Important changes to the Business Corporations Act (Ontario) (the OBCA) are expected to come into effect on July 5, 2021. On this date, the Lieutenant Governor of Ontario is scheduled to proclaim into force selected provisions of Bill 213, or the Better for People, Smarter for Business Act, 2020, which will repeal and amend provisions of the OBCA. These changes, which were analyzed in a previous Dentons insight article when Bill 213 was introduced, will impact ordinary course corporate governance of Ontario corporations and provide greater flexibility to foreign investors looking to incorporate a company in Ontario.
Removal of director residency requirements
Upon the proclamation of the OBCA amendments, corporations governed by the OBCA will no longer be required to maintain a minimum number of resident Canadians on their corporate boards. Currently, at least 25% of the directors of an OBCA corporation must be a resident Canadian (or at least one resident Canadian director if the board consists of three directors or less). As of July 5, 2021, section 118(3) of the OBCA will be repealed so that all of the directors of an OBCA corporation can be non-residents of Canada. This reform will naturally be attractive to multinational and foreign businesses that currently have, or are looking to establish, subsidiaries in Canada; Canadian portfolio companies of foreign private equity funds that would typically have members of the sponsor serving on the board; and for special purpose vehicles incorporated for cross-border acquisitions in Canada. Under the current regime, these organizations must resort to incorporating in other Canadian jurisdictions where no such requirement exists or else finding a resident Canadian – either a local manager or outside director through a corporate services provider – to act as a director. The latter option is often accompanied by a unanimous shareholder agreement that restricts the powers of the board of directors. Each of these options may carry with it significant costs and complications. The repeal of the director residency requirement will therefore reduce the burden on foreign investors looking to maintain a corporate presence in Ontario.
OBCA corporations will still be required to include director residency information in their filings with the Ontario Ministry of Government and Consumer Services (the Ministry) for the foreseeable future. To that end, the definitions of "non-resident corporation" and "resident Canadian" are preserved in the OBCA. The Ministry intends to collect director residency data in anticipation of the Ontario Business Registry, which is currently expected to launch sometime in 2021. The Ontario Business Registry will consist of an online registry of all businesses and not-for-profits registered, incorporated or licensed to carry on business in Ontario that will allow users to, among other things, register a business name, update their corporation's information, dissolve their entity and effect other transactions.
Lowering threshold for shareholder approvals
The OBCA amendments will also reduce the approval threshold required to pass a written resolution of the shareholders. Currently, section 104(1) of the OBCA requires a written resolution of the shareholders to be signed by all shareholders of the corporation entitled to vote on the resolution. As of July 5, 2021, a written resolution will require only the signatures of persons holding a majority of the corporation's shares. This lower threshold will only apply to non-offering corporations (i.e. privately-held corporations) and for ordinary resolutions. It will not apply to offering corporations (i.e. public corporations) and matters requiring approval by way of a special resolution. In addition, the corporation must provide written notice to any shareholder that does not sign but is otherwise entitled to sign a written shareholder resolution within 10 business days after the resolution is signed.
For private corporations that are widely-held, this is a welcome change. Obtaining the signatures of all shareholders of a corporation can often be a burdensome process, either due to the large number of shareholders or if any one shareholder is uncooperative and holds out on signing the resolution. For this reason, many corporations choose to hold shareholder meetings, which also yield significant costs and delays.
A note of caution
While the OBCA amendments will provide greater flexibility to Ontario corporations beginning on July 5, 2021, these amendments may not immediately apply to a corporation if its by-laws, articles or any unanimous shareholder agreement entered into by its shareholders imposes more stringent standards. For example, it is common practice for a corporation's by-laws to duplicate the provisions of the applicable corporate statute. Therefore, a corporation's by-laws may contain the pre-amendment resident director and shareholder resolution requirements. The corporation would continue to be bound by these provisions unless and until the by-laws are amended to align with the amended OBCA. These documents should be carefully reviewed if a corporation wishes to take advantage of these corporate reforms.
This article was authored with the assistance of student Ana Iordache.
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