Business Consulting

New changes in the Ontario Business Corporations Act

May 6, 2022

A female business owner who is contemplating the Ontario Business Corporations Act

The Government of Ontario has made changes to Ontario’s Business Corporations Act (OBCA) that went into effect in 2021. In addition, important changes were made to selected provisions of Bill 213, or the Better for People, Smarter for Business Act, 2020. The changes incorporate two key amendments that impact the corporate governance of Ontario corporations and provide greater flexibility for foreign investors. These amendments were much anticipated as they are likely to attract foreign investors while making Ontario an appealing location for businesses to incorporate.

Residency Requirements for Corporate Directors

Previously, under the OBCA (Sec. 118(3)), at least 25 percent of the directors of a corporation had to be Canadian residents, a requirement that posed many challenges to foreign businesses seeking to incorporate in Ontario. In addition, if a business had less than four directors, it meant that at least one had to be a resident of Canada. As a result, many foreign businesses and multinational corporations had to incorporate in other Canadian jurisdictions where there was no director residency requirement. The corporations had to find a Canadian resident to act as a director.

However, the new changes amended the OBCA and eliminated that requirement, and corporations governed by the OBCA will no longer be required to have any residency requirements for corporate directors. Many critics often argued that this old rule prioritized Canadian residents as the primary criteria to be on the board, thus denying companies the opportunity to choose the best candidates based on knowledge and experience.

The old rule also required that any investors who want to do business in Ontario either incorporate or have a resident of Canada sit on the board. Most provinces in Canada do not require directors to have Canadian residence, and Ontario was the only province that had this stipulation. Therefore, the change will bring Ontario to par with other Canadian provinces and territories, making Ontario an attractive jurisdiction for businesses to incorporate. This act is a welcome amendment, and it will give businesses greater flexibility when choosing board members based on their knowledge and experience as opposed to their place of residence.

As a result of this change, many multinational and foreign businesses that currently have or are looking to establish a corporate presence in Ontario will find it easier to do so – including Canadian portfolio companies of foreign private equity funds and special purpose vehicles incorporated for cross-border acquisitions. Note that the Corporations will still be required to indicate a director’s place of residency in the article and corporate fillings. The Ministry intends to collect director residency data in anticipation of the Ontario Business Registry, recently launched.

Passing Written Ordinary Resolutions

Another key change that was made to section 104(1) of the OBCA, involves where it was previously required that all written ordinary resolutions must be signed by all the shareholders entitled to vote on the resolution at a meeting of the shareholders aiming to achieve unanimous shareholder approval. However, this presented several challenges, especially for private corporations that are widely held.

To obtain the signatures of all shareholders of a corporation, a meeting was held, which was a rather burdensome process because it depended on the number of shareholders that could vote on a resolution and the cooperation of each shareholder. The more shareholders the private corporation had, the more burdensome and costly the process became. For this reason, many corporations choose to hold in-person shareholder meetings.

The new amendment has lowered the threshold for shareholder approvals for privately held OBCA corporations for a written resolution, which only requires the signatures of the persons holding the majority of the corporation’s shares. For voting shareholders who did not sign a written resolution, the corporation must notify them of the resolution within ten days following the resolution passing. Note that this amendment only applies to ordinary resolutions order matters. Those corporate actions that require approval by special resolution, such as amending a corporation’s articles, dissolutions, amalgamations, etc. will still require either a resolution passed by two-thirds of the votes cast at a meeting (as it is currently) or a resolution consented to in writing by all shareholders entitled to vote on the matter.

The above change is meant to streamline the decision-making process while also giving certain voting shareholders, in particular minority shareholders, an opportunity to be consulted on fundamental changes to the corporation. It is also important to note that the above amendment does not apply to the requirement to obtain a written waiver from each shareholder to relieve the corporation’s obligation to appoint an auditor and prepare audited financial statements.

Contact KSSP Partners LLP in Markham for Experienced Financial and Business Advice

While the OBCA amendments now provide greater efficiency to Ontario corporations, these amendments may not directly apply to your corporation. The corporation’s by-laws, articles, and shareholder agreements govern the corporation’s processes, which means that your corporation may have more stringent requirements. The corporation is bound by its provisions until amendments are aligned with the OBCA.

The trusted business advisors at KSSP Partners LLP can answer any questions you may have about the OBCA amendments. They can also advise you on how your corporation can adapt to these statutory changes. Contact us online or by telephone at 289-554-5997.