On October 6, 2020, the Government of Ontario introduced Bill 213, Better for People, Smarter for Business Act, 2020 ("Bill 213") to support the province's economic recovery and reduce barriers to doing business in Ontario. If it passes, Bill 213 would bring important changes to the Ontario Business Corporations Act ("OBCA") that, among other things, will:
- Remove the director residency requirements for private and public OBCA corporations; and
- Lower the threshold for passing written, ordinary resolutions for privately-held OBCA corporations
Removal of Director Residency Requirements
Currently, the OBCA requires that at least 25% of the directors of an Ontario corporation be resident Canadians; if there are less than four total directors, then at least one of them must be a resident Canadian. The elimination of this residency requirement would make Ontario the most recent province to implement this change after Alberta passed a similar law earlier this year that removed its director residency requirement.
Director residency requirements have often posed an obstacle for foreign entities looking to carry on business (for instance, as a newly incorporated Ontario corporation, or through the acquisition of an Ontario-incorporated corporation), who might not have individuals who can fulfil the director residency requirements, thereby, forcing such foreign entities to consider incorporating in, or continuing to carry on business in, provinces that don't have director residency requirements. For this reason, this amendment will be welcomed by non-resident Canadian business owners and foreign business owners who wish to incorporate or otherwise carry on business in Ontario, as this will provide them with more flexibility when choosing the composition of their board. This will also be of interest to buyers looking to engage in M&A activity that involves a target incorporated in Ontario, especially if the transaction leads to a change-of-control that may result in a change in board composition.
Lowering Threshold for Passing Ordinary Resolutions for Private Corporations
Bill 213 would also lower the threshold for approval of ordinary resolutions for privately-held corporations formed under the OBCA. The current regime requires that in lieu of calling a shareholder meeting, ordinary shareholder resolutions may be passed in writing by a unanimous vote of all shareholders entitled to vote on that resolution. However, if Bill 213 passes, ordinary resolutions for a privately-held Ontario corporation could be passed in writing if signed by only those shareholders who hold a majority of the shares entitled to vote on that resolution. Once an ordinary resolution is passed this way, the directors would be required to send out a written notice of the resolution within 10 business days to all shareholders who were entitled to vote on the resolution but who did not sign the written resolution.
This lower threshold can be increased if a higher threshold is stipulated in the company's articles, by-laws, or a unanimous shareholder agreement that may require a larger number of votes to pass ordinary resolutions in writing. For this reason, privately-held Ontario corporations should contact their legal counsel to have their constating documents carefully reviewed to ensure their current corporate governance structure would not become subject to more onerous requirements or any undesirable consequences if Bill 213 is passed.
It is often hard for corporations to obtain a unanimous shareholder vote from all affected shareholders, especially for companies with a large number of shareholders or in situations where minority shareholders are apathetic towards the resolution. This new, relaxed threshold will reduce some of these obstacles associated with passing ordinary resolutions in writing by allowing private corporations to approve routine company decisions more quickly and efficiently. However, it is important to note that the proposed amendments will not affect the existing threshold for passing special resolutions in writing, which will still require a unanimous shareholder vote, regardless of whether the corporation is publicly- or privately-held.
Bill 213 is currently in its second reading, and if passed, the proposed amendments would bring much needed changes to the corporate governance structure for OBCA-incorporated corporations that will make Ontario a more attractive option for foreign investors looking to do business in Canada.
Originally Published by Norton Rose, November 2020
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