The First Dominion Companies Act

Abstract

THE concept of a corporation was familiar to the first settlers in Canada, both French and English. The Company of New France and the Hudson's Bay Company are examples of the importance of trading companies in our early economic development. Moreover, colonial legislatures incorporated several dozen companies by special acts before deciding to allow companies to come into being without each one having to go directly to Parliament for its own charter. But a companies act which would permit companies to be expeditiously incorporated for manufacturing, trading, mining, and other ordinary kinds of business was not evolved without some experimentation, a good deal of borrowing from other jurisdictions, and the creation of two rather special methods of our own. Until about 1850, the principle of limited liability was not generally accepted either in Canada, Britain, or most of the United States. Even as late as 1862 Nova Scotia's Act for the incorporation and winding-up of Joint Stock Companies (25 Vict. c. 2) forbade the incorporation of companies for ordinary, mercantile and commercial business. Legislators were afraid that a company might purchase excessive amounts of merchandise on credit and so take unfair advantage of its creditors, as individual traders often did during the nineteenth century. Limited liability was permitted for banks, but only on certain conditions. In Canada, bank shareholders were usually liable for twice the par value of their stock and bank charters were valid for only ten years, so that periodically the government could review and perhaps amend the pertinent statutes. Limited liability was also tolerated in public utilities such as canals, railways, bridges, and toll roads. The gains which the public expected from these ventures outweighed the scruples of the legislators. Besides, the government took care to set forth the prices to be charged. Tolls were either laid down in the charter itself, were subject to approval by the Governor-in-Council, or had to be reduced when net earnings exceeded a certain figure, usually 10 per cent. Finally, in four or five cases the Province of Canada gave the privilege of limited liability to insurance companies because they provided an important public service and were not, as yet, very large. Objections to the grant of limited liability to trading and manufacturing concerns took many forms. To begin with, there was opposition to large companies regardless of whether they had limited liability. As explained in 1807,