Dalhousie Law Journal


unlimited liability, shareholder, Nova Scotia, Companies Act, corporations, courts, debt, parent companies, financial crisis, bankruptcy


For over 30 years, unlimited liability companies have been ubiquitous in USCanadian M&A transactions. Typically interposed between a US parent company and a Canadian operating company, these entities quietly function to make such structures more tax efficient. They are facilitated by Nova Scotia's venerable Companies Act, which has allowed for the incorporation of corporations with unlimited liability for over a hundred years. Unlimited liability of shareholders is the singular defining characteristic of the ULC, but the precise nature of ULC shareholder liability was apparently regarded as something of a technicality and rarely, if ever, closely examined in the professional or academic literature or considered by the courts. Perhaps unlimited liability was considered too familiar a concept to require detailed analysis, or perhaps it was considered irrelevant in practice because the debts of modern ULCs are typically guaranteed by their parent companies. In such a structure, the liability of the parent company seems clear This apparent clarity proved illusory, however, following the recent financial crisis, when a number of ULC parent companies faced bankruptcy and restructuring and the precise nature of their unlimited liability was suddenly the subject of intense scrutiny and conflict.