’s shareholders.  The wording of s 51.95 BCBCA is somewhat confusing and requires clarification. Considering that the amount to be distributed to the shareholders under the regulations has to be deducted from the company’s aggregate assets in order to determine the distributable assets, one could get the impression “only” 60% of the assets remaining after the distribution to the shareholders need to go to qualified entities. This would immediately raise two questions. First, what would be the amount to be paid out to the shareholders? The CCCReg does not contain any provision that refers to let alone elaborates on s 51.95(1)(b) BCBCA. Second, what would happen to the difference that would remain after the payment of 60% of the distributable assets to qualified entities? Would it go to the shareholders as surplus? Although the wording of the provision is very unfortunate, an intention of the legislator to make it that complicated and unclear is not apparent.507 Despite being very different, the UK model intended to keep the distribution mechanism simple. According to s 23(2) and (3) CICReg 2005, after all the community interest company’s liabilities have been satisfied, each shareholder receives an amount which may not “[exceed] the paid up value of the shares which he holds in                                             506 S 8 CCCReg. 507 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11123 (B. Ralston and Hon. K. Falcon).  138  the company[,]” i.e. the par value per share plus any premium paid to the company in excess of the par value at the issuance of the shares.508 This mechanism is very simple to handle. Therefore, s 51.95(1) and (2) BCBCA should not be read verbatim.  It may be assumed that the intention of the legislator was that after all liabilities, costs and expenses according to s 51.95(1)(a) BCBCA have been paid, 60% of the residual assets would have to be distributed or paid to qualified entities and the remainder, i.e. 40% of these assets, to the shareholders. This interpretation would not only be manageable, but would also correspond to the fact that only s 8 CCCReg deals with the distribution of assets upon dissolution and prescribes the (minimum) percentage of the assets to be transferred to qualified entities. The reference to the company’s distributable assets in s 51.95(2)(b) BCBCA should rather be understood as the assets available for distribution after all liabilities, costs and expenses have been paid under s 51.94(1)(a) BCBCA, but before any distribution or provision for distribution is made, i.e. the net assets.509                                              508 See also Office of the Regulator of Community Interest Companies, Chapter 10: Transfer of Assets and Ceasing to be a CIC (Cardiff, UK: Department for Business Innovation & Skills, 2013) at 11. Cross states that both the asset and the dividend cap need to be appropriate in order to attract investments in community interest companies (Cross, supra note 105 at 311). This has obviously not been the case as far as the dividend cap is concerned. While the dividend cap has been increased (see Section 3.7.1 above), the asset lock threshold has never been amended. However, that does not necessarily mean that it is appropriate. For example, Lloyd suggested the distribution of assets upon dissolution of the community interest company should allow for the consideration of inflation (Lloyd, supra note 358 at 38). 509 Simon MH Collin, Dictionary of Accounting, 4th ed (Huntingdon, UK: A & C Black Publishers, 2007) sub verbo “net assets”; see also Black’s Law Dictionary, supra note 319 sub verbo “net assets”.  139  To which qualified entities assets could be transferred is up to the discretion of the liquidator. The BCBCA does not prescribe a particular distribution. However, the articles of the CCC or the resolution to dissolve the company may contain provisions directing the liquidator to which qualified entities 60% of the net assets would have to be distributed.510  Based on this setup, a qualified entity being a shareholder of a CCC could benefit twice when it comes to dissolution. First, the 60% of the net assets to be allocated to qualified entities could be entirely distributed to that qualified entity shareholder. Second, the same entity would receive a pro rata share of the remaining assets as shareholder. For example, assume that a qualified entity holds 60% of the outstanding shares of a CCC, which allows this qualified entity to control the board. Assume further that the articles do not contain any provision that prescribes any qualified entity to which the distribution under s 51.95(2)(b) BCBCA has to be made. Upon dissolution, the board of directors could determine that this qualified entity shareholder shall receive 60% of the net assets of the CCC. In addition, due to its shareholding, the same qualified entity would be entitled to 60% of the remaining 40% of the net assets, i.e. an additional of 24% of the net assets. In summary, this qualified entity shareholder could receive an aggregate of 84% of the CCC’s net assets available for distribution upon liquidation. One could argue that at least theoretically, this opens room for abuse since a qualified entity could acquire a controlling majority of the shares of a CCC (in particular of one whose                                             510 S 51.95(3) BCBCA.  140  beneficiaries are completely different than those of the qualified entity), then gain control over the board of directors and finally resolve the dissolution of the company. However, in my opinion and for the following reasons, this seems to be merely theoretical. The qualified entity would have to spend a potentially considerable amount of money first to acquire such controlling majority. Furthermore, engaging in such methods would dramatically harm this entity’s reputation, assuming that it is most likely a charity.511 Besides that, considering that the dividend restrictions do not apply in case a class of shares can only be held by qualified entities,512 the legislator does not seem to oppose the possibility that a qualified entity benefits twice from such “double dip”. Finally, if such allocation by the board of directors amounted to either a breach of fiduciary duty or an oppressive behaviour, the shareholders could initiate court proceedings against the directors under the derivative action provisions or ask for an oppression remedy, respectively.513  3.8 Possible Exits for a Shareholder As put forward by David Gladstone & Laura Gladstone, having an exit opportunity is important for venture capital investors.514 This could also be true for any type of investor. While some shareholders might intend to hold their shares until their decease or close to it or at least over a very long period, others might want to liquidate their investment                                             511 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11122 (Hon. K. Falcon). 512 See Section 3.7.1 above. 513 Ss 227 and 232 BCBCA. 514 See with regard to fund structured investors David Gladstone & Laura Gladstone, Venture Capital Investing: The Complete Handbook for Investing in Private Businesses for Outstanding Profits (New Jersey: Pearson Education, 2004) at 9; Newmark & Pena, supra note 38 at 117 (exit arrangements already included in investment agreements).   141  after a few years. The reasons for such “early” liquidation may be legion (e.g. loss of interest in the business sector, liquidity needs, disagreements with other shareholders or directors, lifetime of a fund comes to an end, etc.). As far as the latter is concerned, for example, Bugg-Levine & Emerson mention that the lifetime of the “typical private equity closed-term fund” is seven years after which the fund has to liquidate all investments and distribute the profits to its investors.515 Due to the proximity of impact investing to venture capital, the exits that have been preferred by venture capital investors shall form the basis for the following discussion. The exits available to venture capital investors also encompass the exits for shareholders in public or even listed companies (in particular sale or redemption of shares). Since this research focuses on equity investments,516 exit possibilities for debt investments will not be discussed.  Traditional venture capital investors usually focus on the following types of exits: sale of the entire company (i.e. all shareholders sell their shares to a third party), sale of the investor’s shares to a third party, sale of the investor’s shares back to the company (share redemption or repurchase) or to the other existing shareholders, reorganization, going public (i.e. listing the company’s shares on a stock exchange in an initial public                                             515 Bugg-Levine & Emerson, supra note 1 at 78. Cumming & Johan mention that venture capitalist investors were typically invested for 2-7 years (Douglas J Cumming & Sofia A Johan, Venture Capital and Private Equity Contracting: An International Perspective, 2nd ed (Waltham, MA, USA: Elsevier, 2014) at 371). EcoEnterprises Fund was based on a venture capital model and had a lifetime of ten years (Newmark & Pena, supra note 38 at 2, 15, 140). Ten years seem to be the typical lifetime of a venture capital fund (Ronald J Gilson, “Engineering a Venture Capital Market: Lessons from the American Experience” (2003) 55:4 Stan L Rev 1067 at 1071; see also Paul Gompers & Josh Lerner, “The Venture Capital Revolution” (2001) 15:2 J Econ Persp 145 at 147). 516 See Section 1.4.4 above.  142  offering), and liquidation of the company.517 Each of these possible exits will be briefly discussed. However, the sale of the entire company and the sale of the investor’s shares to either a third party or other existing shareholders will be discussed together since these are share transfers either to a third party or to another shareholder. On the other hand, the redemption and repurchase of shares is specifically regulated and hence requires a more detailed discussion.518  3.8.1 Sale of Shares As indicated above, an investor could liquidate its investment by the sale of her shares in the CCC. On the one hand, this could happen by way of sale of the entire company to a third party.519 On the other hand, the investor could sell its shares either to a third party investor or to one or several of the other shareholders, including the original entrepreneur.520 From a legal point of view, there is not much of a difference as far as the investor is concerned.521 Either transaction would be a sale of shares in a CCC and would be subject to the transfer restrictions discussed earlier.522 Besides that, the BCBCA does not contain any provision that restricts a shareholder of a CCC to sell its                                             517 Gladstone & Gladstone, supra note 514 at 276; Douglas Cumming, “Corporate Venture Capital Contracts” (2006) 9:3 The Journal of Alternative Investments 40 at 49; Cumming & Johan, supra note 515 at 371, 591. 518 See s 51.941 BCBCA. 519 Gladstone & Gladstone, supra note 514 at 279-84; Cumming, supra note 517 at 49; see also Newmark & Pena, supra note 38 at 115. 520 Gladstone & Gladstone, supra note 514 at 284, 290-91; Cumming, supra note 517 at 49. 521 However, the sale of the entire company may raise other issues. For example, it is not only the investor that needs to sell its shares, but also all other shareholders, including the original entrepreneur and founder of that business. In particular, the latter could oppose such a sale. Furthermore, selling all or a minority of a company’s shares could have an influence on the price of the shares (see Gladstone & Gladstone, supra note 514 at 279 (control as valuable asset); see also Christopher C Nicholls, Mergers, Acquisitions and Other Changes of Corporate Control, 2nd ed (Toronto: Irwin Law, 2012) at 170 [Nicholls, Mergers and Acquisitions]). 522 See Section 3.3 above.  143  shares.523 In particular, the investor who wants to sell her shares is free to negotiate the price for the shares without any restriction.524  3.8.2 Redemption or Repurchase of Shares Another possible exit would be the redemption or repurchase of shares, i.e. the sale of the investor’s shares back to the company.525 Although Gladstone & Gladstone mention that this exit strategy “is not used frequently[,]” they admit that they “have used it in a large number or exits.”526 However, this exit strategy is subject to restrictions as far as a CCC is concerned.  S 51.941 BCBCA states that no moneys or assets may be transferred in order to redeem or repurchase its own shares unless such transfer complies with the regulations. A transfer for repurchase or redemption of shares is permitted in accordance with s 6 CCCReg if the value of these transferred assets does not exceed                                             523 It has to be kept in mind that as far as public companies within the meaning of s 1(1) BCBCA are concerned, the sale of more than 20% of the outstanding securities could trigger the application of formal take-over bid rules (see generally Nicholls, Mergers and Acquisitions, supra note 521 at 110-12, 125-26). See with regard to the possibility of a CCC to become a public company Section 3.8.4 below. 524 As far as the redemption or the repurchase of shares by the company is concerned, the BCBCA contains provisions regarding the determination of the price (see Section 3.8.2 below). However, any third party investor would consider the restrictions on the dividend distribution and on the asset transfer in the determination of the price for the shares.  525 Gladstone & Gladstone, supra note 514 at 284-89; Cumming, supra note 517 at 49; Newmark & Pena, supra note 38 at 117. 526 Gladstone & Gladstone, supra note 514 at 284. On the other hand, Newmark & Pena state that most of their equity investments have been repaid by the company’s principal upon exercise of the investor’s put option (Newmark & Pena, supra note 38 at 119-20).  144  the fair value of the shares.527 In order to determine the fair value of the shares, s 6(a) CCCReg requires this value to be determined taking into account the dividend and asset transfer restrictions. In addition, neither the value itself nor the valuation method may be set forth by the company in the articles or otherwise.528  The wording “in its articles or otherwise” in s 6(b) CCCReg is very broad and suggests that neither the value nor the method for the determination of the value could be set forth in any way upfront. This would preclude any option to determine a valuation method at the time an investment is made, which might be critical for investors.529 Such interpretation would be aligned with the requirement for any other asset transfer to be for fair market value according to s 51.931(1)(a) BCBCA.530 Since this would also be aligned with the legislator’s general intention to protect a CCC’s assets, it may be assumed that courts would adopt the same viewpoint. The fact that s 6(b) CCCReg precludes only the determination of the value or the valuation method “by the company” might change little. Although this might indicate an intention of the legislator to prohibit the company from unilaterally determining the value or the valuation method, enabling the determination by mutual agreement between the company and the affected party would open room for potential abuse and the threat that company assets are transferred not for fair value. Hence, it may be expected that courts will handle this provision                                             527 This is much more liberal than the UK model that requires a community interest company not pay more than the par value per share in case of a redemption of shares and not even the inflation may be considered (s 24 CICReg 2005; see Lloyd, supra note 358 at 37). 528 S 6(b) CCCReg. 529 See e.g. Gladstone & Gladstone, supra note 514 at 286-89; Newmark & Pena, supra note 38 at 117. 530 See also Section 3.7.2.2 above.  145  extensively and will prohibit any determination of the value or the valuation method that could jeopardize the legislator’s intention in order to provide the best possible protection for a CCC’s assets.  According to s 51.941 BCBCA, the same restrictions apply in case a CCC wants to decrease its share capital.  In conclusion, the fair value of the shares would have to be determined at the time of the repurchase or redemption taking into account the dividend and asset transfer restrictions. The value itself or the valuation method may not be determined upfront in the articles, an agreement or otherwise.  Besides s 51.941 BCBCA, the BCBCA also deals with the redemption and repurchase of shares in a different place. Ss 78(1) and 79(1) BCBCA require that a corporation may not redeem or repurchase shares in case there are reasonable grounds for believing that the corporation is insolvent or the payment of the consideration for the shares could render the corporation insolvent.531 Hence it may be questioned whether a CCC would have to meet these solvency requirements in addition to the fair value consideration requirement or not.532 This relationship was not discussed in parliament.533 Two reasons would support the proposition that s 51.941 BCBCA is the only requirement a CCC                                             531 This requirement is referred to as the “solvency test” (see VanDuzer, supra note 23 at 249-50). 532 A similar question was raised with regard to the distribution of dividends (see Section 3.7.1 above. 533 Compare British Columbia, Legislative Assembly, Committee Hearing, supra note 61.  146  would have to meet. First, it is a special provision applicable to CCCs only. Second, it does not include any reference to either s 78(1) or s 79(1) BCBCA. However, if these two provisions did not apply, it could be that a redemption or repurchase of shares rendered the CCC insolvent upon payment of the fair value consideration in case the company’s assets merely exceeded its liabilities. This could not have been the intention of the legislator, in particular considering that most provisions of the CCC framework were enacted in order to protect the CCC and its assets.534 Therefore, ss 78(1) and 79(1) BCBCA should apply cumulatively to s 51.941 BCBCA in case of redemption or repurchase of shares of a CCC.  3.8.3 Reorganization The most likely reorganization procedure for an investor to liquidate her investment would be an amalgamation with another company.535 An amalgamation allows the combination of two companies by cashing out all or at least some of the holders of the shares of one of the amalgamating companies.536 An investor could receive money in exchange for her shares while the other shareholders and in particular, the principal                                             534 See generally ibid, at 11121-24 (B. Ralston and Hon. K. Falcon). 535 See generally ss 269-282 BCBCA; VanDuzer, supra note 23 at 313-21; see also Harry Cendrowski et al, Private Equity: History, Governance, and Operations, 2nd ed (Hoboken, NJ, USA: John Wiley & Sons, 2012) at 69, 111. Other reorganization procedures foreseen in the BCBCA or discussed in the literature either do not give the investor a possibility to liquidate her investment or are discussed elsewhere (see generally VanDuzer, supra note 23 at 302-34). For example, the continuance in another jurisdiction, even if it were not prohibited with regard to a CCC according to s 51.99 BCBCA, would not change anything in the company’s shareholding structure. In case of a sale of all or substantially all assets, the company would receive the consideration for the assets, not the shareholders. Of course, the company could be liquidated thereafter and the proceeds distributed, but the liquidation is discussed separately (see Section 3.8.5 below). 536 S 270(2)(b)(iii) BCBCA; VanDuzer, supra note 23 at 315-16.  147  could receive shares of the amalgamated company and thereby may stay involved in the business.537  S 51.98(1) BCBCA restricts the ability of a CCC to amalgamate. According to this provision, a CCC may only amalgamate with another corporation if the resulting amalgamated company itself is a CCC. Hence, a CCC is protected from being transformed into any other corporate form by way of amalgamation.538 In addition, unless the amalgamation is effected as vertical or horizontal short form amalgamation under either s 273 or s 274 BCBCA, respectively, “the amalgamation agreement must be adopted by a unanimous resolution of all the shareholders of each amalgamating company, whether or not their shares otherwise carry the right to vote.”539 As far as the shareholders of a regular corporation amalgamating with a CCC are concerned, this is in line with the requirement of an unanimous resolution of shareholders of a regular corporation to become a CCC according to s 51.97(2)(a) BCBCA.  Furthermore, s 51.98(2)(a) BCBCA generally excludes the application of s 271 BCBCA. While this exclusion makes sense with regard to the voting thresholds set out in s 271(1), (6) and (7) BCBCA due to the prevailing provisions in s 51.98(2) BCBCA, it is                                             537 See also Cendrowski et al, supra note 535 at 134. 538 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11125 (Hon. K. Falcon). Since the CCCReg currently does not permit a CCC to become a regular corporation based on s 51.911(2) BCBCA (see also Section 1.3 above), a CCC may not be transformed into another corporate form at all. 539 S 51.98(2)(b) BCBCA. On a side note, if it were intended to effect a vertical amalgamation with a subsidiary being a CCC in accordance with s 273 BCBCA which would not require the approval of all shareholders due to the exemption in s 51.98(2) BCBCA, the shareholders of the holding company would still have to approve the conversion of the holding into a CCC by a unanimous resolution in accordance with s 51.97(2)(a) BCBCA.  148  quite confusing with regard to the provisions concerning the delivery of the notice of the shareholders’ meeting and the circulation of information.540 Why should these protective provisions not apply in case a CCC intended to amalgamate? Should only the general principle that shareholders need to be able to form a reasoned decision apply?541 Nothing in the parliamentary materials indicates that it was the intention of the legislator to lower the protection of shareholders in general.542 Therefore, in my opinion, the reference to s 271 BCBCA included in s 51.98(2)(a) BCBCA should be interpreted narrowly to exclude s 271(1), (6) and (7) BCBCA only, but not the remaining subsections of this provision.  Furthermore, the exclusion of s 271(8) BCBCA is consistent. S 61 BCBCA,543 which would not apply in case of an ordinary amalgamation according to s 271(8) BCBCA, should apply if a CCC was involved in the proposed amalgamation.544  An amalgamation into a foreign jurisdiction is not permitted.545                                              540 See s 271(2)-(5) BCBCA. 541 This principle was set out in Pacifica Papers Inc (Re), 2001 BCSC 701, 17 BLR (3d) 92 at para 30-40 542 Compare British Columbia, Legislative Assembly, Second Reading, supra note 67; British Columbia, Legislative Assembly, Committee Hearing, supra note 61. 543 S 61 BCBCA sets out that special rights attached to shares may not be interfered with unless the holders of this class of shares consented by a special separate resolution as defined in s 1(1) BCBCA.  