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This summer, two small but important amendments to the Business Corporations Act (Ontario) came into effect. These amendments eased restrictions on governance so that Ontario businesses can operate more efficiently, ensuring consistency with other Canadian jurisdictions.
Effective July 5, 2021, the new amendments also reduced approval thresholds for written shareholder resolutions and led to the removal of Canadian residency requirements for directors.
Reduced approval thresholds for written business shareholder resolutions
Prior to July 5, 2021, if a corporation wanted to pass a written ordinary resolution in lieu of a shareholder meeting, the resolution had to be signed by all shareholders entitled to vote on that issue, thus achieving unanimous shareholder approval. Obtaining a signature from every single shareholder to pass a written resolution could be unfeasible, especially for more widely held corporations. And because passing an ordinary resolution with a simple majority was only possible at a shareholder meeting, boards had no choice but to call expensive, time-consuming shareholder meetings to handle minor resolutions. For routine tasks like adopting bylaws, appointing an auditor or electing directors, calling unnecessary shareholders’ meetings was a burden for companies with numerous or unresponsive shareholders.
With the recent amendments to the Ontario Business Corporations Act (the “OBCA”), the threshold has been reduced so that private Ontario corporations can implement an ordinary written resolution if it has been approved (and signed) by shareholders representing a majority of the shares entitled to vote on the resolution. The goal is to simplify the approval process so boards can more efficiently complete routine tasks without the heavy burden of acquiring unanimity or calling otherwise unnecessary shareholder meetings.
For any entitled shareholders who did not sign, the corporation must give them written notice of the resolution within 10 days of it being approved by the majority.
Ontario corporations should review their articles or unanimous shareholder agreement to see if they have higher voting thresholds in place, which would restrict their ability to use these new rules. If your bylaws require more votes than a simple majority to pass an ordinary resolution, these previsions take precedence over the OBCA amendments.
The amendments only apply to written ordinary resolutions, not special resolutions that still adhere to the unanimity requirement, including:
- Amalgamations;
- Dissolutions;
- Amendment of the articles;
- Sale of all or substantially all of the assets of a corporation.
Removal of Canadian residency requirements for Directors
Previously, at least 25 percent of directors of an Ontario corporation had to be resident Canadians. For businesses with less than 4 directors, this means at least one had to be a resident Canadian. Ontario was an outlier on this point; most other Canadian provinces and territories do not require directors to be resident Canadians. Foreign investors wanting to do business in Ontario or global organizations looking to establish subsidiaries had to either incorporate elsewhere or recruit a resident Canadian to sit on their board to simply fulfill the requirement.
As of July 5, this section of the OBCA has been repealed and there are no residency requirements in place for directors of Ontario corporations. Critics of the old rule felt that this unnecessary restriction prioritized residency as the primary criteria for board qualification, potentially disallowing companies from choosing the best candidates based on their knowledge and experience.
It’s worth noting that Ontario corporations are still required to include director residency information in their articles and corporate filings, as the province shifts to focusing on disclosure.
Conclusion
These two changes will allow more businesses to incorporate locally and will be a significant benefit to corporations looking to reduce the drain of unnecessary shareholder meetings. Removing the burden of unanimity when passing ordinary written resolutions allows businesses to be flexible and efficiently take care of routine maintenance while still protecting shareholder rights.
If you need help with business issues the Zeifmans team is here to assist. Contact us today.
