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Mar 4, 2021

Are You Prepared for the Changes Coming to Ontario’s Corporate Law Requirements?

By Aarondeep (Aaron) S. Bains, Ian McLeod and Christian Nianiaris

On December 8, 2020, the Ontario legislature enacted the Better for People, Smarter for Business Act, 2020 (the Act), which includes several significant amendments to the Ontario Business Corporations Act (OBCA).

Two major changes are coming to Ontario’s corporate law landscape:

  • Removal of the Canadian residency requirement for directors; and
  • Simplifying the shareholder resolution approval process for private corporations.

Currently, the Act’s OBCA amendments are not in force; they will come into force via proclamation of the Lieutenant Governor. Stay tuned for an update from Aird & Berlis when these amendments officially come into force.

Director Residency Requirement

In a welcome change for businesses, the Act repeals the current requirement that at least 25 per cent of an OBCA corporation’s directors be “resident Canadians” (as defined in the OBCA). Once in force, businesses can place greater emphasis on expertise and representation rather than Canadian residency when determining their board composition. Further, the long-standing director residency requirement discouraged foreign-based businesses from choosing Ontario as their incorporating jurisdiction when expanding into Canada. Finally, removing the director residency requirement brings Ontario’s corporate law in line with other provinces. Note, however, that federally incorporated corporations remain subject to a 25 per cent residency requirement.

Resolutions in Writing

Currently under the OBCA, written shareholder resolutions require unanimous approval from the shareholders who would be entitled to vote on the resolution at a meeting of the shareholders. Written resolutions are frequently preferred because they avoid the time and expense associated with organizing a meeting of the shareholders. Where a corporation is unable to obtain a signature from an unresponsive or uncooperative shareholder, corporations are required to undertake the time and expense of a shareholder meeting at which the resolution could be passed by a simple majority.

Under the Act’s amendments, written shareholder resolutions are approved by a simple majority of shareholders (reduced from unanimous shareholder approval). Importantly, where the articles of incorporation or a unanimous shareholder agreement require a higher threshold for approval, that higher threshold trumps the new OBCA default simple majority standard. Lastly, the changes to written shareholder resolutions apply only to private Ontario corporations; corporations offering their securities to the public are unaffected.

The corporation must provide written notice to shareholders who did not sign the written resolution, but who would have been entitled to vote had a shareholder meeting been called. Notice must be given within 10 business days of the resolution being approved and must contain the text of the resolution along with a description of and reasons for the matter dealt with.

The new simple majority approval for written resolutions only applies to ordinary resolutions. Special resolutions, which are required by the OBCA for more consequential corporate decisions, remain subject to unanimous approval if in writing. Retaining this distinction between written ordinary and special resolutions strikes a balance between modernizing the approval process of basic corporate matters while protecting minority shareholders’ interests–and dissent rights–for fundamental business changes.

The amendments to the OBCA will be coming into force soon. Ontario corporations would be wise to review their articles, by-laws and USAs to determine if changes to the rules regarding written shareholder resolutions create any unwanted outcomes within their current corporate governance arrangements.

For further information, please contact one of the authors or reach out to your usual Aird & Berlis contact at any time.

*The authors would like to thank Christian Nianiaris, a 2020/21 articling student at the firm, for his assistance with the article.

 

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