544 The protection granted by s 61 BCBCA is included in s 271(6)(b) BCBCA as an approval threshold. The former’s application hence needed to be excluded in order to avoid double voting requirements. However, since s 51.98(2)(a) BCBCA excludes the application of s 271(6)(b) in case a CCC was involved, s 61 BCBCA needs to apply in order to protect the holders of preferred shares. S 271(8) BCBCA hence may not apply in this case. 545 S 51.99 BCBCA.  149  Another way to liquidate an investment by way of reorganization according to Gladstone & Gladstone would be bankruptcy, but since investors usually want to avoid bankruptcy proceedings, this possibility will not be discussed further.546  3.8.4 Initial Public Offering (IPO) As far as venture capital investors are concerned, an initial public offering (IPO) may be the best and most interesting possibility to liquidate an investment since a going public transaction promises more return for the investor.547 An IPO is defined as “[a] company’s first public sale of stock; the first offering of an issuer’s equity securities to the public through a registration statement.”548 While a public company does not necessarily need to be listed on a stock exchange,549 an IPO usually includes such listing.550 However, an IPO would only be a viable exit option if a CCC were allowed to sell its shares to the public and to list them at a stock exchange.  First, nothing in the BCBCA precludes a CCC from becoming a public company. The definition of “public company” in s 1(1) BCBCA does not refer to any corporate form at all. Among others, the term “public company” includes companies that have their shares listed on a stock exchange or companies that are reporting issuers. The latter are                                             546 Gladstone & Gladstone, supra note 514 at 291-92. 547 Ibid at 276; Gompers & Lerner, supra note 515 at 159; see also Cendrowski et al, supra note 535 at 69. 548 Black’s Law Dictionary, supra note 319 sub verbo “offering”. 549 The definition of “public company” in s 1(1) BCBCA includes companies that either are reporting issuers (i.e. have filed a prospectus in connection with the issuance of shares) or whose shares are traded at a stock exchange. 550 George RD Goulet, Public Share Offerings and Stock Exchange Listings in Canada: Going Public, Staying Public, Getting Listed, Staying Listed (North York: CCH Canadian, 1994) at 7.  150  defined in s 1(1) of the Securities Act,551 to which s 1(1) BCBCA refers, and include, among others, companies that have filed a prospectus in connection with the issuance of shares. According to s 61(1) Securities Act, the issuance of new shares generally requires the filing of a prospectus unless the company is exempted from doing so.552 Since there is no general exemption for that corporate form, the prospectus requirement does also apply to a CCC. If a CCC intends to issue shares in a way that no exemption applies, it will have to file a prospectus upon which it becomes a public company.  Second, the listing requirements of neither the Toronto Stock Exchange (TSX)553 nor the TSX Venture Exchange (TSXV)554 require a company applying for listing at one of the exchanges to have a certain corporate form. Hence, if a CCC met all the requirements to be listed at either the TSX or the TSXV, respectively, it could get its shares listed.  However, there might be some practical obstacles to the listing of a CCC’s shares. For example, first and probably most important, because of s 51.93(3) BCBCA, the directors may not transfer their powers to officers.555 While this does not constitute a problem in the early stage of a CCC when the shareholders are actively involved in the                                             551 Securities Act, RSBC 1996, c 418 [Securities Act]. 552 This system is referred to as closed system (see generally VanDuzer, supra note 23 at 479). 553 See Toronto Stock Exchange, “TSX Company Manual” at ss 306-35, online: Toronto Stock Exchange <http://tmx.complinet.com/en/display/display_viewall.html?rbid=2072&element_id=1&record_id=1&filtered_tag=>. 554 See TSX Venture Exchange, “Policy 2.1: Initial Listing Requirements” at ss 2.1-2.6, online: TSX Venture Exchange <http://www.tmx.com/en/pdf/Policy2-1.pdf>. 555 See Section 3.5 above.  151  management and operation of the business,556 it could become one as the company grows (e.g., more assets, more shareholders, extended business operations, more customers/beneficiaries, etc.) and management is more and more separated from the shareholders and professionalized.557 At one point in time, the management of the business is even separated from the board and transferred to officers.558 The legal basis for such transfer is s 137 BCBCA, which is not applicable in case of a CCC. Although s 51.93(3) BCBCA does not prohibit the appointment of advisors to the board, a practical consequence is that the directors need to stay actively involved in the management of the business. In order to keep the business manageable and especially considering their liability, directors might be forced to limit or even prevent the company from growing.559 Hence, a CCC might not grow enough to meet the listing requirements of the TSX, but might meet the ones for the listing on the TSXV.560   Second, considering that a CCC is restricted in paying dividends, the interest in buying its shares through the stock market might be limited, which would negatively affect the                                             556 VanDuzer, supra note 23 at 174. 557 Ibid at 174, 277, 522-23. 558 Ibid at 254-55. 559 The need to keep the business manageable by the directors could not only hinder a CCC to meet the listing requirements. It could also be an argument for not listing the company at all since one of the functions of a stock exchange is to facilitate financing and lower borrowing costs in order for a company to expand its business and to grow. This is what a CCC might not want to do after having reached a certain size (see regarding the benefits of going public Goulet, supra note 550 at 8-9). A CCC hence might prefer to stay a private company in order to avoid the burdens that come along with an IPO (see e.g. VanDuzer, supra note 23 at 480, 486-89; Goulet, supra note 550 at 10-11). 560 Toronto Stock Exchange, supra note 553 at ss 309, 314, 319. The requirements of the TSXV are lower, whereas a listing at the TSXV could be more realistic (see TSX Venture Exchange, supra note 554 at ss 2.5-2.6). However, the burdens a public company has to bear might still outweigh the advantages, in particular if the company does not want to grow anymore (see note 559 above).  152  transferability on the one hand and the market value of the shares on the other. There are two ways an investor in a public corporation could receive a return on her investment, the dividends, and/or the sale of the shares at a higher price than she acquired them. Unless the share price increased considerably, the dividend payments would be the most likely way to receive a return. As far as a CCC is concerned, this option faces considerable restrictions. Thus, the shares in a CCC could be less attractive to investors than shares in a regular corporation.  Furthermore, if the articles of a CCC provided for a class of shares that could only be held by qualified entities, the transferability of these shares would be restricted.561 In general, articles of public companies usually do not contain any transfer restrictions since the shares are intended to be widely held and trading should be feasible without limitations.562 This does not mean that it would not be possible to restrict the transferability of the shares.563 If a company listed on the TSX wanted to distribute shares that would be subject to transfer restrictions, the company would have to obtain the TSX’s prior approval.564 If approved, these shares could only be acquired by qualified entities, whereby the range of potential buyers would be restricted. In addition, considering that these shares would not face any restrictions regarding dividends                                             561 See Section 3.3 above. 562 VanDuzer, supra note 23 at 166, 177. 563 See generally ibid at 164-66. 564 Toronto Stock Exchange, supra note 553 at s 435.1.  153  compared to the other shares, investors could be even less interested in these other shares in a CCC.565  In summary, while a CCC could become a public company and have its shares listed on a stock exchange from a legal point of view, the future will show whether they will actually do so. Practical reasons indicate that an IPO might not desirable.  3.8.5 Liquidation This form of exit may be characterized as “emergency solution” in case the business performs poorly and any other exit possibility failed (or is not realistic).566 Upon dissolution, the assets of a CCC would be distributed as described in Section 3.7.3 above and the issues relating to the distribution were discussed there.  3.8.6 Summary In general, any of the traditional exit options for an investor (i.e. sale of all or some of the shares to a third party investor or to another shareholder, redemption or repurchase of the shares by the company, reorganization [in particular amalgamation], IPO, and liquidation) are available for investors in a CCC as well. However, as shown above, all of these options are subject to restrictions or limitations. An exit by way of amalgamation is only possible in some limited situations as permitted by the BCBCA.                                             565 While theoretically 60% of a CCC’s profit could be distributed to qualified entities regardless of the number of shares they held in the company, ordinary investors would only participate pro rata in the distribution of the remaining 40% (see generally Section 3.7.1 above). 566 Gladstone & Gladstone, supra note 514 at 292-93.  154  Both share redemption and repurchase by the company as well as the liquidation of the CCC are subject to restrictions on the distribution of assets of the company. The provisions of the BCBCA governing the CCC directly limit neither a sale of shares nor an IPO, but the consequences of some of these provisions might impose limitations in practice.  3.9 Chapter Summary This Chapter attempted to outline the characteristics of the CCC and discussed some issues related to it. Thereby, it focused on eight subcategories. Where provisions required further clarification, this thesis has suggested an interpretation. However, the discussion is by no mean considered as being exhaustive. It is expected that further issues will pop up in practice and will require clarification. In addition, it remains to be seen how courts will construe the provisions governing the CCC and what the consequences might be.  As indicated at the beginning of this Chapter, remarks regarding the suitability of a CCC for impact investments (particularly when compared to other corporate forms) were deliberately postponed to the next Chapter. Up to now, the description and interpretation of the legal framework governing the CCC was intentionally prevalent. The discussion showed that most provisions of this framework intended to achieve two things, i.e. first that a CCC is operated and managed in accordance with its community purpose and for the benefit of the persons set out in it, and second to protect a CCC from being stripped of its assets. However, the elaborations also showed that there are  155  several interpretational issues. If and to what extent these features, restrictions and issues could affect the investment decision of an impact investor will be discussed in the following Chapter.   After having elaborated on the CCC, its characteristics and some issues, we now turn to the comparison with other for-profit corporate forms available in British Columbia. These are the (private or public) for-profit corporation as well as the B Corporation, i.e. a corporation that has adopted the standards set forth by Pennsylvania based non-profit organization B Lab.567 The goal of this comparison is to determine which of these corporate forms is most suitable as investee from an impact investor’s point of view.                                             567 See Section 1.3 above.  156  Chapter 4: Comparison to Other Corporate Forms In the following, the comparison will be structured along the same subcategories that have been applied to the discussion of the CCC in Chapter 3 above. Again, it is not intended to provide an in depth description of the corporate law in general. Before moving on to the potential improvements in the next Chapter, the chapter summary will try to combine the different findings and to provide a conclusion which corporate form would be most suitable for an impact investment from a corporate legal point of view.  4.1 Corporate Purpose While a CCC is required to have a community purpose and to state it in its articles,568 neither the notice of articles nor the articles themselves of a regular (public or private) for-profit corporation need to state the purpose of the company.569 At the same time, a corporation is not prohibited from stating its purpose or any restrictions to its business in the articles.570 If the founders have not stated the company’s purpose in its notice of articles or articles at the time of incorporation, the purpose could be included later by a special resolution of the shareholders.571 Restrictions regarding the business to be carried out or the powers that may be exercised by the company would have to be stated in the articles according to s 12(2)(a) BCBCA. The same applies to a corporation that has been incorporated under the BCBCA and that applied for certification as B                                             568 S 51.92 BCBCA. 569 See ss 11-12 BCBCA. See also VanDuzer, supra note 23 at 147-68.  570 Ibid at 166; Nicholls, Corporate Law, supra note 419 at 182-83. 571 Ss 257(2)(b) and 259(1) BCBCA. The term “special resolution” is defined in s 1(1) BCBCA. The articles or the notice of articles, respectively, may require a higher quorum.  157  Corporation. Although B Lab requires any applicant to complete a B Impact Assessment in order to evaluate the overall impact of the applying company, it does not require an applicant to state the company’s purpose in the articles.572  Considering the impact investor’s dual mission to achieve a social or ecological goal alongside a financial return, incorporating this dual mission into the company’s purpose and stating it in the articles might affirm the investor’s commitment to such dual mission, but it might not add any particular benefits. Since any act of a company is valid towards third parties even if it contravenes a provision in the articles,573 simply stating the company’s purpose or including restrictions on the business and powers the company could exercise, and litigating liability after the damage has been caused probably will not be enough from an impact investor’s point of view. Having influence on the management of the business and actively engaging with it enables the investor to make sure that the company acts in accordance with her principles.574 This active engagement can be used to ensure that the company is put on a track to maintain its commitment to provide a social or ecological impact after the investor exited the investment,575 regardless of the company’s purpose.                                               572 B Lab, “Performance Requirements” at para A, online: B Corporation <http://www.bcorporation.net/become-a-b-corp/how-to-become-a-b-corp/performance-requirements> [B Lab, “Performance Requirements”]. 573 S 33(2) BCBCA. 574 Traditional venture capital investors as well as impact investors are very likely to engage actively with the management of the company anyway (see e.g. Gladstone & Gladstone, supra note 514 at 239-44; Newmark & Pena, supra note 38 at 85). 575 Ibid at 86.  158  Regular corporations usually do not state their purpose or objects in their articles.576 One of the reasons for not including the purpose or the objects in the articles is that actions could be considered as being outside the scope of its purpose (i.e. ultra vires),577 which could lead to compliance or restraining orders according to s 228 BCBCA or to litigation with regard to the liability of directors.578 In order to avoid such issues and potential litigation, it is preferable not to include a purpose in the articles. Another reason would be the requirement of a special resolution (i.e. a two-third majority of the votes cast at a shareholders’ meeting) for any change of the notice of articles or the articles,579 which makes it more difficult to amend the purpose in the future. Companies prefer the flexibility of not stating too much in the articles in order to avoid going through the difficult amendment process.580  While an impact investor could live with the publicity of stating a company’s purpose in its articles,581 she might struggle with the potential issues regarding ultra vires actions. This would be particularly true in case the investor intended to be represented on the                                             576 VanDuzer, supra note 23 at 166. 577 Ibid at 214 (note 46). 578 Ibid at 167. Although VanDuzer only mentions the oppression remedy according to s 227 BCBCA, one could also argue that an act carried out by a director that does not comply with the company’s purpose is not in its best interest and hence constitutes a breach of the director’s fiduciary duty according to s 142(1)(a) BCBCA. For a general discussion of the ultra vires doctrine and the potential liability issues related to it see Sections 3.5 above and 4.5 below. 579 S 1(1) BCBCA. The notice of articles or the articles may provide for a higher quorum (see ss 257(2)(b)(ii) and 259(1)(b) BCBCA). 580 VanDuzer, supra note 23 at 167-68. 581 Ibid at 168. With regard to the CCC, the publicity of the community purpose is intended to enable public scrutiny (see British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11120 (Hon. K. Falcon), 11121 (Hon. K. Falcon)).  159  board of directors.582 The investor representative could be subject to liability or at least litigation in case an action approved by the board was considered as non-compliant with the company’s stated purpose.583 Not stating a purpose in the company’s articles eliminates this potential pitfall. Thus, an investor that intended to be represented on the board might not insist on having the company’s purpose expressly mentioned in the articles, or insist on removing it from the articles prior to closing its investment, respectively.  On the other hand, if the investor did not want to be represented on the board, having the purpose stated in the company’s articles could be advantageous for her. It would enable her to verify and control how the board spends the funds the investor invested in the company.584 In this case, the investor might even insist on stating the purpose in the company’s articles. However, since the impact investor is likely to request a representation on the board of directors,585 the inclusion of the company’s purpose in its articles will not provide a particular advantage with regard to control of the company. The investor participating in the board meetings will receive detailed information about                                             582 This is likely the case if the investment is made in small- or mid-sized companies by venture capital or impact investors (see e.g. Newmark & Pena, supra note 38 at 59; see also Gompers & Lerner, supra note 515 at 155-156; Cumming & Johan, supra note 515 at 312-13). In their model stock purchase agreement, Gladstone & Gladstone included a provision granting the investor the right to nominate board members (Gladstone & Gladstone, supra note 514 at 456). However, if and to what extent an investor wants to be involved depends on the investor itself (ibid at 268-70). At least, the investor wants to have a say on major strategic decisions (see ibid at 240; Newmark & Pena, supra note 38 at 59). 583 Although the act approved by the board would remain valid (see s 33(2) BCBCA), it could amount to a breach of the fiduciary duty according to s 142(1)(a) BCBCA. 584 This is foreseen with regard to the CCC. S 51.92 BCBCA requires that the community purpose is stated in the articles. The directors are required to act with a view to the community purpose (s 51.93(2) BCBCA), and in case they did not, they would become liable (s 154(1)(f) BCBCA).  585 See note 582 above.  160  the business and may ask additional questions,586 and therefore, she will not depend on controlling whether the expenditures match the corporate purpose.  If an impact investor insisted on having the company’s purpose stated in the articles, a CCC would be slightly more favourable for an investor. The legislation supports the investor’s negotiation position. While the BCBCA requires a CCC to state its community purpose in its articles,587 it would be a matter of negotiation with regard to the other corporate forms. The entrepreneur and the other shareholders would have to agree to include the purpose of the company in the articles and then approve the amendment accordingly with a two-third majority of the votes cast at a shareholders’ meeting. As far as public for-profit corporations are concerned, this might be a very difficult or even impossible task due to the large number of shareholders.588 If the investor has to bargain for the inclusion of that provision, she likely will have to give up on another point since the inclusion of the purpose of the corporation in the articles is very uncommon.589 Hence, a CCC would make the investor’s negotiation position a lot easier if she intended to have the company’s purpose included in the company’s articles.  However, in case the investor did not want to have the company’s purpose included in order to avoid potential liability issues, a CCC would be the least favourable or even an adverse option to invest in. S 51.92 BCBCA requires that a CCC states its community                                             586 Gladstone & Gladstone, supra note 514 at 243-44. 587 S 51.92 BCBCA. 588 VanDuzer, supra note 23 at 174. 589 See note 576 above.  161  purposes in its articles, and the activities of the directors will be matched against these purposes according to s 51.93(2) BCBCA, which intentionally exposes the directors of a CCC to a “higher level of accountability” than directors of a regular corporation.590   The CCC framework does not provide any flexibility regarding the community purpose. Although it could be amended by a special resolution of the shareholders,591 it cannot be removed from the articles. The statement of the purpose in the articles might not be a problem for one investor, but it might be an issue for another. As far as regular private corporations and privately held B Corporations are concerned, the inclusion or removal of the corporate purpose is comparably straightforward, although it might be a matter of negotiations with the shareholders.592 A CCC does not allow for that flexibility.  In summary, having the company’s purpose stated in its articles might provide some control mechanism against which an investor could match how funds are used, but there are several liability issues related to it as well. Whether the investor wants to be represented on the board of directors or not might influence the decision to include the purpose in the company’s articles. Therefore, it might be beneficial to have flexibility with regard to that question, which the CCC does not allow for. Hence, a CCC might not be the most suitable solution for an impact investment with regard to this subcategory.                                              