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Ontario Proposes Changes to Business Corporations Act

Ontario Proposes Changes to Business Corporations Act
October 9, 2020

On October 6, 2020, the Government of Ontario introduced for first reading Bill 213, Better for People, Smarter for Business Act, 2020 (Act), which, if enacted, will make two significant amendments to the Ontario Business Corporations Act (OBCA). These proposed changes include elimination of the director residency requirement for OBCA corporations and, in the case of privately held OBCA corporations, more flexible rules regarding the approval of written shareholder resolutions. The Act would also make numerous amendments to other legislation with the stated aim of easing regulatory burdens in the province.

DIRECTOR RESIDENCY REQUIREMENT

Currently, at least 25 per cent of the directors of an OBCA corporation are required to be “resident Canadians,” as defined in the OBCA. If passed into law, the Act would repeal this requirement, a welcome amendment which would give businesses greater flexibility in determining board composition having regard to expertise and representation, rather than place of residence. The change would also remove a significant disincentive for foreign-based businesses to choose Ontario as a jurisdiction for incorporating their Canadian subsidiaries and would bring Ontario in line with the majority of Canadian provinces and territories in this regard, although federally-incorporated corporations still must abide by a 25 per cent residency requirement. As noted in our August 2020 Blakes Bulletin: Restoring the Alberta Advantage: Increased Simplicity for Business, Alberta has also recently removed director residency requirements as part of this trend.

ORDINARY RESOLUTIONS IN WRITING

Currently, written resolutions of the shareholders of OBCA corporations must be signed by all shareholders that are entitled to vote on the resolution at a meeting of shareholders. If a corporation is unable to obtain the signature of any one unresponsive or uncooperative shareholder, the alternative is to call and hold a shareholder meeting at which the resolution may be voted on, with all the costs and delays associated with organizing such a meeting.

If passed into law, the Act will lower the threshold of approval for written ordinary resolutions of privately held OBCA corporations from unanimity to holder(s) of a majority of shares entitled to vote on the resolution. This new default approval threshold will be subject to provisions in a corporation’s articles or unanimous shareholders’ agreement (USA) that require greater than a simple majority of votes to pass an ordinary resolution, in which case the higher threshold set out in the articles or USA would be the minimum level of approval for resolutions in writing.

Under the proposed amendment, although minority shareholders will not be entitled to receive advance notice of a resolution, the corporation would be required to provide notice to voting shareholders who are not signatories to a written resolution within 10 business days after the resolution is passed. In addition, as the proposed amendment will only apply to ordinary resolutions and not special resolutions typically required for significant corporate matters, the Act seeks to strike a balance between streamlining the approval process for more routine business decisions, while ensuring that minority shareholders have an opportunity to be consulted on, and exercise dissent rights in connection with, fundamental changes to the corporation and its business.

Assuming the Act becomes law, OBCA corporations would be wise to review their current articles, by-laws and USAs to ensure that this change to the long-standing rules regarding written shareholder resolutions do not create any undesirable outcomes within their existing corporate governance arrangements.

For further information, please reach out to a member of our Corporate & Commercial or Capital Markets groups or your usual Blakes contact at any time.

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