The Toronto Stock Exchange (TSX)
announced on February 13, 2014, amendments (Amendments) to the TSX Company
Manual (Manual) mandating majority voting. From June 30, 2014
(Effective Date), the Amendments will require each director of a
TSX-listed issuer, other than directors of a majority-controlled
listed issuer, to be elected by a majority of the votes cast at any
shareholders' meeting other than a contested meeting.
Under Canadian corporate laws, election
of directors by shareholders of a corporation is based on a
"plurality" system under which a shareholder can either
vote for a director nominee or withhold his or her vote.
Shareholders do not have the option to "vote against" a
director. If the number of nominees presented for election as
directors is the same as the number of directors fixed by the
management of a public issuer, management's slate will be
elected even if only one vote "for" is cast for each
director and all other votes are withheld. The corporate law theory
behind such practice is that, while allowing shareholders to
express their objection, a corporation should not be bereft of a
board of directors.
In 2012, the TSX introduced initial
"comply or explain" amendments to its Manual, requiring
an issuer listed on the TSX to elect directors individually; to
hold an annual election for all directors; and to disclose in its
management information circular on an annual basis whether it has
adopted a majority voting policy for directors for uncontested
meetings. If a policy is not adopted, the
TSX-listed issuer must explain its practices for electing
directors and say why it has not adopted such a policy.
The Amendments make it mandatory for
TSX-listed issuers to adopt majority voting provisions. The TSX has
commented that the Amendments will "improve corporate
governance standards in Canada by providing a meaningful way for
security holders to hold individual directors accountable" and
"enhance transparency and improve the governance dialogue
between issuers, security holders and other stakeholders."
New Majority Voting Requirements
The Amendments require that each
TSX-listed issuer adopt a majority voting policy, which is
generally a written policy adopted by a resolution of the board of
directors of the issuer. An issuer does not have to adopt a formal
majority voting policy if it otherwise satisfies the majority
voting requirements of the TSX – for example, if its articles
or by-laws include majority voting provisions. The issuer is
required to fully describe its majority voting policy or provisions
on an annual basis in its management information circular.
Majority voting provisions must provide
that a director immediately tender his or her resignation if he or
she is not elected by at least a majority of the votes cast, other
than in the context of a contested meeting. A "contested
meeting" is defined as a meeting at which the number of
directors nominated for election is greater than the number of
board seats available as fixed by the issuer before the
The majority voting provisions must
also provide that the board of directors accept or refuse (but only
in exceptional circumstances) a tendered resignation within 90 days
of the relevant meeting. Promptly after the board's decision,
an issuer is required to issue a news release communicating the
directors' decision and, if the directors refuse to accept a
resignation, the news release must fully state their reasons.
Issuers that are majority controlled
are exempt from the majority voting requirement. However, such
issuers must disclose annually that they are exempt from the
majority voting requirement and provide their reasons for not
adopting majority voting. "Majority controlled" is
defined as a security holder or company that beneficially owns, or
controls or directs, directly or indirectly, voting securities
carrying 50% or more of the voting rights for the election of
directors, as of the record date for the meeting.
Issuers with fiscal years ending on or
after June 30, 2014, must comply with the Amendments at their first
annual meeting following the Effective Date. Unless exempted, all
TSX-listed issuers are expected to be in compliance with the
Amendments by June 30, 2015.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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