590 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 591 See note 579 above and accompanying text. 592 As stated above, investors in public corporations could face more difficulties to amend the articles accordingly.  162  4.2 Voting Rights As discussed in Section 3.2 above, except for the requirement to have the declaration of a dividend approved by the shareholders according to s 51.94(1)(b) BCBCA, there are no differences between the CCC and regular (private or public) corporations as far as voting rights are concerned. The certification as B Corporation does not require any specific configuration of the voting rights either, whereby the provisions of the BCBCA governing the regular corporation apply likewise to a B Corporation.593  Since, to a wide extent, the legal provisions governing the voting rights are the same for all these corporate forms, is that single difference regarding the approval of the declaration of a dividend the compelling reason to choose a CCC for an impact investment? In general, the power to declare a dividend belongs to the directors.594 In a CCC, this power is shifted to the shareholders.595 However, the shareholders of a regular corporation may assume this power by implementing of a provision in the company’s articles to that end.596 This would allow an impact investor to have a regular corporation’s articles amended in order to implement a shareholder approval requirement regarding dividends before she completes her investment. The voting regime applying to a CCC hence could be incorporated in a regular corporation or a B                                             593 B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, online: B Corporation <http://www.bcorporation.net/become-a-b-corp/how-to-become-a-b-corp/legal-roadmap/corporation-legal-roadmap> [B Lab, “Corporation Legal Roadmap”]. 594 The company’s profits belong to the company itself, whereas it is a matter of management of the company whether a dividend is to be declared or not (see VanDuzer, supra note 23 at 231). Like any other decision to be made by the company, it is the directors who have to declare the dividend (s 136(1) BCBCA; see also VanDuzer, supra note 23 at 232). 595 See Section 3.2 above. 596 See s 137(1) BCBCA.  163  Corporation, which would eliminate any differences between these corporate forms with regard to voting rights.  The requirement of a shareholder approval would particularly benefit the impact investor if she acquired a number of shares with her investment that enabled her either to approve the dividend or to block it. For example, by default, the BCBCA requires an ordinary resolution to pass a shareholders’ resolution.597 According to s 1(1) BCBCA, this means that a simple majority of the votes cast would have to vote in favour of a resolution. Assuming that all shareholders participated in a meeting and voted, an investor would require 50% of all shares plus one in order either to approve the dividend or to prevent it. If the articles of a company provided for a higher threshold (e.g. two-thirds of the votes cast), the investor would require 66 2/3 % plus one share to approve the dividend, but only 33 1/3 % plus one share to prevent it. Depending on the stake the impact investor intends to acquire with her investment, the approval requirement could benefit the investor or not.598 In case of a public corporation, it seems to be very unlikely that an investor could exercise some sort of control over the declaration of dividends. Due to the large number of shareholders in many public corporations, the investor’s individual stake is likely to have little influence on the outcome of a vote.599                                              597 See with regard to the CCC s 51.94(1)(b) BCBCA. With regard to regular corporations, see s 173(8) BCBCA. 598 For example, EcoEnterprises Fund never acquired more than 20% of the company’s outstanding shares, whereby it would not have a majority to determine the outcome of the shareholders’ vote in a private company if the dividend needs to be approved by an ordinary resolution (see Newmark & Pena, supra note 38 at 117). 599 See VanDuzer, supra note 23 at 174. VanDuzer also mentions that most public corporations in Canada have one single majority shareholder that determines the outcome of every vote (ibid at 174, 542-43). Unless an impact investor intends to become that controlling shareholder, her influence on the votes seems to be marginal.  164  As far as private corporations are concerned, the impact investor is likely to have several options available to influence the decision on the declaration of a dividend even if the investor did not acquire a stake in a company that allowed her to determine the outcome of a vote. First, this power could be allocated to her by a shareholders’ agreement without the necessity to issue a separate class of shares.600 For example, all shareholders including the investor could agree that the declaration of a dividend shall require the explicit approval of the investor. Second, the investor in a private company is likely to request a representation on the board of directors, i.e. the entitlement to nominate a certain number of directors.601 Since the BCBCA does not contain any provision regarding voting thresholds with regard to resolutions of the directors, it is up to the articles or the by-laws to set out the number of directors necessary to approve an item.602 Depending on the aggregate number of directors and the number of investor nominees, the investor could be granted the possibility to prevent the declaration of a dividend. For example, if a board consisted of five directors, two of which nominated by the investor, the requirement of at least four directors voting in favour of the declaration of a dividend would grant the investor a veto right. In case an investor had only one representative on the board, the threshold could be unanimity. Third, also by way of shareholders’ agreement, it could be agreed with the company that no dividend shall be                                             600 Ibid at 291-92. Due to the large number of shareholders in a public corporation, a shareholders‘ agreement may have barely any influence, whereas it is mainly used in private corporations (see ibid at 290). 601 See note 582 above. 602 See also VanDuzer, supra note 23 at 279.  165  declared or distributed without the approval of the investor representative.603 These options grant the company as well as the investor considerable flexibility to structure the dividend declaration process according to their needs and requirements.   Considering that the approval process foreseen by s 51.94(1)(b) BCBCA would only allow the investor to control the outcome of the vote if she acquired more than 50% of the shares of a CCC, it seems likely that any investor who intends to acquire less than 50% will ask for additional control mechanisms. In general, the options outlined above would also be available with regard to a CCC, although in a slightly modified way. As discussed in Section 3.2 above, it is still the directors’ task to declare the dividend after the shareholders have approved it. In addition, it is usually the board of directors that sets the agenda for a shareholders’ meeting and hence would determine whether a proposal to declare a dividend should be brought before the shareholders or not.604 It is these two resolutions with regard to which the investor could exercise some sort of control to be granted by the articles, the by-laws, or the shareholders’ agreement. Furthermore, a shareholders’ agreement could require the approval of the investor in addition to the shareholders’ affirmation.                                               603 It has to be kept in mind that the directors may not agree to vote in a certain way, but always have to consider the company’s best interest in determining how they should exercise their voting rights (see ibid at 292). 604 Ibid at 265.  166  Since there are no particular provisions regarding voting rights in a B Corporation, the remarks made with regard to regular (private or public) corporations apply to B Corporations as well.605  In conclusion, voting rights are the same in all of the corporate forms discussed herein, except for the shareholder approval requirement for the declaration of a dividend applying to a CCC. However, in all these corporate forms (except for public corporations), provisions could be implemented to grant an investor some control over the declaration of a dividend, either in the articles, the by-laws or in a shareholders’ agreement, which would have to be negotiated between the investor, the company and the other shareholders. Although the approval regime governing a CCC would not have to be negotiated, it would only provide controlling rights to an investor if she acquired more than 50% of the shares in a CCC. Hence, in most cases, an investor would have to negotiate for (additional) controlling rights anyway. The mandatory shareholder approval alone would not provide any particular benefit. Unless the investor intends to acquire at least a 50% stake, it does not matter in which corporate form she invests in. Neither provides any advantages from a legal point of view.                                              605 B Lab states that both private and public corporations are eligible for certification as B Corporation (see B Lab, “FAQs for Investors and Directors of Potential B Corporations” (2011) at 3, online: B Corporation <http://www.bcorporation.net/sites/all/themes/adaptivetheme/bcorp/pdfs/faqs_investors_and_directors4.pdf> [B Lab, “FAQ”]).  167  4.3 Transfer Restrictions Regarding the Shares As outlined in Section 3.3 above, except for first the requirement that a certain class or series of shares could only be held by qualified entities and second the factual restrictions, the shares in a CCC are not subject to any legal transfer restrictions. As far as shares in regular (private or public) corporations are concerned, the BCBCA does not contain any transfer restrictions at all, but such could be set out in the company’s notice of articles and articles.606 The articles of public corporations usually do not contain any transfer restrictions since the shares should be “freely transferable.”607 The same applies to B Corporations since the certification neither prescribes any composition of shareholders nor requires any transfer restrictions.608  It has to be mentioned that shares in regular private corporations (as well as private B Corporations) are likely to face factual transfer restrictions, which may be similar to the restrictions that could apply to shares of a CCC. For instance, although there are no dividend and asset transfer restrictions, the valuation of shares in private corporations might be difficult since there is no marketplace for such shares.609 Furthermore, since most shareholders in private corporations are also actively involved in the management or operation of the business, the sale of one shareholder’s shares could endanger the continuation of the business operations. Therefore, it would be of little value to a third                                             606 See ss 11(h) and 12(2)(b) BCBCA, respectively. See also VanDuzer, supra note 23 at 164. 607 Ibid at 177. 608 B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, supra note 593. 609 VanDuzer, supra note 23 at 164, 293.  168  party to buy these shares.610 On the other hand, the shareholders usually want to have a say on who is going to buy the shares and who will join the group of shareholders, whereas they submit themselves to transfer restrictions set out in the articles or, more often, in a shareholders’ agreement (e.g. a right of first refusal).611 Such restrictions may also be implemented with regard to the shares in a CCC since nothing in the BCBCA prevents the shareholders from doing so.  Restrictions on the transferability of the shares in a corporation are less likely in a public corporation with many shareholders.612 In these situations, management is typically separated from the shareholders and the latter are mainly passive.613 Hence, it is less important to control who are the shareholders in the corporation.614 In addition, since the shares of a public corporation are usually listed on a stock exchange,615 a marketplace exists that prices the shares and facilitates the transfer.616 Therefore, shareholders of public corporations face no or at least much less factual transfer restrictions than shareholders in a private corporation.  Since according to the BCBCA, the shares of neither corporate form are subject to transfer restrictions, it may be assumed that they do not influence the selection of a                                             610 Ibid at 164, 292. 611 Ibid at 165, 293-94. 612 C.f. ibid at 164 (refers only to corporations with few shareholders). 613 Ibid at 174, 255-56. 614 Depending on the business the corporation is active in, it may be important to maintain a certain class of shareholders in fulfillment of regulatory requirements or in order to receive governmental funding (ibid at 165). 615 See Section 3.8.4 above. 616 See also VanDuzer, supra note 23 at 293.  169  corporate form. However, they may be the consequence of an investment in any of these corporate forms with a small group of shareholders in order to ensure that the important shareholders who also manage the business continue being involved in the business, or that at least the acquirers of their shares would be suitable successors of the leaving shareholders.  4.4 Board Composition and Representation While the boards of a CCC and a regular public company have to consist of at least three directors,617 the number of directors prescribed for a private company is at least one director.618 The same applies to private or public B Corporations, respectively.619  As discussed earlier, traditional venture capital investors as well as impact investors usually request to be entitled to nominate a certain number of board representatives.620 Since neither s 51.93(1), s 120 BCBCA nor any other provision in the BCBCA grant a nomination right, such representation would be entirely a matter of negotiations with regard to every corporate form discussed herein. None of these corporate forms provides any advantage to the impact investor.                                              617 Ss 51.93(1) and 120 BCBCA. 618 S 120 BCBCA and Section 3.4 above. 619 Compare B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, supra note 593. 620 See note 582.  170  4.5 Duties of the Directors As far as the duties of the directors are concerned, the differences between the corporate forms at issue become more apparent. The directors’ duties were generally elaborated in Section 2.3.2.1 above. As discussed there, the directors are subject to a fiduciary duty and a duty to care according to s 142(1)(a) and (b) BCBCA. The fiduciary duty requires directors to act in the best interest of the corporation. In order to determine the best interest of the corporation, directors are allowed, but not obliged to consider other stakeholders’ interests. However, although the SCC affirmed that directors do not have to focus on shareholders’ interests only but may consider other interests, it offered little to clarify what the content of the fiduciary duty is (e.g. whose interests have to be considered and how to resolve conflicting interests).621  Compared to these general duties, the provisions governing the CCC add to them that directors have to act with a view to the community purpose.622 What this means requires further clarification by courts.623 Since directors could be held liable for any actions that were not made with regard to the community purpose,624 this imposes quite some uncertainty on directors of a CCC (including an investor representative, if any) in addition to the uncertainties that already existed with regard to the fiduciary duty and the duty to care. Besides that, it can be argued that the obligation to act with a view to the                                             621 See e.g. Waitzer & Jaswal, supra note 236 at 459-62. 622 S 51.93(2) BCBCA. See Section 3.5 above. 623 This thesis has argued in favour of a broader interpretation, i.e. that actions of directors do not have to directly contribute to the achievement of the community purpose, but that they could also help securing the long term operations of a CCC (see Section 3.5 above). 624 See also the brief discussions regarding liability in Sections 3.5 and 4.1 above.  171  community purpose requires the directors to consider at least the interests of the beneficiaries of a CCC.  As stated earlier, the duties of the directors according to s 142(1) BCBCA do also apply to directors of a B Corporation. However, in order to obtain a certification as B Corporation, candidate corporations are required to include the following text into their articles:  The directors shall, acting fairly and responsibly, consider the short-term and the long-term interests of the corporation, including, but not limited to, the corporation's shareholders, employees, suppliers, creditors and consumers, as well as the government and the environment (the "Stakeholders"), and the community and society in which the corporation operates, to inform their decisions.  In discharging his or her duties, and in determining what is in the best interests of the corporation, each director may consider all of the Stakeholders (defined above) and shall not be required to regard the interests of any particular Stakeholder as determinative.  Nothing in this Article express or implied, is intended to create or shall create or grant any right in or for any person or any cause of action by or for any person.  Notwithstanding the foregoing, any Director is entitled to rely upon the definition of "best interests" as set forth above in enforcing his or her rights hereunder, and under province law and such reliance shall not, absent another breach, be construed as a breach of a Director's fiduciary duty of care, even in the context of a Change in Control Transaction where, as a result of weighing other Stakeholders' interests, a Director determines to accept an offer, between two competing offers, with a lower price per share.625                                              625 B Lab, “Corporation Legal Roadmap”, supra note 593.  172  The most important part of this provision seems to be right at the beginning where it states that “[t]he directors shall […] consider” other stakeholders’ interests.626 This makes it clear that the directors not only may consider other stakeholders’ interests (as under the BCBCA and the Peoples and BCE decisions),627 but are obliged to do so. The second paragraph essentially repeats what the SCC already held with regard to conflicting interests, i.e. that none of the interests prevails over others.628 Moreover, again similar to the SCC,629 the provision does not provide any advice how to deal with conflicting interests. The third paragraph touches upon the question who could file a liability claim against a director that breaches her fiduciary duty. In general and without going into the details, only the company and, based on s 232 BCBCA, every shareholder or director may file a claim against a director since the fiduciary duty is owed to the company.630 It seems that the third paragraph intends to make sure that the claimant status is not awarded to others due to the obligation to consider other stakeholders’ interests.631 The last paragraph is somewhat confusing. It refers to the “best interests” as a defined term, although the provision does not define it. Since it is                                             626 Ibid [emphasis added]. 627 Peoples, supra note 21 at para 42; BCE, supra note 229 at para 39. 628 BCE, supra note 229 at para 84. The SCC even requires directors to treat competing interests equitably and fairly and to resolve these conflicts in the corporation’s best interests (ibid at 81-82). 629 Waitzer & Jaswal, supra note 236 at 459. 630 See Peoples, supra note 21 at para 35; VanDuzer, supra note 23 at 339. 631 Considering that the articles are a document that governs the internal affairs of a corporation, it is unclear whether the obligation to consider other stakeholders’ interests would grant third parties an enforceable right. An argument against such interpretation would be that such obligation is a mere clarification of the content of the fiduciary duty owed to the company rather than an expansion of the group of persons to whom the duty is owed.  173  not a certification requirement to define the company’s best interests somewhere in the articles,632 it is unclear what this reference means.  As discussed earlier, impact investors usually want directors to consider other stakeholders’ interests when making business decisions.633 While all corporate forms at least allow for the consideration of stakeholders’ interests, the certification requirements of a B Corporation even requires such consideration. From this point of view, the B Corporation could be most interesting for an impact investor. The obligation to take into account other stakeholders’ interests could also be implemented in the articles of a regular corporation without applying for certification as B Corporation. This would save the company the annual certification fee and it would not have to engage in review procedures.634 However, such duty in the articles could be removed again in case the investor had no longer a majority of voting rights and the majority shareholders preferred to focus on profits only. In this case, the impact investor could be “forced” to liquidate her investment. Hence, the impact investor would have to acquire a majority of the company’s outstanding voting shares and retain such majority in order to ensure that this duty remains in place.                                              632 See B Lab, “Corporation Legal Roadmap”, supra note 593. 633 See note 38 above and accompanying text. 634 B Lab, “Term Sheet for Certified B Corporations” at 2, online: B Corporation <http://www.bcorporation.net/sites/default/files/documents/term_sheets/B Corp Term Sheet - Constituency States and LLCs.pdf>; B Lab, “Performance Requirements”, supra note 572.  174  As argued earlier,635 the duty to act with a view to the community purpose according to s 51.93(2) BCBCA could be interpreted to require the directors to take the interests of the CCC’s beneficiaries into account. Compared to the other corporate forms, this is a statutory duty and not only an obligation to be implemented in the company’s articles which could be removed by amending the articles.636 The impact investor would not have to negotiate for it, whereas the CCC could be a suitable solution for the investor besides the B Corporation. In addition, the duty to consider the beneficiaries’ interests would be or remain in place, respectively, even if the investor did not acquire a majority of the CCC’s outstanding shares or lost such majority at a later point in time. However, whether this interpretation will be adopted by courts remains to be seen. If not, as far as the consideration of other stakeholders’ interests are concerned, the directors of a CCC would be in a similar situation as the directors of a regular corporation. Even if it were adopted, the directors would only be obliged to consider the beneficiaries’ interests, but probably not the ones of any other stakeholders.637 Although the directors could consider their interests as in any regular corporation, they would not be obliged to. In addition, given the uncertainties surrounding the interpretation of the duty to act with a view to the community purpose,638 the potential liability may make a CCC much less attractive.                                              