By Corinne Doroszkiewicz – Student-at-Law, Minden Gross LLP
Introduction
On December 8, 2020, Ontario enacted the Better for People, Smarter for Business Act, 2020[1] (“Act”). The Act amends Ontario’s Business Corporations Act[2] (“OBCA”), with the goals of helping businesses recover from the impacts of the COVID-19 pandemic and stimulating long-term economic growth in Ontario. Amongst other technical amendments, the Act includes two important changes to the OBCA:
- It eliminates the requirement under section 118(3) of the OBCA that at least 25% of the directors of an Ontario corporation are resident Canadians;[3] and
- It simplifies the shareholder approval process for written resolutions for private Ontario corporations.[4]
These amendments will come into effect on July 5, 2021.
Removal of Canadian Residency Requirement for Directors
Currently, section 118(3) of the OBCA requires that at least 25% of the directors of a corporation other than a non-resident corporation shall be resident Canadians, and if a corporation has less than four directors, at least one director shall be a resident Canadian.[5] The Act repeals section 118(3) of the OBCA, eliminating the Canadian residency requirement for directors. In effect, the new amendments will give businesses incorporated in Ontario the flexibility to appoint directors to their board without the added burden of having to also ensure that the candidate they select has Canadian resident status.
The removal of the Canadian residency requirement may also have the potential benefit of motivating foreign investors or international companies, who may have previously been limited by this requirement, to expand their business into Ontario.
Simplified Written Resolution Process
Generally, written resolutions are used as an alternative to formal shareholder meetings. They allow shareholders to express their agreement on a matter through signature confirmation. Currently, under section 104(1) of the OBCA, written resolutions as an alternative to in-person voting are valid if they are signed by all shareholders entitled to vote on that resolution.[6]
Organizing shareholder meetings or tracking down shareholders to obtain unanimous written consent on a resolution can be burdensome, especially in light of the COVID-19 pandemic and the transition to working from home. The Act amends section 104(1) of the OBCA to allow private (non-offering) companies to treat a written resolution as valid, if it is signed by a simple majority of shareholders entitled to vote on that resolution.[7] However, corporate entities should be aware that eligible shareholders who do not sign the written resolution have to be made aware of it by the corporation. The Act stipulates that:
- Shareholders who did not sign the written resolution shall be given written notice by the corporation within 10 business days after the resolution is signed; and
- The notice shall include the text of the resolution and a statement that contains a description of and the reasons for the business dealt with by the resolution.[8]
This amendment will only apply to ordinary resolutions, which generally include the election of a director,[9] confirmation or rejection of changes to by-laws that regulate the business or affairs of a corporation,[10] and the appointment and removal of auditors.[11]
In cases where a corporation’s articles or a unanimous shareholder agreement require a greater number of votes to effect a particular action on an ordinary resolution than that prescribed by the Act, the higher threshold for shareholder approval will govern.[12]
In effect, these changes will simplify the shareholder approval process by eliminating the requirement for unanimous consent on a written resolution and increase the efficiency with which decisions on ordinary matters within a corporation are made.
If you are currently a business incorporated in Ontario or looking to incorporate your business in Ontario in the future, and would like more information on how these amendments may affect you, please contact one of our lawyers in our Business Law Group.
[1] Bill 213, Better for People, Smarter for Business Act, 2020, 1st Sess, 42nd Leg, Ontario, 2020 (assented to 8 December 2020) [Act].
[2] Business Corporations Act, RSO 1990, c B.16 [OBCA].
[3] Act, supra note 1, Schedule 1, s 5.
[5] OBCA, supra note 2, s 118(3).
[6] OBCA, supra note 2, s 104(1).
[7] Act, supra note 1, Schedule 1, s 3(1).
[9] Act, supra note 1, Schedule 1, s 6.
[12] Act, supra note 1, Schedule 1, s 3(2).