PROPOSED AMENDMENTS TO ONTARIO’S BUSINESS CORPORATIONS ACT MAY MAKE ONTARIO A MORE ATTRACTIVE CANADIAN JURISDICTION
On October 6, 2020, the Honourable Prabmeet Sarkaria, Associate Minister of Small Business and Red Tape Reduction, introduced Bill 213, Better for People, Smarter for Business Act, 2020 (“Bill 213”) to support the province’s economic recovery and reduce barriers to doing business in Ontario. Bill 213 proposes two important amendments to the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”):
- Repealing the requirement that each OBCA corporation have a minimum percentage of resident Canadian directors. Currently, at least 25% of the directors of an OBCA corporation must be resident Canadians.
- Enabling holders of a majority of the shares in a non-offering corporation to pass an ordinary resolution by resolution in writing without calling a meeting and without the consent of the minority shareholders.
Directors’ Residency Requirement
The most noteworthy of the OBCA amendments is the repeal of the directors’ residency requirement in section 118(3).
The OBCA currently requires that at least 25% of the directors of a corporation incorporated in Ontario shall be resident Canadians. The residency requirement used to be common in most jurisdictions in Canada; however, British Columbia, Quebec, Nova Scotia and New Brunswick abolished this rule years ago and Alberta recently followed suit.
Director residency requirements have often posed an obstacle for foreign entities considering carrying on business in Ontario where those entities do not have resident Canadians who can fulfil the director residency requirements. In such cases, in my experience, many foreign entities entering Canada have chosen to incorporate in British Columbia because it does not have this residency requirement. For this reason, this is a welcome amendment that will provide non-resident Canadian business owners and foreign business owners with more flexibility when choosing the composition of their Ontario board.
If Ontario repeals the requirement, the residency rule will only remain under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”) and three provinces: Manitoba, Newfoundland & Labrador and Saskatchewan. The remaining provinces and territories have no residency requirement.
Ordinary Written Resolutions
The other important amendment is the addition of section 104(1)(c) to the OBCA, which, if it is passed and comes into force, will enable the holders of at least a majority of the voting shares to pass a resolution in writing, without input from the minority.
Currently, all shareholders entitled to vote on the resolution must sign the resolution. In effect, the amendment would lower the requirement from 100% of the voting shareholders to 50.1%. Instead of requiring that the resolution be discussed and voted on at a meeting of shareholders before being passed, minority shareholders who do not sign the resolution must receive notice that the resolution was passed. The notice must be given within 10 days after the resolution is passed, describe the resolution and state why the business was dealt with by a resolution in writing.
Instead of being treated as having a right to speak and vote before the resolution is passed, minority shareholders can simply be told about it afterwards.
For private companies, holding meetings for routine matters can be costly and time-consuming. The COVID-19 pandemic has also made it hard to justify otherwise unnecessary meetings. At the same time, it is often hard for corporations to obtain approval from every voting shareholder, especially for companies with a large number of shareholders or in situations where minority shareholders do not support the resolution. This new, relaxed threshold will reduce some of these obstacles associated with passing ordinary resolutions in writing by allowing private corporations to approve routine company decisions more quickly and efficiently.
The majority gains the right to dispense with calling a meeting of shareholders to consider an ordinary resolution when it does not feel it needs to hear what minority shareholders have to say. A meeting of shareholders of a non-offering corporation requires a minimum notice of 10 days; a resolution in writing saves that time.
A company must still go to 100% of its shareholders for certain matters, though: all shareholders must still sign a written resolution for fundamental changes, like an amendment to the articles or an amalgamation. In addition, the requirement to obtain the consent of all shareholders (including non-voting shareholders) to exempt a private corporation from the annual audit requirement will remain.
Note that the new statutory provision does not override provisions of the articles, by-laws or unanimous shareholders agreement (“USA”) requiring that all shareholders sign the resolution in writing. For example, the articles, by-laws or USA may define an ordinary resolution as requiring a majority of votes cast at a meeting of all shareholders or a written resolution signed by all voting shareholders. If so, the by-law will have to be amended before the corporation relies on the ability to pass resolutions in writing with only holders holding a majority of shares signing the instrument. USAs will also have to be reviewed before a corporation relies on the new rule.