635 See Section 3.5 above. 636 Of course, a B Corporation would lose its certification if it removed this obligation from its articles and would remain a regular corporation. 637 Such broad obligation to consider all stakeholders’ interests may not be read into the duty to act with a view to the community purpose. 638 See Sections 3.5 and 4.1 above.  175  In summary, despite the lack of clarity regarding some parts of the provision to be implemented in the company’s articles in order to get certified as B Corporation, this corporate form seems to provide exactly what the impact investor is looking for, i.e. an obligation of the directors to consider all stakeholders’ interests. Although an obligation to consider the interests of the beneficiaries could be read into the duty of a CCC’s directors to act with a view to the community purpose, such obligation would not go as far as the one the directors of a B Corporation are subject to. Moreover, the uncertainties relating to interpretation of the duty to act with a view to the community purpose increases the risk of a director (including the investor representative on the board) to be held liable. Hence, a CCC might not be the most suitable option to an impact investor.  4.6 Reporting Monitoring an investment is a crucial task for every investor in order to protect her investment.639 One of the most important monitoring tools is the investee company’s reporting system.640 A reporting system does not only allow an investor to recognise early warning signs of potential problems with regard to the company, but also enables her to measure its performance and to fulfill her own reporting obligations.641 In particular, the impact investor is interested in knowing what impact her investment                                             639 Newmark & Pena, supra note 38 at 110-11; see also Gladstone & Gladstone, supra note 514 at 240-41, 248. 640 Newmark & Pena, supra note 38 at 112-13; Gladstone & Gladstone, supra note 514 at 240-43. 641 Newmark & Pena, supra note 38 at 110.  176  actually generated.642 Furthermore, the reporting could provide future investors with useful information to ground their investment decision on, which might support the current investor’s exit.643 Despite the differences of companies with regard to size, number of employees, operational focus, etc., in order to apprehend a company’s performance in relation to others, some comparability of the reporting might be desirable.644  Having said this, and having elaborated on the community contribution report a CCC is required to produce annually,645 the CCC seems to be a very promising corporate form for an impact investor to invest in. S 51.96 BCBCA applies only to a CCC. None of the other corporate forms is required to produce and publish a community contribution report. Regular corporations are generally required to produce and publish annual financial statements according to s 198(2) BCBCA unless they are exempted from doing so by s 197 BCBCA or all shareholders waive the production of financial statements based on s 200(1) BCBCA.646 In addition to the requirement to produce financial                                             642 Bugg-Levine & Emerson, supra note 1 at 74-75, 165; Newmark & Pena, supra note 38 at 110. 643 Newmark & Pena state that they used their own reporting tool to assess a target company during the due diligence (ibid at 112). 644 C.f. Bugg-Levine & Emerson, supra note 1 at 175; Newmark & Pena, supra note 38 at 111, 115. In order to foster the comparability of the reports, several initiatives have developed reporting standards (see e.g. ibid at 115). One of these standards are the Impact Reporting and Investment Standards (IRIS) which have been jointly developed by the GIIN, the Rockefeller Foundation, Acumen Fund, and B Lab (Global Impact Investing Network, “Impact Reporting and Investment Standards (IRIS)”, online: GIIN <http://www.thegiin.org/cgi-bin/iowa/reporting/index.html>; see also Bugg-Levine & Emerson, supra note 1 at 175). Another initiative led by B Lab developed the Global Impact Investing Rating System (GIIRS) which applies IRIS in order to provide a rating (B Lab, “What GIIRS Does”, online: GIIRS <http://www.giirs.org/about-giirs/about>; see also Bugg-Levine & Emerson, supra note 1 at 177; Newmark & Pena, supra note 38 at 115). 645 See generally Section 3.6 above. 646 See also VanDuzer, supra note 23 at 272. Since the financial statements would only show the financial performance of the company, but would not allow for any conclusions regarding the impact generated, it would be   177  statements, public corporations are subject to further disclosure obligations, but none of these obligations particularly relates to impact reporting.647 The same applies to (private or public, respectively) B Corporations.648 The possibility to waive the financial statements is not available to shareholders of a CCC.649  One item listed in s 51.96(2) BCBCA to be disclosed in the community contribution report would allow drawing conclusions on the impact the CCC generated. S 51.96(2)(a) BCBCA requires the directors to elaborate on how the company’s activities benefited the society in the reporting period. Although the main purpose of the community contribution report is to provide a monitoring tool regarding the restrictions on dividend distributions and asset transfers,650 the most important part from an impact investor’s and, due to the potential gains in reputation, also the CCC’s point of view probably might be the reporting on the ecological or social performance of the CCC. However, there are no further requirements regarding how a CCC has to report on its community benefits. Every CCC is completely free to decide how it structures its report, which terms it uses and how detailed it reports. This lack of standardization might negatively affect the comparability of the reports and hence of the social or ecological performance of the CCCs. Preferably, the legislator should have prescribed the application of an                                                                                                                                             very likely that the impact investor required and negotiated for additional reports regarding the impact (see Newmark & Pena, supra note 38 at 113). 647 See generally McGuinness, supra note 425 at 911-16, 953-57. 648 Compare B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, supra note 593. 649 S 51.951 BCBCA. See also Section 3.6 above. 650 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11124 (Hon. K. Falcon). All other items listed in s 51.96(2) BCBCA and most of the items listed in s 9 CCCReg refer to disclosures regarding dividends and asset transfers.  178  internationally recognized reporting standard to be used to report on the community benefits, such as the IRIS.651  The obligations of a B Corporation go further. In order to be re-certified, a B Corporation is required to complete the B Impact Assessment every two years.652 An independent body reviews the assessment and decides on the recertification.653 Since there is no obligation to share the completed assessment with the shareholders, the impact investor would likely require that the assessment and the results be circulated among the shareholders or at least provided to her.654 Considering that a B Impact Assessment every two years might not satisfy the investor’s need for information, a more frequent reporting will presumably be requested.655 The requirement to annually produce and, in particular, publish a community contribution report hence would provide slightly more benefits to an impact investor than an impact assessment every two years, although it does not completely satisfy the information needs of an impact investor either.656                                              651 See note 644 above. 652 B Lab, “Performance Requirements”, supra note 572. 653 Ibid at para B. 654 The circulation of the results is also recommended by B Lab in order to evaluate where the company could improve (B Lab, “Step 2: Compare Your Impact”, online: B Impact Assessment <http://bimpactassessment.net/how-it-works/compare-your-impact> [B Lab, “Compare Your Impact”]). See also Newmark & Pena, supra note 38 at 113. 655 For example, EcoEnterprises Fund required its investee companies to complete their own reporting tool twice every year (ibid at 113). In addition, it demanded quarterly financial statements and annual environmental and social reports, reports from certifiers or other third-party evaluators (ibid at 62). Gladstone & Gladstone even require monthly financial statements and reports (Gladstone & Gladstone, supra note 514 at 240-43). 656 See note 655 above.  179  An advantage of the B Impact Assessment is that it is a standardized assessment. Depending only on the size, the business sector, and the location of primary operation, companies get a customized questionnaire to complete.657 This allows comparing the results among companies with the same characteristics.658  While the reporting requirements applicable to a CCC and a B Corporation reflect the impact investors’ information needs much better than the ones applicable to a regular corporation, it is hard to tell which one of the first two systems provides the most advantages. On the one side, both reporting systems do not seem to require reports frequent enough to satisfy the impact investor, and thus, in any case, the investor would have to negotiate for reports that are more frequent. On the other hand, however, the B Impact Assessment provides some comparability with other B Corporations completing the same assessment. As far as the reporting is concerned, this comparability might be the decisive benefit in favour of a B Corporation.  4.7 Distribution of Profits and Liquidation Proceeds Similar to the discussion in Section 3.7 above, the four corporate forms first will be compared with regard to their ability to distribute dividends. Thereafter, the asset transfer restrictions, if any, will be compared before the Section closes with the discussion of the distribution of assets upon dissolution.                                             657 B Lab, “Performance Requirements”, supra note 572 at para A. 658 The reports on the B Impact Assessment include a comparison to the average score of other businesses (B Lab, “Compare Your Impact”, supra note 654).  180  4.7.1 Restrictions on Dividends Compared to the CCC, regular corporations and B Corporations659 are much less restricted in declaring a dividend. According to s 70(2) BCBCA, a dividend may not be declared if there are reasonable grounds that indicates that the company is insolvent (subsection (a)) or that the company would become insolvent if the dividend were paid (subsection (b)).660 If a company meets this “solvency test”,661 it may declare a dividend without any further restrictions. If requested, such could be imposed by the articles of the company.662 A payment of a dividend in contravention of s 70(2) BCBCA would not be invalid, but the directors, and maybe also the shareholders based on s 156(2) BCBCA, would become liable to reimburse the company.663  At first glance, the dividend regime of a CCC seems very restrictive, whereby a regular corporation or a B Corporation could be considered as more suitable for an impact investor. The lack of restrictions offers utmost flexibility to determine whether a dividend should be declared and if yes, what amount should be paid out.664 However, the CCC model first might not be disadvantageous from a practical point of view. Second, it ensures that the company maintains its dedication. On the one hand, it seems that companies in general do not pay out dividends while still growing until they are mature                                             659 The B Corporation status is not subject to any restrictions regarding dividends and hence the same principles apply to a B Corporation as to a regular corporation (compare B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, supra note 593). 660 See also VanDuzer, supra note 23 at 233. 661 Ibid at 233. 662 S 70(1) BCBCA. 663 See ss 70(4) and 154(1)(c) BCBCA. The same consequence applies to a payment of a dividend by a CCC that did not comply with s 51.94(1) BCBCA (see Section 3.7.1 above). 664 See e.g. Newmark & Pena, supra note 38 at 61-63 (highlight advantages of flexibility).  181  enough with a constant cash flow, even after they started making profits.665 This means that the dividend restrictions of a CCC would not cause any concerns at all until the company is mature enough to distribute dividends.666 Thereafter, profits could be allocated to the investor in order to ensure that she received a dividend as if there were no restrictions.667 The dividend restrictions could become a concern if the company went public, but since the listing of shares of a CCC seems to be rather theoretical,668 these concerns would remain theoretical as well.   On the other hand, impact investors are interested in making sure that the investee company maintains its commitment and dedication after they liquidated their investments.669 Since the dividend restrictions are prescribed by statutory law, they would apply even after the investor’s exit, and could not be waived or abolished by or upon request of later investors.670 They make sure that the profits a CCC generates, if any, remain with the company in order to finance its going concern.                                              665 See generally Itzhak Ben-David, “Dividend Policy Decisions” in H Kent Baker & John R Nofsinger, eds, Behavioral Finance: Investors, Corporations, and Markets (Hoboken, NJ, USA: John Wiley & Sons, 2010) 435 at 436, 439-40. It may be assumed that this would apply to a CCC as well. 666 For obvious reasons, this is particularly true for the time before the company starts generating profits. 667 One way would be the issuance of preferred shares to the investor which entitle her to receive a certain amount first and in priority to all other shareholders (see s 58(2)(a) BCBCA; VanDuzer, supra note 23 at 230). Another option would be to include a provision in the company’s articles that entitles the directors “to allocate dividends to one or more classes of shares at their discretion” (ibid at 232). In order to ensure that the shareholders approve such distribution as required by s 51.94(1)(b) BCBCA, the shareholders could undertake to vote accordingly in a shareholders’ agreement (ibid at 291). Alternatively, if the shareholders preferred to keep the share structure simple, they could also agree on a dividend distribution in a shareholders’ agreement (see generally ibid at 226, 290-92). 668 See Section 3.8.4 above. 669 See e.g. Newmark & Pena, supra note 38 at 86. 670 Dividend restrictions implemented in the articles of regular corporations based on s 70(1) BCBCA could be amended or deleted at any time.  182  Considering that the restrictions on the dividends are unlikely to interfere with an impact investor’s intention from a practical point of view and that they ensure the CCC’s operations for the long-term, the CCC might well be the most suitable corporate form to invest in as far as impact investments are concerned.  4.7.2 Restrictions on Asset Transfers (Asset Lock) Unless a company intends to dispose of all or substantially all of its assets, there are no restrictions regarding asset transfers as far as regular corporations and B Corporations are concerned.671 Any asset transfer hence could only be measured against the benchmark of the best interest of the company.672  Compared to these corporate forms, the CCC is subject to several asset transfer restrictions.673 In general, transfers have to be made for fair market value, to a qualified entity, in furtherance of the CCC’s community purpose, or by a transfer as dividend, share redemption or repurchase, or distribution upon dissolution.674 Other transfers may not be made. Considering that it is in an impact investor’s interest that an investee company maintains its commitment to generate a social or ecological impact,675 impact investors could appreciate these restrictions since they ensure that a company cannot                                             671 See with regard to the sale of all or substantially all assets s 301 BCBCA; VanDuzer, supra note 23 at 324-25. The requirements for a certification as B Corporation do not prescribe anything with regard to assets transfers (compare B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, supra note 593). 672 A director could be held liable if he authorized a transfer of assets that was not in the best interest of the corporation according to s 142(1)(a) BCBCA. 673 See Section 3.7.2 above. 674 S 51.931(1) BCBCA; see also generally Section 3.7.2.2 above. 675 See note 669 above and accompanying text.  183  be stripped of its assets and therefore retains a solid basis of assets to finance its going concern. In addition, the restrictions do not seem to be too restrictive. It could be argued that the requirement to obtain at least fair market value as consideration for a transfer676 is simply what directors should do anyway in discharge of their fiduciary duty.677 Moreover, if the exemption regarding transfers in furtherance of the CCC’s community purpose were interpreted broadly,678 this would provide some flexibility to the directors when operating the business. Hence, the CCC could be the favourable corporate form from an impact investor’s point of view.  However, at least for the time being, there are some interpretation issues with regard to the permitted transfers and to the consequences in case a transfer did not comply with the restrictions.679 As far as the permitted transfers are concerned, this thesis argues that s 51.931(1)(c) BCBCA should be interpreted broadly (i.e. that permitted transfers do not have to directly contribute to the achievement of the community purpose).680 As to the consequences, it is proposed that the liability according to s 154(1)(f) BCBCA should be the only consequence and that a transfer that did not comply with s 51.931 BCBCA should not be per se invalid.681 If courts followed these interpretations, the regime on transfer restrictions would provide enough flexibility in order not to deter away                                             676 S 51.931(1)(a) BCBCA. 677 See note 475 above. 678 S 51.931(1)(c) BCBCA; see also Section 3.7.2.2 above. 679 See Sections 3.7.2.2 through 3.7.2.4 above. 680 See Section 3.7.2.2 above. 681 See Section 3.7.2.4 above.  184  impact investors. In this case, the restrictions could be a feature that even attracts impact investors.  4.7.3 Restrictions on Asset Transfers Upon Dissolution The restrictions discussed in Section 3.7.3 above do only apply to a CCC. Neither a regular corporation nor a B Corporation is subject to any particular restrictions.682 In brief, after having paid, or made provision for payment, of all of the company’s liabilities, the remaining assets (i.e. the net assets) may be distributed among the shareholders of the company.683 This is a major difference compared to the CCC.  Although not being the preferred exit option,684 an investor would always have to consider the risk that the investee company has to be liquidated. This risk may be particularly significant if the investee company is a young venture company.685 Investors are usually keen on ensuring that they will get at least their investment back at the time they liquidate it.686 Due to the restrictions on the distribution of assets applicable to a CCC, it may be more difficult for an investor to receive back her investment in case of liquidation. For example, assume that an investor invested $200,000 for a 20% stake in a company at a time it had assets worth of $300,000. It was agreed that in case of                                             682 Again, the certification requirements do not contain any particular provision (compare B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, supra note 593). 683 See s 330(l) and (m) BCBCA; see also VanDuzer, supra note 23 at 331. 684 Section 3.8.5 above. 685 See e.g. Gompers & Lerner, supra note 515 at 148 (venture capital investments are considered as high risk assets). 686 See e.g. Gladstone & Gladstone, supra note 514 at 9; see also Newmark & Pena, supra note 38 at 117-18, 121.  185  liquidation, the investor would receive back her investment prior to any other distribution to shareholders, and the remainder would be distributed among all the shareholders except for the investor.687 Suppose further that, five years later, the company had assets of $500,000, but due to the economic downturn, the shareholders decided to liquidate the company. After paying the company’s liabilities of $50,000, the net assets amount to $450,000. If the company were a regular corporation or a B Corporation, this amount would be available for distribution to the shareholders. Therefore, the investor would receive her investment (i.e. $200,000) and the remainder (i.e. $250,000) would be distributed among the other shareholders. If the company were a CCC, 60% of the net assets (i.e. $270,000) would have to be distributed to qualified entities first.688 The remaining $180,000 would go to the investor. While the investor would fall slightly short of receiving back her investment, the other shareholders would not receive anything at all. They would lose their entire investment.  Although impact investors would like to ensure the long-term sustainability of a company they invest in,689 one might not assume that the same would apply to the dedication of assets to a social or ecological purpose upon liquidation. Considering that it still is an investment and not a philanthropic donation,690 the intention to get at least                                             687 Such distribution regime could be achieved either through the issuance of preferred shares or an arrangement in a shareholders’ agreement (see VanDuzer, supra note 23 at 235). 688 See 3.7.3 above. 689 See note 669 above and accompanying text. 690 According to the definition of impact investment, an impact investor intends to achieve a financial profit alongside a social or ecological impact (see Section 2.1.1 above). But a financial profit would only occur in case the aggregate amount paid to the impact investor (by way of dividends, liquidation proceeds, consideration for the   186  the investment back is likely to prevail over any desire to support a charitable purpose. Hence the requirement to distribute a minimum of 60% of the CCC’s net assets to qualified entities puts the intention of the impact investor at risk, and, in fact makes that portion of the investment a philanthropic donation, in particular with regard to young companies. This might prevent impact investors from investing in an early stage CCC. As far as the distribution of assets upon liquidation is concerned, the risk to the investor would be less significant if she invested in a regular corporation or a B Corporation, whereas these forms seem to be more suitable.  