An Ontario bill that would make several significant amendments to the province's Business Corporations Act (OBCA) is nearing the approval stage. The proposed legislation would eliminate the current requirement that 25% of directors be resident Canadians while, in the case of non-offering corporations only, reducing the approval threshold for a written ordinary resolution to a simple majority.

On November 24, 2020, Ontario's Bill 213 – the Better for People, Smarter for Business Act, 2020 – was referred to the Legislature's Standing Committee on General Government, one of the final steps in the legislative process. The Bill, which is being considered by the Standing Committee on November 30, 2020, includes proposed amendments to a number of statutes in addition to the OBCA amendments contained in Schedule 1. We caution that it is possible that changes will be made to Schedule 1 before the Bill becomes law.

Canadian Director Requirement Eliminated

Section 118(3) of the OBCA currently requires that 25% of the directors of an Ontario corporation be “resident Canadians” (with a minimum of one such person on a board with fewer than four members). When Bill 213 becomes law, Ontario will become the sixth Canadian jurisdiction without a resident director requirement. Notably, the Canada Business Corporations Act (CBCA) still has a 25% resident director requirement.

Eliminating the resident director requirement will make Ontario more attractive as an incorporation jurisdiction. It will no longer be necessary for foreign investors who wish to incorporate in Ontario to find Canadians to serve on their boards (or, alternatively, to choose to incorporate in a province without a director residency requirement). Each of these options can add cost, complication and delay to business transactions.

Simple Majority for Certain Written Resolutions

Section 104 of the OBCA, which allows written resolutions, currently requires all such resolutions to be signed by all shareholders. In the case of private companies, this is a burdensome requirement that can leave the board with no choice but to convene a shareholder meeting in order to pass resolutions dealing with minor matters.

Bill 213 will bring Ontario more closely into line with many other jurisdictions by reducing the approval threshold for written ordinary resolutions in non-offering OBCA corporations (essentially private companies) to a simple majority, provided that written notice is then provided, within 10 business days, to non-signing shareholders who were entitled to vote on the resolution. This will eliminate the time and expense involved in obtaining the consent of small shareholders, or (alternatively) the delay in providing notice and holding a meeting, for minor housekeeping matters.

It is important to note, however, that the OBCA will continue to require either a two-thirds vote at a shareholder meeting or a unanimous written resolution for any proposal that, under the Act, must be approved by a special resolution. Such proposals include – among others – adoption of an amalgamation agreement (s. 176(4)), continuances to other jurisdictions (s. 181(3)), additions or reductions to stated capital (ss. 24(6); 34(1)), alteration of the number of directors (s. 125(3)) and other situations that often arise in transactional contexts.

Going Forward

The articles, bylaws and shareholder agreements of some non-distributing OBCA corporations may contain provisions on the topics discussed above that are more restrictive than what is envisaged in Bill 213. In such cases, these corporations may wish to review those documents and consider amendments that would allow the new OBCA standards to apply to them, while also ensuring that their processes and record-keeping practices align with the new written-resolution thresholds and timeframes.

Finally, a non-distributing OBCA corporation may wish to reconsider the composition of its slate of directors going forward. Once Bill 213 is in force, such corporations will be better able to ensure that their boards have the best possible range of business oversight and corporate governance expertise.

Originally Published by Stikeman, November 2020

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