Canada: Proposed Changes to the Ontario Corporations Act

Last week, the Ontario government introduced legislation that confirms charities can make social investments, helps modernize the Ontario Corporations Act (OCA) and makes technical amendments to the Not For-Profit Corporations Act, 2010 (ONCA).

Social Investments

The legislation proposes to add provisions to the Charities Accounting Act that confirm a charity can invest in a social investment that directly furthers the purpose of the charity.  These are welcome changes that will help charities engage in social investing.  We will review these provisions in detail in our next publication.

OCA and ONCA

The ONCA was passed by the Ontario Legislature in 2010 and will come into force on a day to be named by proclamation.  Previously, the Ontario government confirmed that two steps must be completed before the ONCA can be proclaimed in force: technical amendments to the legislation must be passed; and the government must upgrade its technology.

The legislation proposes to make the necessary technical amendments to the ONCA.   However, even after these changes are made, the legislation cannot come into force until the government makes changes to its technology that are necessary to accommodate the ONCA.  To address this delay, the proposed legislation also aims to modernize portions the OCA.

Do Ontario non-share capital corporations need to take action?

Most of the proposed changes are permissive.  However, corporations that do not want electronic notices or electronic meetings will need to take steps to prevent these options.

Thus, most corporations do not need to amend their documents in response to these changes. This will be a welcome relief to Ontario non-share corporations, given that they will still need to amend their governing documents to conform to the ONCA within three years after it comes into force.

The changes certainly improve the OCA.  However, corporations that want a more fully-modernized statute may still wish to continue under the Canada Not-For-Profit Corporations Act as described here in our previous newsletter.

Proposed Legislative Changes to the OCA

Electronic Meetings

The proposed legislation allows for meetings to be held by telephonic or electronic means.  This change should be welcomed by most Ontario non-share corporations.  Corporations that want to prevent electronic meetings will need to amend the corporation's by-laws to prohibit electronic meetings.

Electronic Notice for Members Meetings

The wording of the member notice provisions has been changed to allow for electronic notices of meeting, unless the by-laws of the corporation provide otherwise.  Corporations that want to prevent electronic notices should amend the corporation's by-laws to prohibit them.

Directors as Members

The proposed legislation allows corporate by-laws to permit a person to be a director of a corporation without being a member of the corporation. Some corporations may still wish to have directors who are members, and this approach is fine.  However, corporations that do not want this structure can change their governing documents and take advantage of this new flexibility.

Full Natural Person Capacity and Powers

Under the OCA the powers of a corporation are limited to those powers enumerated in the OCA and the corporation's governing documents.  The proposed legislation amends this by granting corporations the rights, powers and privileges of a natural person, subject to any restrictions placed in the corporation's governing documents.  This change should be welcomed by corporations.

Pre-Incorporation Contracts

Consistent with other jurisdictions in Canada, the OCA is proposed to change to allow corporations to adopt contracts entered into prior to incorporation.

Standard of Care of Directors

The legislation proposes to change to an objective standard of care for directors.  Directors will be required to act honestly and in good faith with a view to the best interests of the corporation and exercise the care, diligence and skill that a reasonable prudent person would exercise in comparable circumstances.  This is also the standard of care that will apply when the ONCA comes into force.

Removal of Directors

The OCA currently provides that the governing documents of a corporation can provide members with the right to remove directors by resolution passed by at least two-thirds of the votes cast at the meeting.  However, where these documents are silent, members do not have this right.  Consistent with the ONCA, the proposed legislation will allow directors to be removed at a meeting by a majority vote of the members that elected the director.  The resulting director vacancy can be filled by the members or the directors as currently set out in OCA. This provision will be particularly helpful where the by-law is silent on the removal of directors.

An ex officio director cannot be removed under this provision.  An ex officio director is a director that is not elected, but is a director by virtue of his or her position elsewhere.

Note that this section does not apply to change any provision respecting the removal of directors in the governing documents of a corporation before the proposed legislation comes into force.

Audit provisions

Currently the OCA requires all corporations have an audit each year, unless the income of the corporation is less than $100,000 for the year and all members consent in writing to an exemption.  The proposed legislation lowers this to require 80% of the members at a meeting vote in favour of an audit exemption.  The annual revenue of the corporation must be no more than $100,000 or such other amount prescribed under the regulations of the OCA.   This change will make audit exemptions more feasible.

Continuance Protection

The proposed legislation confirms that corporations can only continue to another jurisdiction, if the laws of that jurisdiction provide for the continuance of assets, and liabilities of the corporation.

Extraordinary Sale, Lease or Exchange

The proposed legislation allows a corporation to sell all or substantially all of its assets if authorized to do so by a resolution of the directors and the two-thirds of the members.

Conflicts of Law

The OCA is amended to provide that where a corporation has exclusively charitable purposes if a provision of the OCA or its regulations conflicts with a law relating to charities, then the law relating to charities prevails regardless of whether it is a principle of the common law or equity.  Thus, the OCA rules will not prevail over other laws impacting charities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.