4.7.4 Summary While the restrictions regarding dividends and asset transfers applicable to a CCC do not seem to be contrary to the intentions of an impact investor, and occasionally even beneficial to them, these intentions are being put at risk when it comes to the distribution of assets upon liquidation. In particular, liquidation has to be taken into account in case the company does not perform well691 and therefore, it has to be feared that upon liquidation, a CCC’s assets would not be enough in order to repay the investor. However, not only the investor is at risk. The numerical example in Section 4.7.3 above has shown that the other shareholders would need to be particularly worried. The restrictions upon liquidation at least partially erase the advantages given                                                                                                                                             redemption of shares, purchase price from a third party acquirer, etc.) exceeded the amount of her investment. Hence, in order not to suffer a loss from her investment, she would want to get her investment back at least. 691 Gladstone & Gladstone, supra note 514 at 292-93.  187  by the restrictions regarding dividends and asset transfers during the time the CCC is a going concern.  4.8 Possible Exits for a Shareholder The possibilities available to an investor in a CCC were discussed in detail in Section 3.8 above. It now needs to be evaluated with regard to each possibility which corporate form provides more benefits to the impact investor. The discussion shall be structured along the same subcategories as already used above, i.e. the sale of shares, redemption or repurchase of shares, reorganization, IPO, and liquidation.  4.8.1 Sale of Shares As discussed in Section 4.3 above, none of the corporate forms faces any legal transfer restrictions prescribed by statutory law. Unless the articles or a shareholders’ agreement restrict the transferability of the shares, they may be freely transferred. Due to the illiquidity of the market, shares in privately held companies could face factual transfer restrictions, regardless of the corporate form.692 The shares of a public corporation are usually subject to neither legal nor factual transfer restrictions,693 what makes it very simple for an investor to sell the shares through the stock market.694 However, if the investor’s stake exceeded 20% of the company’s outstanding shares,                                             692 See the discussion in Section 4.3 above. 693 Ibid. 694 See also Cendrowski et al, supra note 535 at 70, 88.  188  the sale could be subject to the formal takeover bid rules.695 As far as the B Corporation certification is concerned, a change in ownership has no influence on the certification, and therefore, the sale of some or even all shares would not have any negative consequences.696  Since there is no difference between the transferability of the shares in any of the corporate forms discussed herein from a statutory legal point of view, the remarks made in Section 3.8.1 above do not only apply to a CCC, but to all these corporate forms. However, the corporate form may have an influence on the feasibility of a sale of the investor’s shares or even all shares in the company from a practical point of view.  Shares of a public company that are listed on and traded through a stock exchange are much more liquid than shares in a private company with a small group of shareholders.697 In general, this makes it very simple for any shareholder (including the investor) to sell her shares in case she wants to liquidate her investment. Depending on the investor’s stake, she could also collect a control premium by just selling her                                             695 Nicholls, Mergers and Acquisitions, supra note 521 at 110-11. Without going into the details, there would be several exemptions available in order to avoid the application of the takeover bid rules (see generally ibid at 166-94). One of these generally exempts transactions with regard to shares in non-reporting issuers with less than fifty shareholders, which is commonly referred to as the “private company exemption” (see Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids, BCSC MI 62-104 (2008), s 4.3 [MI 62-104]; see also Nicholls, Mergers and Acquisitions, supra note 521 at 186-91). The private agreement exemption would be the most likely case if an investor intended to sell its stake in the company (s 4.2 MI 62-104; Nicholls, Mergers and Acquisitions, supra note 521 at 168-86). From a high level point of view, the requirements of this particular exemption are that the offer is not made to all shareholders, that not more than five shareholders sell shares, and that the price to be paid does not exceed the market price of the shares by more than 15% (ibid at 168). 696 B Lab, “FAQ”, supra note 605 at 2. 697 VanDuzer, supra note 23 at 293.  189  shares.698 However, the takeover bid rules would make the sale of the entire company or even the investor’s stake only if it exceeded 20% of the outstanding shares an “onerous, time-consuming, and expensive” task.699 An investment in a public company is hence preferably liquidated by just selling it through the stock market.  As far as private companies are concerned, it seems to be the other way round. Just selling the investor’s stake seems to be rather difficult due to factual transfer restrictions.700 On the other side, although the takeover bid rules do also apply to private companies, it is very likely that one of the exemptions stated in ss 4.3 (“private company exemption”) or, depending on the number of shareholders, 4.2 (private agreement exemption) MI 62-104 applies.701 Hence, from a legal and regulatory point of view, the sale of all shares in a private company may be completed without complying with the onerous takeover bid rules.                                              698 Nicholls mentions that public corporations can be “controlled by holders of far less than 50 percent of the outstanding shares” (Nicholls, Mergers and Acquisitions, supra note 521 at 111). A purchaser of such controlling stake hence would be able to acquire the control over a public company without buying all outstanding shares. The purchaser usually will have to pay a price above the market price of the shares, which difference is referred to as the control premium (see generally ibid at 170-78). While this control premium could be negotiated by the parties, in order to benefit from the private agreement exemption, it may not exceed 15 % of the market price (see s 4.2(1)(d) MI 62-104). 699 Nicholls, Mergers and Acquisitions, supra note 521 at 166. 700 See Sections 3.3 and 4.3 above. Compared to public corporations, a shareholder needs to hold more than 50% of the outstanding shares of a company in order to control it. Considering that investors in private companies tend to hold around 20% of the shares, a control premium could not be collected (see e.g. Gompers & Lerner, supra note 515 at 160 [on average, lead venture capital investors hold 19% of the shares]; see also Newmark & Pena, supra note 38 at 117 [holding not more than 20%]). 701 See generally with regard to the application of the takeover bid rules to private companies and the exemptions Nicholls, Mergers and Acquisitions, supra note 521 at 110-12, 166.  190  In summary, the sale of the investor’s stake seems to be simpler if it is held in a public company. In contrast, selling all shares in a private company faces less regulatory requirements than the sale of a public company. However, this rather depends on the question whether a company is a public company or not and less on what corporate form (i.e. regular corporation, CCC or B Corporation) it has adopted. If an impact investor had a certain exit option in mind, the selection of the appropriate corporate form would depend on this intention and the investment contract would be structured accordingly.702  4.8.2 Redemption or Repurchase of Shares While a CCC may not redeem or repurchase its own shares first if it is insolvent or becomes insolvent upon payment of the consideration and second not at a price that exceeds the fair value of the shares,703 a regular corporation or a B Corporation may not redeem or repurchase shares if it does not meet the “solvency test” only.704 The redemption price is very often predetermined in a company’s articles, but it is subject to negotiations between the company and the shareholder in case of repurchase.705 There is no requirement that the price has to correspond to the fair value of the shares. Hence, if a company meets the “solvency test”, it may pay a price in excess of the fair value per                                             702 See e.g. Cumming & Johan, supra note 515 at 371-74, 402. 703 S 51.941 BCBCA in connection with s 6 CCCReg; see also Section 3.8.2 above. 704 See ss 78(1) and 79(1) BCBCA. This “solvency test” is the same as referred to in s 70(2) BCBCA regarding the distribution of dividends (see Section 4.7.1 above; see also VanDuzer, supra note 23 at 249-50). The B Corporation certification requirements do not contain anything regarding redemption or repurchase of shares (compare B Lab, “Performance Requirements”, supra note 572; B Lab, “Corporation Legal Roadmap”, supra note 593). 705 VanDuzer, supra note 23 at 249-50.  191  share. However, taking into account that the payment of a price that exceeds the fair value of the shares might constitute a breach of the fiduciary duty of the directors and hence a liability claim against them, directors will anyway have an incentive to ensure that the price corresponds to the fair value or is at least close to it. The difference between a CCC and a regular corporation or a B Corporation as far as the price is concerned does not seem to be very significant.  Probably the more crucial difference between a CCC and a regular corporation or B Corporation is the possibility to determine the redemption or repurchase price. When considering the redemption or repurchase of shares as a viable exit option, investors want to make sure that the price or at least the formula to calculate it is agreed upon at the time the investment is closed.706 Since a fixed price carries the risk that the value of the shares at the time of the exit of the investor significantly deviates from the agreed price, one or several formulas (out of which the one that results in the highest price usually shall apply) are negotiated and included in the transaction agreement.707 As discussed in Section 3.8.2 above, it is likely that courts will interpret s 6(b) CCCReg to prohibit any predetermination of the price or even the method of valuation, be it unilaterally by the company or by agreement with the company. Compared thereto, neither the regular corporation nor the B Corporation is subject to any such restriction.708                                             706 Newmark & Pena, supra note 38 at 53, 117; Gladstone & Gladstone, supra note 514 at 286. 707 Newmark & Pena, supra note 38 at 117. 708 In case of repurchase of shares, the price is negotiated between the company and the selling shareholder, which could be done at the time the shareholder acquires her shares (VanDuzer, supra note 23 at 249). The redemption price, together with all other conditions of the redemption, is usually stated in the company’s articles, but nothing   192  The inability to agree on at least the method of valuation makes the CCC a rather unsuitable investment target for impact investors.709 As far as the redemption or repurchase of shares is concerned, from a practical point of view, this exit option seems to be limited to regular corporations or a B Corporations.  4.8.3 Reorganization As far as reorganizations are concerned, an amalgamation is the most likely reorganization for an investor to liquidate her investment.710 According to s 269 BCBCA, a corporation may amalgamate with one or several other companies or foreign corporations, each as defined in s 1(1) BCBCA. This also applies to a B Corporation since it is a company set up under the BCBCA that obtained certification by B Lab.711 However, the influence of an amalgamation on the certification status is unclear.712                                                                                                                                             prevents the company from negotiating this price with the investor before incorporating the redemption in the articles and issuing the shares to the investor (ibid at 250). 709 This might not only be limited to investors who consider the redemption or repurchase as their intended or preferred exit option. Gladstone & Gladstone mention that they used this exit option “in a large number of [cases]” (Gladstone & Gladstone, supra note 514 at 284). Considering that the IPO seems to be the most preferred exit for venture capital investors, this indicates that other exit options need to be available in case the preferred option fails or is not available (see ibid at 276; see regarding the importance of IPOs also Gompers & Lerner, supra note 515 at 159). Beside the right to sell the shares back to the company, Newmark & Pena also made sure to be entitled to sell the shares to a third party if such was prepared to pay a higher price (Newmark & Pena, supra note 38 at 117).  710 See with regard to the different reorganization possibilities and how an amalgamation can be used as a liquidation option notes 535 and 536 above and accompanying text. 711 See Section 1.3 above.  712 While B Lab indicates that a couple of B Corporations have merged, it remains silent on the question whether an amalgamation would have an immediate influence on the certification or not (B Lab, “FAQ”, supra note 605 at 2-3). On the one hand, one may argue that an amalgamating company does not cease to exist, but is continued in the amalgamated company (see VanDuzer, supra note 23 at 314-15). Hence, the certification would remain valid. This would be particularly true for amalgamations in which the B Corporation is the surviving amalgamated company. On the other hand, it could be argued that the amalgamated company itself would have to go through the certification process before using the B Corporation label since it has not only the assets, rights, and obligations of the B Corporation, but also of any other amalgamating company (ibid at 315). The company that earned certification would have completely different characteristics after the amalgamation, in particular, if the B Corporation was merged into another, probably much bigger company.  193  Worst case would be that the amalgamated company would no longer be entitled to use the B Corporation brand. Due to this uncertainty, and considering that a CCC may only amalgamate with another company if the amalgamated entity is a CCC,713 a regular corporation seems to provide the most flexibility regarding permitted amalgamations.  As far as the process of amalgamation is concerned, the only slight difference between an amalgamation with a CCC being involved and any other amalgamation relates to the approval threshold.714 S 51.98(2)(b) BCBCA requires that all shareholders approve the amalgamation agreement, regardless of whether their shares otherwise carry the right to vote. In contrast, the agreement regarding an amalgamation without a CCC being involved may be approved by special resolution, or a special majority, respectively and a special separate resolution of holders of shares with special rights, each as defined in s 1(1) BCBCA.715  In conclusion, the regular corporation provides the most flexibility regarding amalgamations. The investor in a CCC could only liquidate her investment by way of amalgamation in case the amalgamated company was a CCC.                                              713 See s 51.98(1) BCBCA and Section 3.8.3 above. 714 It has been argued earlier that s 51.98(2)(a) BCBCA should be interpreted to exclude s 271(1) and (6)-(8) BCBCA only, but not the entire s 271 BCBCA (see Section 3.8.3 above). 715 S 271(1) and (6) BCBCA.  194  4.8.4 Initial Public Offering (IPO) An IPO is considered the most profitable and hence preferable exit option as far as venture capital investors are concerned.716 For obvious reasons, an exit through IPO is not available to investors in public companies. As discussed in Section 4.8.1 above, such investors might easily liquidate their investment by simply selling their shares through the stock exchange.717 The ability of a CCC to do an IPO was discussed in Section 3.8.4 above. According to B Lab, B Corporations could also become public companies.718 Again, the listing requirements do not prescribe a certain corporate form.719 The requirements and the listing process apply to all applicants regardless of the corporate form.720 Therefore, from a legal point of view, all corporate forms discussed in this thesis could do an IPO.  However, considering potential practical issues caused by special provisions applying to CCCs only,721 it might be expected that CCCs will less likely become IPO candidates. If that were the case, the CCC would be at a disadvantage compared to the regular corporation or the B Corporation. Future empirical research is expected to provide insight on the question whether CCCs have done IPOs or not, and in the latter case, why they have not been taken public.                                              716 See Section 3.8.4 above. 717 See e.g. Cendrowski et al, supra note 535 at 70. 718 B Lab, “FAQ”, supra note 605 at 3. 719 See notes 553 and 554 above. 720 See generally Toronto Stock Exchange, supra note 553; TSX Venture Exchange, supra note 554. 721 See Section 3.8.4 above.  195  4.8.5 Liquidation As already mentioned in Section 3.8.5 above, the liquidation is far from being the preferred exit option, but if everything else fails, it would still be an option.722 The distribution of assets upon liquidation was compared and discussed in Section 4.7.3 above and does not need to be repeated here. In case of liquidation, the shareholders do not necessarily get back the amount they invested.723 Due to the restrictions applicable to a CCC, the chances to get at least the invested amount back are even smaller.724 Therefore, liquidation of a CCC is unlikely to be considered a viable exit option, much less than with regard to investments in regular corporations or B Corporations.  4.8.6 Summary As far as the liquidation of the investment is concerned, it seems that some of the provisions governing the CCCs interfere with most of the common exit options. Except for the sale of the investor’s or all shares in the company, whose feasibility depends on whether the company is a private or public company, some restrictions to which a CCC is subject directly affect the ability of an investor to successfully liquidate her investment. These are in particular the restrictions regarding asset transfers upon dissolution, the redemption or repurchase of shares as well as the permitted amalgamations, Other provisions have an indirect effect, especially on the possibility of                                             722 Gladstone & Gladstone, supra note 514 at 292. 723 See e.g. ibid at 292-94. 724 See Section 4.7.3 above.  196  going public. Although every exit option is (at least theoretically) available to investors in a CCC, the other corporate forms seem to provide much more advantages. Unless the impact investor is willing to run the risks associated with the exit from a CCC, this corporate form is less suitable for an impact investment than the other corporate forms.  4.9 Chapter Summary This Chapter intended to provide a comparison between the CCC, a regular for-profit corporation, and a B Corporation with regard to several selected characteristics. The goal was to find out which of these corporate forms would be most suitable for an impact investment from a corporate legal point of view.  As the discussion has shown, a clear answer may not be given to this question. Where no difference is apparent, none of the corporate forms is more advantageous than another one. This is the case with regard to voting rights of shareholder (Section 4.2), transfer restrictions of the shares in a CCC (Section 4.3), as well as board composition and investor representation (Section 4.4). In other areas, the other corporate forms seem to be more advantageous to impact investors than a CCC. On the one hand, some characteristics of other corporate forms provide some (minor) advantages, such as the obligation of directors of a B Corporation to consider all stakeholders interests (Section 4.5) and the comparability of the impact assessment of B Corporations (Section 4.6). On the other hand, and in most cases, the provisions applicable to a CCC put it at disadvantage compared to the other forms, in particular with regard to many exit options (Sections 4.7.3 and 4.8.2 through 4.8.5) and the flexibility regarding stating the  197  company’s purpose (Section 4.1). Whether the company’s purpose should be stated in the articles depends on the investor’s intention, and hence a CCC could be preferable or not. However, subsequent investors who would not want to have the company’s purpose stated would be deterred away.  In contrast, some characteristics of a CCC may well be very advantageous for impact investors. First, despite the uncertainties surrounding the interpretation,725 the statutory duty to act with a view to the community purpose (Section 4.5) makes sure that the CCC will be managed for the benefit of the community even after the investor liquidated her investment. Second, the requirement to produce annually a community contribution report (Section 4.6) provides the investor with information regarding the impact generated by the CCC. Finally, the restrictions on the dividends and the asset transfer (Sections 4.7.1 and 4.7.2) secure the long-term operations of a CCC.  In conclusion, it does not seem that the CCC will be the most suitable corporate form for an impact investment in any and all cases. Much depends on the intention of the impact investor as well as her ability to take risks. For example, considering that the exit options face considerable restrictions as far as a CCC is concerned, the risk that an impact investor would not receive back at least the amount invested is higher than with                                             725 See Section 3.5 above.  198  regard to another corporate form.726 If an investor were not willing or able to take this risk, she would not invest in a CCC.  After having discussed several potential issues related to a CCC, and discovering that a CCC might not be the most suitable corporate form for an impact investment, we now shall turn to the question how impact investments could be further promoted in British Columbia. The discussion in Chapters 3 and 4 has shown that many provisions governing the CCC either lack clarity or put it at disadvantage compared to the other corporate forms. While several issues have been addressed and solutions by way of interpretation provided in Chapter 3, in the following, the focus shall be on amendments that require actions by the legislator.                                             726 See e.g. Section 4.7.3 above.  