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Ontario’s proposed changes to modernize the Business Corporations Act

Oct 16, 2020

By Whitney Abrams - Business Law Lawyer

Image: Whitney Abrams, Business Law LawyerOntario’s government is responding to recommendations to modernize business law and reduce burdens on businesses in Ontario by proposing to amend the Ontario Business Corporations Act (the “OBCA”). On October 6, 2020, Bill 213: Better for People, Smarter for Business Act, 2020 (the “Bill”) was introduced for its first reading.

Schedule 1 to the Bill contains the proposed amendments to the OBCA. The Bill, if enacted, would result in two significant changes, in addition to other technical amendments:

  1. repealing the requirement that at least 25% of the directors of an Ontario corporation be resident Canadian; and
  2. for privately-held Ontario corporations, lowering the approval threshold for written ordinary shareholder resolutions from unanimous to a majority of voting shareholders.

The Resident Canadian Director Requirement

The Bill proposes to eliminate the current OBCA requirement that at least 25% of the directors of an Ontario corporation be resident Canadian. If passed, this amendment will apply to both privately- and publicly-held corporations in Ontario.

This is an encouraging change for Ontario, which follows Alberta as the most recent Canadian province to do away with the director residency requirement. This change is likely to entice more foreign-owned or foreign-controlled corporations to incorporate their businesses in Ontario. Previously, such corporations may have opted to incorporate their businesses in other Canadian provinces without the residency requirement. With this amendment, Ontario will become a more attractive incorporation jurisdiction. We will likely also see changes to the composition of many Ontario corporations’ boards in the future.

Majority approval of Written Ordinary Resolutions

The Bill proposes a new clause be added to the OBCA for privately-held corporations. It will allow a written shareholders’ resolution signed by a majority of shareholders to be a valid substitute for an ordinary resolution passed at a shareholders’ meeting. This change will only apply to decisions requiring ordinary resolutions (e.g., election/removal of directors, confirmation of by-laws, removal of a liquidator, etc.). The proposed amendment provides that notice of any written resolution signed by a majority is to be provided by the corporation to all shareholders who are entitled to vote but who did not sign any such resolution within 10 business days after the resolution is passed. There is no requirement for advanced notice of such a resolution.

No changes are proposed to the requirements for matters that require approval by special resolutions or other actions where the OBCA sets out that unanimous shareholder approval is required. Specifically, a written special resolution will still be required to be signed by all shareholders of a corporation entitled to vote thereon.

Although the proposed amendment will only apply to ordinary resolutions, the change will substantially impact a corporation’s ability to deal quickly and effectively with routine matters. For corporations with many shareholders, there are circumstances where they might be difficult to track down and/or are uncooperative (despite the number of shares held). In those circumstances, corporations are forced to hold shareholder meetings to obtain shareholder approval. The proposed changes contained in the Bill will eliminate the need for holding such meetings, which are costly and an inefficient use of shareholders’ time.

A corporation is free to increase, in its articles or by way of a unanimous shareholder agreement, the default threshold number of votes of shareholders required to effect a particular action by ordinary resolution. Statutory changes are often an opportune time to review governance and this is no exception.

For questions about corporate governance and business issues or concerns about how the OBCA can affect your business, contact Whitney Abrams at wabrams@mindengross.com.

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