199  Chapter 5: Legal Improvements or Incentives in Favour of Impact Investing As it was discussed earlier, impact investing is capable of addressing basic needs through the provision of funding to socially or ecologically minded entrepreneurs, in particular where funds provided by the government or philanthropic donators alone are not sufficient.727 Although approximately 20% of all assets under management have been invested applying one or several SRI strategies, only a very small portion of roughly 0.2% has been invested as impact investing.728 In order to promote further social finance in British Columbia, the BC Social Innovation Council has recommended several actions, the establishment of the CCC among them.729  Although the CCC has been implemented in the BCBCA, the discussion in Chapters 3 and 4 above has shown that the CCC is unlikely to provide a significant boost in social financing since it does not seem to be the most suitable corporate form to invest in. Hence, this Chapter pursues two goals. First, it shall be discussed how the legal framework governing the CCC could be improved in order to make this corporate form more attractive to impact investors.730 Second, some general incentives to encourage further social finance will be briefly touched upon.                                              727 See Section 2.2.1 above 728 See Section 2.1.3 above. 729 BC Social Innovation Council, supra note 57 at 11. 730 Some of the issues discussed in Chapter 3 would not require legislative action, but could be resolved by the appropriate interpretations. These interpretations were elaborated there.  200  It is acknowledged that neither the list of improvements nor the one of incentives will be exhaustive lists. On the one hand, being aware that developments in the future could require further or different amendments to the framework, the improvements and incentives discussed in the following may be just temporary. On the other hand, empirical research (in particular with regard to intentions and needs of impact investors) will be able to provide much more detailed insights on further improvements or incentives to promote impact investing in British Columbia. Since this thesis did not intend to engage in empirical researches, it will focus on the characteristics that turned out to be most problematic in the discussion in Chapters 3 and 4.   5.1 Improvements to the CCC Framework 5.1.1 Implementation of a Regulator As indicated by Liao, the lack of a CCC regulator might have had a negative effect on the promotion of this new corporate form.731 Besides promoting the CCC and providing support, such regulatory authority could also be mandated with the review of a proposed community purpose that would eliminate the uncertainties surrounding the consequences of a later judicial review of the community purpose.732 The simplest solution would be to mandate the Registrar of Companies to review the proposed community purpose upon filing of the incorporation documents. A more sophisticated and also more expensive solution would be the creation of a new regulatory authority in                                             731 Liao, “Next Stage of CSR”, supra note 21 at 80-82. 732 See Section 3.1.5 above.  201  analogy to the UK Regulator. Nevertheless, this would only be necessary in case this authority was intended to have broader supervisory powers than just reviewing the community purpose. While a review of the CCC’s purpose as well as the promotion, education and support of CCCs would be beneficial to this new corporate form, it remains to be seen whether further supervision will be required.733 Hence, for the time being, the Registrar of Companies should be mandated to review and approve the community purpose.  5.1.2 Obligation to Consider Other Stakeholders’ Interests The duty of a CCC’s directors to act with a view to the community purpose could be interpreted to include a duty to consider the beneficiaries’ interests when making business decisions.734 However, a general obligation to consider other stakeholders’ interest could not be read into this requirement. The directors could consider these stakeholders’ interests, but they would not have to, what leaves them in some uncertainty.735 Including an obligation to take into account such interests736 would first eliminate this uncertainty and second correspond to the impact investor’s interests.737                                              733 The legislator decided to stick with the supervision exercised by the public and the shareholders (British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon)). 734 See Section 3.5 above. 735 See Section 2.3.2.1 above. 736 Such obligation could be similar to the provision to be implemented as a requirement to obtain certification as B Corporation (see generally Section 4.5 above). 737 Regarding an impact investor’s interests see Sections 1.2 and 2.3 above.  202  5.1.3 Allowing for the Transfer of Management Capacities As discussed in Section 3.5 above, the articles of a CCC may not include a provision enabling the directors to transfer management capacities to officers. This prevents a CCC from implementing a more sophisticated management structure and hence from growing beyond a certain size.738 While no particular reason for the exclusion of s 137 BCBCA was provided during the parliamentary discussion, it may be assumed that, considering the wish to hold the directors of a CCC to a “higher level of accountability”,739 the legislator intended to disable the directors of disposing of this accountability by transferring management capacities to others.  Although it is true that the directors would be relieved of their duties and liabilities to the extent the management capacities are transferred to another person according to s 137(2)(b) BCBCA, such other person would assume the duties and liabilities to the same extent in accordance with subsection (a) of the same provision. This would also apply to the duty to act with a view to the community purpose set out in s 51.93(2) BCBCA. However, this detour over s 137(2)(a) BCBCA would not even be necessary. Not only directors are subject to the duty to act with a view to the community purpose, but also officers.740 In any case, the officer, to whom management capacities are transferred, would be subject to the same duties and liabilities as the directors if they had not transferred the management of the business.                                             738 See the discussion in Sections 3.5 and 3.8.4 above. 739 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 740 See s 51.93(2) BCBCA.  203  One could argue that enabling the directors to transfer the management would interfere with the legislator’s intention to have at least three persons who could be held liable.741 If s 137 BCBCA was applicable, one person could be mandated to manage the business and the three directors that a CCC at least must have according to s 51.93(1) BCBCA would not be liable anymore, but only the one person designated to manage the company. The issue could be addressed in several ways. Probably the simplest way would be not to allow the transfer of the supervision of the management, which would be possible according to s 137(1) BCBCA. This would correspond to the solution chosen with regard to corporations incorporated under the CBCA.742 Another, slightly more sophisticated option would be to exclude the application of s 137(2)(b) BCBCA until the directors of a CCC have appointed at least three persons to manage the business. This would ensure that, at any time, at least three persons would be subject to the duties and liable.  Except for the number of persons that could be held liable, there is no other reason apparent why the directors of a CCC should be precluded from transferring the management to other persons. Hence, it is suggested to strike out s 51.93(3) BCBCA and to replace it by a provision that does not allow for the transfer of the supervision of the management.                                              741 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). See generally Section 3.4 above. 742 See s 121(a) CBCA; see also VanDuzer, supra note 23 at 282-83.  204  5.1.4 Improvement of the Reporting Framework As far as the community contribution report is concerned, two improvements shall be put forward. First, the directors should be required to use IRIS in connection with the reporting on the benefits for the society generated during the financial year as required by s 51.96(2)(a) BCBCA. This would increase the comparability of the reports on the impact a CCC produced.743 Second, in analogy to s 26(1)(b) CICReg 2005, a CCC should be required to report on how it consulted with its stakeholders and what the outcome of such consultations was. This thesis earlier argued that an obligation of a CCC’s directors to consider other stakeholders’ interests should be implemented.744 Since a CCC is meant to be subject to scrutiny by the public and the shareholders only,745 the requirement to report on the consultation of stakeholders’ interests would provide these “supervisors” with a useful tool. For the same reasons, the reporting obligations with regard to asset transfers were implemented.746 A similar transparency requirement would enable the public and the shareholders to review whether the directors complied with their obligation to consider other stakeholders’ interests.                                              743 Regarding the comparability issues see Section 4.6 above. 744 See Section 5.1.2 above. 745 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon), 11122 (Hon. K. Falcon). 746 Ibid at 11124 (Hon. K. Falcon). See generally Section 3.6 above.  205  5.1.5 Abolishment or Amendment of the Asset Lock Upon Dissolution The discussion regarding the distribution of assets upon dissolution highlighted the risk of an impact investor not getting back her investment when a CCC is wound up.747 While such risk generally exists regardless of the corporate form, it is particularly apparent with regard to a CCC. Given that the dissolution will only be considered as exit option if all other solutions fail and the business of the company presumably is not running well, an investor would be lucky if she got her entire investment back.748 As far as the investor in a CCC is concerned, this would only be the case if her investment corresponded to 40% of the company’s assets at the time of the dissolution and an agreement were in place that assets up to an amount equal to her investment would be distributed to the investor in priority. The requirement to transfer at least 60% of the CCC’s net assets to qualified entities makes it even more difficult to get the invested amount back. This requirement has also a philanthropic connotation. Upon dissolution, 60% of the company’s net assets, which have been acquired with the financing provided by the investor or through the business operations of the company, which themselves have been financially supported by the investor, need to be transferred to qualified entities for no consideration. However, an impact investor is not a philanthropic donator.749 The expectation of a financial profit is what distinguishes an impact investor from a philanthropist. Since this philanthropic element rather deters away impact investors instead of attracting them, it is suggested to abolish or at least amend it.                                             747 See Section 4.7.3 above. 748 Gladstone & Gladstone, supra note 514 at 293. 749 See Section 2.1.1 above.  206  If the amendment of the asset lock were preferred to the abolishment, the question regarding the appropriate amendment would immediately arise. Considering Lloyd’s critique, the restrictions applicable to a community interest company in the UK seems not to be the preferable solution either.750 A simple “dollar-for-dollar” payback would not allow for the distribution of a profit,751 which would be particularly required if the company has not distributed any dividends at all until the dissolution. Hence, it has to be possible to transfer assets whose value exceeds the amount invested by the shareholders (including the investor).   However, in order to prevent abusive dissolutions,752 a provision could be implemented that the voluntary dissolution of a CCC requires the approval by a unanimous shareholders’ resolution. Considering that the voluntary dissolution of a regular corporation requires a special resolution by the shareholders in accordance with s 319(1) BCBCA, the requirement of unanimity would provide increased protection to a CCC. Moreover, the amount distributable in excess of all amounts invested in a CCC could be limited to a certain percentage of it. Furthermore, it could be prescribed that any dividends paid earlier had to be taken into account when calculating the actual amount based on this percentage. A distribution of a return on the investment upon dissolution would only be permitted if and to the extent the amount calculated based on                                             750 Regarding the asset lock upon dissolution of a community interest company see generally Section 3.7.3 above; regarding the critique see Lloyd, supra note 358 at 37-38. 751 Ibid at 37. 752 This concern was the reason for the implementation of the restrictions (British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11125 (Hon. K. Falcon)).  207  the percentage exceeded the aggregate of all amounts earlier distributed as dividends, but without any repayment obligation in the opposite case.  For example, the distribution of assets upon dissolution could be as follows. The liquidator would be obliged to transfer the remaining assets of a CCC to qualified entities after the shareholders including the investor received back their invested amount (plus a return on their investment that may not exceed a prescribed amount). The prescribed amount may not exceed a percentage of the invested amount of that shareholder. Such percentage could be defined by the regulations. If a shareholder has already received by way of dividends or other profit distribution an amount equal to or exceeding the prescribed amount, she would only receive her investment back and nothing in addition. At the same time, she shall not be required to pay back to the CCC the amount she received in excess of the prescribed amount.  In conclusion, the distribution of assets upon dissolution should be more favourable to investors than it is currently. The proposed framework would consider the interests of the investors, but would require the company to transfer the remaining assets to qualified entities after having paid back the invested amounts plus a return on the investment, if any. However, considering that the assets upon liquidation are presumably not sufficient to pay back to all shareholders the invested amount,753 simply abolishing the current restrictions on the asset transfers upon dissolution would be the                                             753 See generally Gladstone & Gladstone, supra note 514 at 293-94.  208  plainest option. In most cases, the application of the general principles regarding the distribution of assets upon dissolution set out in the BCBCA754 would provide the required preference of the shareholders.  5.1.6 Valuation Method in Case of Redemption or Repurchase of Shares As discussed in Sections 3.8.2 and 4.8.2 above, the inability of a CCC to agree on a valuation method is likely to interfere with an impact investor’s intention to have the determination of the value of the shares included in the investment agreement.755 Except for the requirement to consider the restrictions on dividends and asset transfers when determining the fair value as set out by s 6(a) CCCReg, neither the BCBCA nor the CCCReg contains anything with regard to the determination of the fair value of shares in a CCC. Various methods have been used in practice to determine the fair value of shares.756 While the requirement to pay not more than fair value for the shares of a CCC could be maintained, the CCC and the investor should be enabled to agree on the method to determine this fair value upon redemption or repurchase. Without determining a fixed value in advance, this would grant both parties some planning security. Hence, it is suggested to strike out any reference to the valuation method in s 6(b) CCCReg, whereas only the predetermination of the value itself would be prohibited. The requirement that the CCC may not pay more than fair value for the shares in case of redemption or repurchase would still apply.                                             754 In particular, the distribution scheme set out in s 330 BCBCA. 755 See e.g. Newmark & Pena, supra note 38 at 117; see also Gladstone & Gladstone, supra note 514 at 286-89. 756 See generally VanDuzer, supra note 23 at 456-58; see also the valuation methods listed in Gladstone & Gladstone, supra note 514 at 286-89.  209  5.2 Further Incentives to Attract Social Finance During the parliamentary discussion, it was already indicated that the enactment of the CCC would only be the starting point and that more had to be done in order to promote social finance.757 Several studies and literature contributions have already touched upon the question how social finance could be further stimulated.758 One of the proposed measures includes the creation of hybrid corporate forms that allow for the combination of profit and social or ecological impact,759 which was transformed into law in British Columbia by implementing the CCC. The recommendations put forward by the Canadian Task Force on Social Finance and the BC Social Innovation Council do not only focus on a specific area, but are intended to create an enabling environment for the development of a marketplace for social finance in general.760 It is not intended to repeat these recommendations in this thesis. However, for the following reasons, three of them shall be discussed briefly. The elaborations will remain on a high level since developing entire concepts for each of these three incentives would go beyond the scope of this thesis.  The first recommendation to be touched upon will be the development of other hybrid corporate forms. The elaborations in Chapter 4 and Section 5.1 above suggested that                                             757 British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10660 (G. Hogg). 758 See e.g. BC Social Innovation Council, supra note 57; Canadian Task Force on Social Finance, supra note 36; Tessa Hebb, The Role of Institutional Investors in Social Finance (Ottawa: Carleton Centre for Community Innovation, 2010) at 14-18; see also Liao, “Next Stage of CSR”, supra note 21 at 74-85. 759 BC Social Innovation Council, supra note 57 at 11; Canadian Task Force on Social Finance, supra note 36 at 21-23; Liao, “Next Stage of CSR”, supra note 21 at 82-85. 760 BC Social Innovation Council, supra note 57 at 4-5; Canadian Task Force on Social Finance, supra note 36 at 5-7.  210  the Holy Grail has not been found yet by creating the CCC. Although the Holy Grail of hybrid corporate forms might share the same destiny as its prominent historical or biblical model, further work has to be done in that direction. A second Section will briefly elaborate on the issue surrounding the fiduciary duty of institutional investors who constitute a powerful source of potential financing for SRI and impact investments. This duty is commonly referred to as to prevent them from pursuing SRI strategies. Finally, tax incentives are worth to be discussed since they may not only attract social financing in general, but they may also increase the attractiveness of the CCC in particular.  5.2.1 Developing Other Hybrid Corporate Forms While British Columbia has led the path in this direction, it is not necessarily accomplished with the enactment of the CCC legislation. During the parliamentary discussion, the necessity to “[get] it right” was mentioned several times.761 The findings of this thesis suggest that the legislator might not have achieved that goal. Since the CCC framework was made available to the public on 29 July 2013,762 only 14 CCCs have been incorporated as of June 2014.763 Compared to the 208 community interest companies that were incorporated in the first year after the framework became available                                             761 See e.g. British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10661 (Hon. K. Falcon); British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 762 See Section 1.3 above. 763 BC Registry Services, “RE: Community Contribution Company, Number of Incorporations”, Email (Victoria: BC Registry Services 9 July 2014; available with the author upon request).  211  in the UK,764 this is a quite disappointing start for the CCC.765 Hence, further work on the establishment of hybrid corporate forms seems to be necessary.  When creating new hybrid corporate forms, the legislator may consider developments in other jurisdictions, but should be aware of the existing Canadian corporate legal landscape in order “not [to] apply [foreign] solutions to Canadian problems.”766 Using the example of the differences in the corporate legal landscape in the US and Canada regarding the consideration of stakeholders’ interests, Liao concludes that the US solution addresses a problem that does not exist anymore in Canada since the SCC’s decisions in Peoples and BCE.767 She hence emphasises the importance of creating hybrid corporate forms that add to Canadian corporate law instead of simply adopting foreign models that do not provide any benefit.768 The differences between the community interest company and the CCC highlighted in Chapter 3 indicate that the legislator of British Columbia deviated from the UK model where it deemed appropriate. In my opinion, it did rightfully so with regard to some characteristics (e.g. the simplicity of the restrictions regarding dividends),769 but it would have been beneficial if it stuck closer to the UK model regarding others (e.g. the obligation to report on stakeholders’                                             764 Office of the Regulator of Community Interest Companies, Annual Report 2011/2012, supra note 466 at 22. 765 While the absolute numbers support such conclusion, the comparison of these numbers as proportion of each jurisdiction’s capital market might lead to a different outcome. 766 Liao, “Next Stage of CSR”, supra note 21 at 82. 767 Peoples, supra note 21; BCE, supra note 229. 768 Liao, “Next Stage of CSR”, supra note 21 at 84-85. 769 See Section 3.7.1 above.  212  interaction and the creation of a regulatory authority).770 The legislator should consider developments in other jurisdictions not only as model, but also as learning opportunity from which lessons may be drawn for its own legislation.771  5.2.2 Bringing in the Big Players Institutional investors such as banks, credit unions, pension funds, insurance companies, etc. are the biggest investors and represent trillions of assets.772 If these institutional investors were convinced to allocate just a fraction of a percent of the assets managed by them to impact investing, this investment sector would experience a huge boost in financing. According to Hebb, these assets amounted to $4.7 trillion as of 2009, whereby the allocation of 0.25% of these assets to impact investing would provide this sector with additional $11.75 billion of funding. Compared to the numbers provided in Section 2.1.3 above, this would be a huge increase. The Canadian Task Force on Social Finance also recognized this potential and thus included some recommendations in its report to mobilize the assets of institutional investors to support impact investing.773  One of the issues frequently highlighted in this connection is the potential conflict between the fiduciary duty of the pension fund and the consideration of non-financial factors when making investment decisions.774 The fiduciary duty has commonly been                                             770 See Sections 3.6, 5.1.1 and 5.1.4. above. 771 Liao, “Next Stage of CSR”, supra note 21 at 82. 772 See generally Hebb, supra note 758 at 5. 773 Canadian Task Force on Social Finance, supra note 36 at 18-20. 774 See e.g. ibid at 18; Hebb, supra note 758 at 15-16.  213  interpreted to require fund managers to focus on financial profits only and not to consider other factors such as social and ecological factors.775 Hence, fund managers would be prevented from pursuing a SRI strategy let alone doing impact investments. Policy makers were asked to clarify the definition of the fiduciary duty to permit taking into consideration non-financial factors when making investment decisions and doing impact investing.776 Without going into the details, this interpretation of the fiduciary duty is debatable. Benjamin J Richardson convincingly argued that the fiduciary duty does not necessarily conflict with the consideration of ESG factors and the pursuit of SRI strategies.777 He thus suggests that it is not the law that prevents pension funds from pursuing SRI strategies, but rather other factors.778  Regardless of which interpretation is prevailing, a statutory clarification would put an end to this discussion and would provide the fund managers with enough comfort to adopt SRI strategies.779 Besides that, further incentives will be required to pull institutional investors into the SRI and impact investment market.780 One of these incentives would relate to taxes, to which we turn now.                                              775 Ibid at 16; Benjamin J Richardson, “Do the Fiduciary Duties of Pension Funds Hinder Socially Responsible Investment?” (2007) 22:2 BFLR 145 at 147. In particular, the restrictions on asset distributions upon liquidation applicable to a CCC, which in fact could render an investment the characteristics of a donation, could be a significant challenge to the fiduciary duty. 776 Canadian Task Force on Social Finance, supra note 36 at 18-19; Hebb, supra note 758 at 15-16. 777 Richardson, supra note 775 at 160-69. 778 Ibid at 185. 779 Richardson also acknowledges that “explicit guidance on SRI in regulation or the governing trust instruments would be helpful” (ibid at 169). 780 Canadian Task Force on Social Finance, supra note 36 at 19-20; Hebb, supra note 758 at 17-18.  214  5.2.3 Creating Tax Incentives As discussed earlier, philanthropists may be eligible for tax credits or deductions for their donations to charitable entities.781 However, in general, there is no such tax benefit for investments in a for-profit corporation. Creating tax incentives to promote SRI in for-profit corporations is hence a widespread recommendation.782  In British Columbia, corporate and individual investors in small businesses may benefit from a tax credit of 30% under the Small Business Venture Capital Act.783 The tax credit depends on the business the company is active in.784 Whether a CCC could be registered as venture capital corporation or even as eligible business corporation, each as defined in s 1(1) VCA, and hence be eligible for the tax credit remains to be seen. Since the CCC is subject to the same tax treatment as any regular corporation,785 it may be assumed that it could qualify as venture capital corporation or eligible business corporation if it met the requirements of the VCA. Among others, this would depend on the business sector the CCC is active in. The BC Social Innovation Council                                             781 See Section 2.1.1 above. 782 See e.g. Canadian Task Force on Social Finance, supra note 36 at 24-26; BC Social Innovation Council, supra note 57 at 6; Hebb, supra note 758 at 17. 783 Small Business Venture Capital Act, RSBC 1996, c 429 [VCA]; see generally James A Brander, Edward J Egan & Anthony E Boardman, The Equity Capital Program in British Columbia: An Assessment of Capital Availability, Program Efficiency, and Policy Alternatives (Victoria: BC Government Publications, 2005) at 9-12.  784 See ibid at 11. 785 British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11120 (Hon. K. Falcon).  215  recommended the amendment of the VCA “to include Social Enterprise as an eligible ‘prescribed business activity.’”786  A considerably simple way would be to qualify all CCCs as eligible business corporations. The requirement to have a community purpose would justify a general eligibility for the tax credit regardless of the actual business the company engages in. The reliance on the corporate form would also be very efficient from an administrative point of view. If some sort of limitation was requested, the tax credit could be made available to non-public CCCs only. Considering that access to financing is more readily available for public companies, a CCC would no longer depend on investment incentives as much as before.  Developing a full-fledged tax scheme to incentivise social financing in British Columbia would go far beyond the scope of this thesis. After having briefly touched upon the possibility to make the tax credit under the VCA available to private CCCs, it shall be left to others to engage in the necessary research that would include the consideration of potential tax losses for the province and the determination of the appropriate threshold of the credit.                                              786 BC Social Innovation Council, supra note 57 at 6. Without going into details, Gordon Hogg also mentioned the need to amend the VCA during the parliamentary discussion (British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10660-61 (G. Hogg)).  216  5.3 Chapter Summary Having concluded that the CCC might not be the most suitable corporate form for impact investments,787 this Chapter intended to outline how the CCC framework could be improved. In particular, the following amendments were proposed:  1. Create a regulatory authority that at least reviews the proposed community purpose at incorporation; 2. Implement a statutory duty of a CCC’s directors to consider other stakeholders’ interests; 3. Enable the directors to transfer the management of the CCC to officers, but not the supervision of the management, and make sure that at least three persons (directors and/or officers) remain liable; 4. Require the directors to use an impact investing reporting standard such as IRIS and to report on their consultation with stakeholders; 5. Abolish the restrictions on asset transfers upon dissolution of a CCC; and 6. Allow a CCC to agree on a valuation method to determine the fair value of the shares in case of redemption or repurchase.  While these proposals are expected to improve the attractiveness of a CCC, they do not necessarily convince more investors to engage in SRI let alone impact investments. Several researches have already developed recommendations to mobilize capital and                                             787 See Section 4.9 above.  217  assets to support social financing, which this research did not intend to repeat.788 One of the incentives discussed above highlighted the necessity to pay attention to the existing corporate legal landscape before implementing a new hybrid corporate form. As far as the CCC is concerned, it seems that the legislator has drawn some lessons from the experience of other jurisdictions, but not with regard to all characteristics. A second incentive discussed related to the engagement of institutional investors. Considering that institutional investors represent an enormous source of potential financing, they become natural targets when it comes to the question of who should be solicited to provide the funding sought for social or ecological purposes. A last incentive touched upon tax incentives. While tax credits or deductions could be used in general to incentivise the allocation of funding to a certain sector, they could also benefit the development of a specific corporate form, such as the CCC.                                             788 See e.g. BC Social Innovation Council, supra note 57; Canadian Task Force on Social Finance, supra note 36; Hebb, supra note 758.  218  Chapter 6: Conclusion The objectives of this thesis were threefold: (a) to analyse the new hybrid corporate form available for impact investments in British Columbia, (b) to guide potential impact investors, entrepreneurs, fund managers, practitioners, and others to the most suitable corporate form, and (c) to further support impact investments in British Columbia. The new hybrid corporate form that was of particular interest in this thesis was the CCC that became available to the public on 29 July 2013. The implementation of this new corporate form followed a demand that emerged in recent years to break up the historically grown distinction between for-profit and non-profit companies. While for-profit organizations had been considered to focus on the generation of financial profits only, non-profit organizations had been perceived to address social or ecological problems regardless of any financial gains. A new breed of entrepreneurs and also investors sought to merge these two goals into a dual mission, i.e. to generate profits while pursuing social or ecological goals. Since none of the existing corporate forms seemed to allow for such dual mission, new hybrid corporate forms were required.  British Columbia was hailed to lead the way in Canada. Modeled after the community interest company in the UK, the creation of the CCC was an initiative to combine the characteristics of for-profit corporations with charitable purposes. Although this seems to be exactly what impact investors were looking for from a corporate legal point of view since it promises the most enduring social impact, this thesis argued that depending on the intentions of the investor, another corporate form could be more suitable for an impact investment.  219  Before elaborating on the corporate legal characteristics of the CCC, it was necessary to define the term “impact investing”. Considering that there is no single definition available, I decided to adopt the definition provided by the RIA for the purpose of this research. Hence “impact investments” were considered as “targeted investments, typically made in private markets, aimed at solving social or environmental problems[.]”789 The RIA’s definition might not be perfect, but it is broad enough to encompass all types of investment that intend to combine financial and social or ecological goals. In particular, the definition provided by the GIIN seemed to be too narrow.790 Besides that, to the extent possible, impact investing was demarcated from other social responsible investment strategies. The lack of a uniform terminology caused the most difficulties when distinguishing these strategies from each other. The demarcation between sustainability themed investments and impact investments was particularly difficult or not even possible, since the former could include the latter as a subcategory. As far as the other strategies were concerned, it was very often the intention of an impact investor to go beyond the mere consideration of ESG factors that distinguished impact investments from other SRI strategies.  The thesis then moved on discussing what contributions might be expected from impact investments and why it is worth promoting such investments. I argued that impact investments may provide necessary financing where the government and philanthropic                                             789 Social Investment Organization, supra note 35 at 21. 790 See generally Section 2.1.1 above.  220  donators alone are unable or unwilling to do so. The absence of sufficient services due to a lack of funding while a significant demand for these services still exists creates economic opportunities that may be embraced by social entrepreneurs and impact investors. However, as a precondition for impact investments, private service providers have to be able to enter the market and to provide the necessary services. Acknowledging Bakan’s concerns against privatization, I argued that private service providers should be allowed to enter the relevant sectors while the government has to prevent these providers from exploiting the designated beneficiaries.791 As another condition, the business model would have to be profitable or otherwise investors would not be interested in investing in this business area. Moreover, I contended a third condition proposed by Bugg-Levine & Emerson, i.e. the absence of mainstream investors.792 Although the presence of a mainstream investor indicates that financing is at hand, an impact investor might still contribute to the achievement of the service provider’s goals. It is another question whether an impact investment would still be as useful or necessary as if there was no other investor.  Furthermore, considering that impact investors usually intend to have other stakeholders’ interests taken into account by the directors of investee companies when making business decisions, it was necessary to elaborate on the legal and theoretical framework of the consideration of stakeholders’ interests. The discussion showed that                                             791 See Section 2.2.2 above. 792 Bugg-Levine & Emerson, supra note 1 at 86, 89.  221  under the Canadian and also British Columbia’s corporate legal framework, directors of for-profit corporations may take into account other stakeholders’ interests, but they are not obliged to.  Following these introductory remarks, Chapter 3 set out to provide an analysis of the CCC. The analysis focused on eight subcategories, namely corporate purpose, voting rights, transfer restrictions regarding the shares, board composition and representation, directors’ duties, reporting, distribution of profits and liquidation proceeds, and possible exits. Following thereafter, Chapter 4 compared the same characteristics with the ones of a regular for-profit corporation and a B Corporation with the intention to find out which corporate form is most suitable for an impact investment.  The discussion showed that there might be several uncertainties surrounding the community purpose, in particular in relation to the scope of beneficiaries, whether the purpose has to be directly beneficial or not, and regarding what the consequences would be if a court determined that the purpose of a CCC did not comply with the definition in s 51.91(1) BCBCA. This thesis argued that the scope of beneficiaries need to be considerably broader than just the shareholders plus an insignificant number of non-related persons and that the community purpose of a CCC could be indirectly beneficial to the society or a segment of it which would allow for the pursuit of ecological purposes as well. Whether courts will follow these interpretations remains to be seen. While these uncertainties do not affect the incorporation since there is no review of the proposed community purpose, they may be of concern at a later point in time when a  222  court has to decide whether a purpose complies with s 51.91(1) BCBCA or not. In addition, as discussed in connection with the duties of directors, stating the purpose of a company in a company’s articles may lead to an increase of liability discussions. Although intended by the legislator, as far as the CCC is concerned, impact investors or their representatives on the board might not want to run that risk. Neither a regular corporation nor a B Corporation is required to state its purpose in the articles, what provides some flexibility to comply with the impact investor’s requests. The statement of the community purpose in a CCC’s articles is mandatory and hence does not provide this flexibility. This might render a CCC less suitable for an impact investment.  The provisions relating to voting rights, transfer restrictions and board composition turned out to be quite clear, but they do not seem to advocate in favour of one particular corporate form or another. As far as the duties of directors are concerned, the duty to act with a view to the community purpose raised several questions. Would all actions by directors be required to contribute directly to the community purpose, even if they were harmful to the company’s operability? Does it require the consideration of other stakeholders’ interests? How does this duty relate to the “business judgment rule”? Does it apply at all? If yes, would actions of the directors be protected by the “business judgment rule”, even if they were not taken with a view to the community purpose? It was argued that this duty should be interpreted broadly, i.e. that an action of a director would comply with this duty if it directly or indirectly contributed to the achievement of the community purpose or at least secured the long-term operations of the CCC. A narrow interpretation would be too restrictive and could (unintentionally) lead to similar  223  litigation as there had been under the ultra vires doctrine. Furthermore, it was put forward that the duty should be interpreted to require directors to consider the beneficiaries’ interests when making business decisions. Finally, I suggested that the compliance with this duty should be considered as an additional precondition to the application of the “business judgment rule”. Again, it remains to be seen if and to what extent courts will adopt these interpretations. Considering that an impact investor wants to have other stakeholders’ interests considered, it turned out that the B Corporation framework might match the investor’s intention even better since it requires the directors to consider all stakeholders’ interests, and not only the ones of the beneficiaries. Besides that, the liability risks associated with the duty to act with a view to the community purpose might render the CCC less attractive.  The requirement to produce and publish annually a community contribution report allows the impact investor, the other shareholders, and also the public to assess the impact the CCC generated in the last financial year as well as to monitor the company’s asset and money transfers. Compared to the report to be filed by a community interest company in the UK, the community contribution report is not subject to examination by a regulatory authority. The lack of standardization might negatively affect the comparability of the community contribution reports. The B Impact Assessment would provide such comparability, but on the other hand, a B Corporation is not obliged to share the assessment and the result with the shareholders or even to publish it. Considering that neither a community contribution report nor the B Impact Assessment have to be produced or completed very frequently (annually, or every two years,  224  respectively), an impact investor is likely to implement a reporting system anyway that would satisfy her need for information in a timely manner, regardless of the statutory reporting requirements.  In order to protect the assets of a CCC, the legislator implemented restrictions on dividends and the transfer of assets. As far as the dividend restrictions are concerned, the legislator managed to create a simple and manageable system by not taking over the thresholds applicable to a community interest company in the UK. Whether the 40% threshold set out in s 4(1) CCCReg is appropriate or not remains to be seen. An indication that the legislator has gotten it right793 would be that it roughly corresponds to the aggregate threshold set out in s 22(1)(b) CICReg 2005, which has never been questioned since its implementation.794 The asset lock restricts a CCC from transferring assets unless such transfer is exempted according to s 51.931(1) BCBCA. It will be the directors’ responsibility to make sure that a transfer complied with one of these exemptions. Thereby, the interaction between subsections (1) and (3) of s 51.931 BCBCA could cause some difficulties if a transfer was to be qualified as financial assistance. If a transfer were made without complying with the restrictions set out in s 51.931 BCBCA, the directors would be liable according to s 154(1)(f) BCBCA. This thesis argued that this liability should be the only consequence and that a transfer that does not comply with the restrictions should not be regarded as invalid. Despite these                                             793 See regarding the concerns related to the threshold British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11123 (B. Ralston and Hon. K. Falcon). 794 See generally Section 4.7.1 above.  225  uncertainties, as discussed in Sections 4.7.1 and 4.7.2, the dividend restriction as well as the asset lock could even be beneficial to impact investors. This would be an advantage in favour of the CCC.  However, the discussion of the restrictions on asset transfers upon dissolution showed that they might erase this advantage. It was argued that the provisions should be interpreted to require the liquidator to transfer 60% of the CCC’s net assets after payment of all liabilities to qualified entities and the remaining 40% to the shareholders. Hence, the transfer restrictions have a rather philanthropic character that might cause impact investors who intend to receive a financial profit alongside a social or ecological impact to refrain from investing in young CCCs. Although neither a regular corporation nor a B Corporation guarantee that an investor receives back at least her investment, the chances are higher than if the investment is made in a CCC.  Having options available to liquidate her investment is key to every investor.795 The most common options include the sale of all shares in the company (i.e. the sale of the company), the sale of the investor’s shares to a third party, to other shareholders, or even to the company, reorganization (in particular through amalgamation), IPO, and liquidation of the company. The discussion in Section 3.8 above showed that from a corporate legal point of view, all of these options are available to investors in a CCC, at least theoretically. Practical constraints may restrict the possibility to do an exit by way                                             795 See e.g. Gladstone & Gladstone, supra note 514 at 9; Newmark & Pena, supra note 38 at 117.  226  of sale of the investor’s shares and by way of an IPO, such as the valuation of the shares or the difficulties of managing a public company without the possibility to implement a more sophisticated management structure, respectively. Besides that, the restrictions on asset transfers upon dissolution make an exit through liquidation of the CCC very unattractive. The same applies to an exit by way of amalgamation since a CCC may only amalgamate with another company if the amalgamated company is a CCC as well. Compared thereto, a regular corporation and a B Corporation face no or at least less legal or practical restrictions, which makes it easier for an investor to liquidate her investment in one of these corporate forms.  Based on this comparison, this thesis concluded that from a corporate legal point of view, although the characteristics of a CCC intend to ensure its long-term operability in order to make sure that it is able to provide benefits to the community or a segment of it over a long period, the CCC does not seem to be the most suitable corporate form for an impact investment in British Columbia. Depending on the investor’s intentions, another corporate form might be more suitable.  Following the analysis and the comparison, the thesis elaborated on potential improvements of the CCC framework in order to make it more attractive to impact investors. In particular, based on the analysis of the corporate characteristics of a CCC and the comparison with other corporate forms, six improvements were proposed. First, it was recommended to implement a regulatory authority that reviews the proposed community purpose at the time of incorporation of the CCC. Second, the directors of a  227  CCC should be statutorily obliged to consider other stakeholders’ interests when making business decisions. Third, the directors should be enabled to transfer the management of the CCC, but not the supervision of the management, to officers. However, a mechanism has to be put in place to ensure that at least three persons (directors and/or officers) remain liable. Fourth, when reporting on the benefit provided to the community or a segment of it in the community contribution report, the directors should be required to use one of the existing impact reporting standards (e.g. the IRIS) in order to promote the comparability of the reports. Fifth, the rather philanthropic restrictions on asset transfers upon dissolution of a CCC should be abolished, but protections against abusive dissolutions would have to be put in place. Finally, a CCC should be allowed to agree on the valuation method in order to determine the fair value of its shares upon redemption or repurchase of shares. Together with the proposed interpretations in Chapter 3, these six improvements are expected to eliminate corporate legal issues or concerns, which in turn might improve the attractiveness of the CCC.  In addition, the thesis briefly touched upon further incentives to promote impact investing or social financing in general in British Columbia. Considering that several reports and contributions to the academic literature have already elaborated on such incentives, it was not intended to repeat the recommendations stated therein. The elaborations on the development of further hybrid corporate forms emphasised the importance of paying attention to the particularities of the existing Canadian corporate legal environment. The legislator may benefit from lessons learned in other jurisdictions, but simply taking over these jurisdictions’ hybrid corporate forms is unlikely to be  228  sufficient. As far as the source of additional funding for impact investments is concerned, institutional investors such as banks or pension funds may be considered since they manage enormous assets. In order to convince these investors to allocate part of their assets to impact investing, attention has to be paid to their concerns and incentives have to address them, in particular the uncertainties surrounding the fiduciary duty. One of these incentives could be tax related. On the one hand, existing tax incentives could be expanded to include investments in a CCC. On the other, new tax credits or breaks could be developed to encourage investors to engage in social finance in general.  Being the first mover, the legislator of British Columbia intended to act carefully in order to get it right.796 However, although the effort of the legislator to lead the way is acknowledged and appreciated, the number of CCCs incorporated between 29 July 2013 and June 2014 suggests that the legislator did not get it entirely right. Only 14 CCCs have been incorporated during this period,797 which has to be considered as a quite disappointing start for the new corporate form.  This research raised several legal issues of the CCC framework. Although these might be some of the reasons for the disappointing start of the CCC, it is assumed that it is not the only one. The detailed analysis provided by this thesis allowed drawing conclusions                                             796 British Columbia, Legislative Assembly, Second Reading, supra note 67 at 10661 (Hon. K. Falcon); British Columbia, Legislative Assembly, Committee Hearing, supra note 61 at 11121 (Hon. K. Falcon). 797 See note 763 above and accompanying text.  229  regarding the characteristics of the CCC, pointing out issues, and proposing possible interpretations. These results may be used in several different ways. First, legal and other advisors to impact investors may learn about the advantages and the potential pitfalls of the CCC and structure the investments accordingly. Second, when deciding cases, courts may take into account the arguments and suggested interpretations herein. Third, the thesis provides a basis for future academic discussions and researches regarding the CCC. Finally, the legislator may consider the proposed improvements to the CCC framework in order to make that new corporate form more attractive.  However, due to the time constraints, it was not possible to engage in any empirical research. For example, it was not possible to consider the effect of the economic sector or the influence of charismatic individuals on the determination of the appropriate corporate form. Moreover, future empirical research is expected to provide further information on the reasons why the CCC had such a disappointing start. For example, entrepreneurs that have incorporated any corporate form in British Columbia since 29 July 2013 could be asked whether they considered the incorporation of a CCC and in case they chose another corporate form, why they did so. The results of such researches will help to improve the CCC framework or to develop other hybrid corporate forms.  Although the initiative of British Columbia’s legislator is a promising start, there remains a lot of work to be done. Social financing and impact investing is not yet where it could  230  or even should be. Being fully aware that this thesis did not solve all the issues, it nevertheless intended to provide another piece to the puzzle. Hopefully, the whole picture becomes apparent in the near future.    231  Bibliography DOMESTIC LEGISLATION  Bill 153, An Act Respecting Community Interest Companies, 4th Sess, 61st General Assembly, Nova Scotia 2012 (assented to 6 December 2012). Business Corporations Act, SBC 2002, c 57. Canada Business Corporations Act, RSC 1985, c C-44. Companies Act, RSBC 1960, c 67, as repealed by the Business Corporations Act, SBC 2002, c 57. Companies Act, RSNB 1973, c C-13. Community Contribution Company Regulation, BC Reg 63/2013. Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids, BCSC MI 62-104 (2008). Securities Act, RSBC 1996, c 418. 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UPM-Kymmene Corp v UPM-Kymmene Miramichi Inc (2004), 42 BLR (3d) 34, 250 DLR (4th) 526, (Ont CA). 684417 BC Ltd (Trustee of) v Johnson, 2013 BCSC 1055, 5 CBR (6th) 213.   234  GOVERNMENTAL PUBLICATIONS AND INSTITUTIONAL CORRESPONDENCE  BC Registry Services. “RE: Community Contribution Company, Number of Incorporations”, Email (Victoria: BC Registry Services 9 July 2014; available with the author upon request). ———. “Steps to Incorporating a Community Contribution Company in British Columbia” (2013), online: BC Registry Services <http://www.bcregistryservices.gov.bc.ca/local/bcreg/documents/forms/reg50ccc.pdf>. British Columbia Ministry of Finance. “Community Contribution Companies”, online: Government of British Columbia <http://www.fin.gov.bc.ca/prs/ccc/>. 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Chapter 6: The Asset Lock (Cardiff, UK: Department for Business Innovation & Skills, 2013). ———. Chapter 8: Statutory Obligations (Cardiff, UK: Department for Business Innovation & Skills, 2013). ———. Chapter 9: Corporate Governance (Cardiff, UK: Department for Business Innovation & Skills, 2013). ———. Chapter 10: Transfer of Assets and Ceasing to be a CIC (Cardiff, UK: Department for Business Innovation & Skills, 2013). ———. Chapter 11: The Regulator (Cardiff, UK: Department for Business Innovation & Skills, 2013). ———. “CIC34: community interest company report” (2013), online: Government of the UK <https://www.gov.uk/government/publications/form-cic34-community-interest-company-report>.  SECONDARY MATERIAL: MONOGRAPHS  Bakan, Joel. The Corporation: The Pathological Pursuit of Profit and Power (Toronto: Penguin Canada, 2004).  236  Brander, James A, Edward J Egan & Anthony E Boardman. The Equity Capital Program in British Columbia: An Assessment of Capital Availability, Program Efficiency, and Policy Alternatives (Victoria: BC Government Publications, 2005). Budde, Scott J. Compelling Returns: A Practical Guide to Socially Responsible Investing (Hoboken, NJ, USA: John Wiley & Sons, 2008). Bugg-Levine, Antony & Jed Emerson. Impact Investing: Transforming How We Make Money While Making a Difference (San Francisco: Jossey Bass, 2011). Cendrowski, Harry et al. Private Equity: History, Governance, and Operations, 2nd ed (Hoboken, NJ, USA: John Wiley & Sons, 2012). Cox, James D, Thomas Lee Hazen & F Hodge O’Neal. Corporations: Volume I (Boston/New York: Little, Brown and Company, 1995). Cumming, Douglas J & Sofia A Johan. Venture Capital and Private Equity Contracting: An International Perspective, 2nd ed (Waltham, MA, USA: Elsevier, 2014). Evan, William M & R Edward Freeman. “A Stakeholder Theory of Modern Corporation: Kantian Capitalism” in Tom L Beauchamp & Norman E Bowie, eds, Ethical Theory and Business (np: Englewood Cliffs, 1988) 75, cited in Domènec Melé, “Corporate Social Responsibility Theories” in Andrew Crane et al, eds, The Oxford Handbook of Corporate Social Responsibility (New York: Oxford University Press, 2008) 47. Gladstone, David & Laura Gladstone. Venture Capital Investing: The Complete Handbook for Investing in Private Businesses for Outstanding Profits (New Jersey: Pearson Education, 2004).  237  Goulet, George RD. Public Share Offerings and Stock Exchange Listings in Canada: Going Public, Staying Public, Getting Listed, Staying Listed (North York: CCH Canadian, 1994). Hebb, Tessa. The Role of Institutional Investors in Social Finance (Ottawa: Carleton Centre for Community Innovation, 2010). Kerr, Michael et al. Corporate Social Responsibility: A Legal Analysis, Chip Pitts, ed. (Markham, Ont.: LexisNexis Canada, 2009). Marvel, Matthew R, ed. Encyclopedia of New Venture Management (Thousand Oaks: SAGE Publications, 2012). McGuinness, Kevin P. Canadian Business Corporations Law, 2nd ed (Markham, Ont.: LexisNexis Canada, 2007). Newmark, Tammy E & Michele Pena. Portfolio for the Planet: Lessons from 10 Years of Impact Investing (London: Earthscan, 2012). Nicholls, Christopher C. Corporate Law (Toronto: Emond Montgomery Publications, 2005). ———. Mergers, Acquisitions and Other Changes of Corporate Control, 2nd ed (Toronto: Irwin Law, 2012). Savitz, Andrew W & Karl Weber. The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social, and Environmental Success - and How You Can Too (Somerset, NJ, USA: Jossey Bass, 2013). VanDuzer, J Anthony. The Law of Partnerships and Corporations, 3d ed (Toronto: Irwin Law, 2009).  238  Waters, Donovan WM, Mark R Gillen & Lionel D Smith. Waters’ Law of Trusts in Canada, 4th ed (Toronto: Carswell, 2012). Yalden, Robert et al. Business Organizations: principles, policies and practice (Toronto: Emond Montgomery Publications, 2008).  SECONDARY MATERIAL: ARTICLES AND BOOK CHAPTERS  Ashton, Adrian. “New legal structure has hidden dangers”, Regeneration & Renewal (13 October 2006) 14. Ben-David, Itzhak. “Dividend Policy Decisions” in H Kent Baker & John R Nofsinger, eds, Behavioral Finance: Investors, Corporations, and Markets (Hoboken, NJ, USA: John Wiley & Sons, 2010) 435. Blair, Margaret M & Lynn A Stout. “A Team Production Theory of Corporate Law” (1999) 85:2 Va L Rev 247. Brakman Reiser, Dana. “Benefit Corporations: A Sustainable Form of Organization?” (2011) 46:3 Wake Forest L Rev 591. Byus, Kent, Donald Deis & Bo Ouyang. “Doing Well by Doing Good: Corporate Social Responsibility and Profitability” (2010) 75:1 SAM Advanced Management Journal 44. Carroll, Archie B & Kareem M Shabana. “The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice” (2010) 12:1 International Journal of Management Reviews 85.  239  Clark, William H & Elizabeth K Babson. “How Benefit Corporations are Redefining the Purpose of Business Corporations” (2012) 38:2 Wm Mitchell L Rev 817. Cook, John & Greg Payne. “Redefining Impact Investing”, Responsible Investing 11:4 (1 January 2013) 66. Crane, Andrew et al. “The Corporate Social Responsibility Agenda” in Andrew Crane et al, eds, The Oxford Handbook of Corporate Social Responsibility (New York: Oxford University Press, 2008) 3. Croft, Tom. “Targeted Responsible Investing” in Tessa Hebb, ed, The Next Generation of Responsible Investing (Dordrecht, NL: Springer Science+Business Media, 2012) 199. Cross, Stuart R. “The Community Interest Company: More Confusion in the Quest for Limited Liability” (2004) 55:3 N Ir Legal Q 302. Cumming, Douglas. “Corporate Venture Capital Contracts” (2006) 9:3 The Journal of Alternative Investments 40. Dahlsrud, Alexander. “How Corporate Social Responsibility is Defined: an Analysis of 37 Definitions” (2008) 15:1 Corporate Social Responsibility and Environmental Management 1. Davis, Keith. “The Case for and against Business Assumption of Social Responsibilities” (1973) 16:2 Academy of Management Journal 312. Emerson, Jed. “The Blended Value Proposition: Integrating Social And Financial Returns” (2003) 45:4 Calif Management Rev 35. Frank, Roger. “Impact Investing: What Exactly Is New?”, Stanford Social Innovation Review 10:1 (Winter 2012) 17.  240  Freeman, R Edward & David L Reed. “Stockholders and Stakeholders: A New Perspective on Corporate Governance” (1983) 25:3 Calif Management Rev 88. Friedman, Milton. “A Friedman Doctrine: The Social Responsibility of Business Is to Increase Its Profit”, The New York Times Magazine (13 September 1970) SM 17. Galle, Brian D. “Social Enterprise: Who Needs it?” (2013) 54:5 BCL Rev 2025. Gilson, Ronald J. “Engineering a Venture Capital Market: Lessons from the American Experience” (2003) 55:4 Stan L Rev 1067. Gompers, Paul & Josh Lerner. “The Venture Capital Revolution” (2001) 15:2 J Econ Persp 145. Graafland, Johan & Corrie Mazereeuw-Van der Duijn Schouten. “Motives for Corporate Social Responsibility” (2012) 160:4 De Economist 377. Harribey, Laurence E. “Strategic Value of Corporate Citizenship” in Samuel O Idowu & Céline Louche, eds, Theory and Practice of Corporate Social Responsibility (Berlin: Springer-Verlag, 2011) 23. Hutton, R Bruce, Louis D’Antonio & Tommi Johnsen. “Socially Responsible Investing: Growing Issues and New Opportunities” (1998) 37:3 Business and Society 281. Jensen, Michael C & William H Meckling. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” (1976) 3:4 Journal of Financial Economics 305. Kurucz, Elizabeth C, Barry A Colbert & David Wheeler. “The Business Case for Corporate Social Responsibility” in Andrew Crane et al, eds, The Oxford Handbook of Corporate Social Responsibility (New York: Oxford University Press, 2008) 83.  241  Lee, Ian B. “Peoples Department Stores v. Wise and the ‘Best Interests of the Corporation’” (2005) 41:2/3 Can Bus LJ 212. Liao, Carol. “Designing Social Value Architecture for the For-Profit Company” (2012) 67 The Canadian Review of Social Policy 85. ———. “The Next Stage of CSR for Canada: Transformational Corporate Governance, Hybrid Legal Structures, and the Growth of Social Enterprise” (2013) 9:1 JSDLP 53. Lloyd, Stephen. “Creating the CIC” (2010) 35:1 Vt L Rev 31. Mackenzie, Craig. “The scope for investor action on corporate social and environmental impacts” in Rory Sullivan & Craig Mackenzie, eds, Responsible Investment (Sheffield, South Yorkshire, GBR: Greenleaf Publishing, 2006) 20. Madill, Judith, François Brouard & Tessa Hebb. “Canadian Social Enterprises: An Empirical Exploration of Social Transformation, Financial Self-Sufficiency, and Innovation” (2010) 22:2 Journal of Nonprofit & Public Sector Marketing 135. McBride, David. “General Corporation Laws: History and Economics” (2011) 74:1 Law & Contemp Probs 1. McWilliams, Abagail & Donald S Siegel. “Corporate Social Responsibility and Financial Performance: Correlation or Misspecification?” 21:5 Strategic Management Journal 603. Melé, Domènec. “Corporate Social Responsibility Theories” in Andrew Crane et al, eds, The Oxford Handbook of Corporate Social Responsibility (New York: Oxford University Press, 2008) 47.  242  Mitchell, Ronald K, Bradley R Agle & Donna J Wood. “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts” (1997) 22:4 Academy of Management Review 853. Moffat, Kieren & Airong Zhang. “The paths to social licence to operate: An integrative model explaining community acceptance of mining” (2014) 39 Resources Policy 61. Moon, Jeremy & David Vogel. “Corporate Social Responsibility, Government and Civil Society” in Andrew Crane et al, eds, The Oxford Handbook of Corporate Social Responsibility (New York: Oxford University Press, 2008) 303. Olejarski, Amanda M. “Public Good as Public Interest?” (2011) 13:4 Public Integrity 333. Pendleton, Michael. “Non-empirical Discovery in Legal Scholarship: Choosing, Researching and Writing a Traditional Scholarly Article” in Mike McConville & Wing Hong Chui, eds, Research Methods for Law (Edinburgh: Edinburgh University Press, 2007) 168. Richardson, Benjamin J. “Do the Fiduciary Duties of Pension Funds Hinder Socially Responsible Investment?” (2007) 22:2 BFLR 145. Schueth, Steve. “Socially Responsible in the United States” (2003) 43:3 Journal of Business Ethics 189. Sethi, S Prakash. “Conceptual Framework for Environmental of Analysis of Social Issues and Evaluation of Business Response Patterns” (1979) 4:1 Academy of Management Review 63. Sparkes, Russel. “A historical perspective on the growth of socially responsible investment” in Rory Sullivan & Craig Mackenzie, eds, Responsible Investment (Sheffield, South Yorkshire, GBR: Greenleaf Publishing, 2006) 39.  243  Stern, Gary M. “Impact Investing”, Financial Planning 41:9 (September 2011) n/a. Sullivan, Rory & Craig Mackenzie. “Introduction” in Rory Sullivan & Craig Mackenzie, eds, Responsible Investment (Sheffield, South Yorkshire, GBR: Greenleaf Publishing, 2006) 12. Waitzer, Edward & Johnny Jaswal. “Peoples, BCE, and the Good Corporate Citizen” (2009) 47:3 Osgoode Hall LJ 439. Wilburn, Kathleen M & Ralph Wilburn. “Achieving Social License to Operate Using Stakeholder Theory” (2011) 4:2 Journal of International Business Ethics 3. Williams, Cynthia A & Ruth V Aguilera. “Corporate Social Responsibility in a Comparative Perspective” in Andrew Crane et al, eds, The Oxford Handbook of Corporate Social Responsibility (New York: Oxford University Press, 2008) 452. Wood, Donna J. “Corporate Social Performance Revisited” (1991) 16:4 Academy of Management Review 691. Woods, Claire & Roger Urwin. “Putting Sustainable Investing into Practice: A Governance Framework for Pension Funds” in Tessa Hebb, ed, The Next Generation of Responsible Investing (Dordrecht, NL: Springer Science+Business Media, 2012) 27.  REPORTS  BC Social Innovation Council. Action Plan Recommendations to Maximize Social Innovation in BC (np: BC Social Innovation Counsil, 2012).  244  Canadian Task Force on Social Finance. Mobilizing Private Capital for Public Good (Toronto, 2010). Eurosif. European SRI Study 2012 (Brussels, 2012). Office of the Regulator of Community Interest Companies. Annual Report 2011/2012 (Cardiff, UK: Department for Business Innovation & Skills, 2012). Social Investment Organization. Canadian Socially Responsible Investment Review 2012 (2013).  OTHER MATERIALS  B Lab. “Certified B Corporation”, online: B Corporation <http://www.bcorporation.net/>. ———. “Corporation Legal Roadmap”, online: B Corporation <http://www.bcorporation.net/become-a-b-corp/how-to-become-a-b-corp/legal-roadmap/corporation-legal-roadmap>. ———. “FAQs for Investors and Directors of Potential B Corporations” (2011), online: B Corporation <http://www.bcorporation.net/sites/all/themes/adaptivetheme/bcorp/pdfs/faqs_investors_and_directors4.pdf>. ———. “Performance Requirements”, online: B Corporation <http://www.bcorporation.net/become-a-b-corp/how-to-become-a-b-corp/performance-requirements>. ———. “Step 2: Compare Your Impact”, online: B Impact Assessment <http://bimpactassessment.net/how-it-works/compare-your-impact>.  245  ———. “Term Sheet for Certified B Corporations”, online: B Corporation <http://www.bcorporation.net/sites/default/files/documents/term_sheets/B Corp Term Sheet - Constituency States and LLCs.pdf>. ———. “The Difference Between Benefit Corporations and Certified B Corps”, online: B Corporation <http://www.bcorporation.net/what-are-b-corps/legislation>. ———. “What are B Corps”, online: B Corporation <http://www.bcorporation.net/what-are-b-corps>. ———. “What GIIRS Does”, online: GIIRS <http://www.giirs.org/about-giirs/about>. Black’s Law Dictionary, 9th ed. BP. “About BP”, online: bp <http://www.bp.com/en/global/corporate/about-bp.html>. ———. “BP Alternative Energy”, online: bp <http://www.bp.com/en/global/corporate/about-bp/company-information/group-organization/bp-alternative-energy.html>. ———. “Socially Responsible Investment”, online: bp <http://www.bp.com/en/global/corporate/investors/socially-responsible-investment.html>. Bridges Ventures. “Sustainable & Impact Investment: How we define the market” (August 2012), online: Bridges Ventures <http://www.bridgesventures.com/sites/bridgesventures.com/files/BV004-Bridges Ventures report UPDATE.pdf>. CBC. “Tiny homes size of walk-in closet pushed by B.C. builder” (9 May 2013), online: CBC <http://www.cbc.ca/news/canada/british-columbia/tiny-homes-size-of-walk-in-closet-pushed-by-b-c-builder-1.1319471>.  246  Collin, Simon MH. Dictionary of Accounting, 4th ed (Huntingdon, UK: A & C Black Publishers, 2007). Emerson, Jed. The Nature of Returns: A Social Capital Markets Inquiry into Elements of Investment and The Blended Value Proposition, Working Paper (Harvard Business School, 2000). Global Impact Investing Network. “What is Impact Investing?”, online: GIIN <http://www.thegiin.org/cgi-bin/iowa/investing/index.html>. ———. “Impact Reporting and Investment Standards (IRIS)”, online: GIIN <http://www.thegiin.org/cgi-bin/iowa/reporting/index.html>. MaRS. “Legally Incorporating your Social Venture”, online: MaRS <http://www.marsdd.com/articles/legally-incorporating-your-social-venture/>. Smith, Sam. “Co-op housing residents need new funding to replace lost federal dollars” (21 March 2014), online: Metronews <http://metronews.ca/news/vancouver/979820/co-op-housing-residents-need-new-funding-to-replace-lost-federal-dollars/>. Toronto Stock Exchange. “TSX Company Manual”, online: Toronto Stock Exchange <http://tmx.complinet.com/en/display/display_viewall.html?rbid=2072&element_id=1&record_id=1&filtered_tag=>. TSX Venture Exchange. “Policy 2.1: Initial Listing Requirements”, online: TSX Venture Exchange <http://www.tmx.com/en/pdf/Policy2-1.pdf>. Vision Vancouver. “Solving Homelessness”, online: Vision Vancouver <http://www.votevision.ca/solving-homelessness>.   

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