Law And Practice
1. Introductory
1.1 Forms of Corporate/Business Organisations
The principal form of business organisation in Canada is the business corporation which affords shareholders limited liability protection, and Canada has 14 different business corporations statutes under which these can be incorporated. The Canada Business Corporations Act (CBCA) is Canada's federal business corporations statute. Each of Canada's 13 provinces and three territories also has its own business corporations statute. However, these are generally modelled on the CBCA such that, in most cases and subject to limited exceptions (such as director residency requirements), there is generally little substantive difference among them practically speaking. Several provincial business corporations statutes in Canada provide for unlimited liability corporations, which may be advantageous as part of cross-border tax planning (but which do not necessarily provide shareholders the same extent of limited liability protections that business corporations do).
1.2 Sources of Corporate Governance Requirements
The principal sources of corporate governance requirements in Canada are the business corporations statute under which the company is incorporated and, if the company is publicly listed in Canada, Canadian securities laws. Also, while not technically binding or obligatory, corporate governance practices in Canada can be significantly impacted by various non-legal sources such as proxy advisory firm recommendations and contemporary industry best practices.
A particularly notable non-legal source of corporate governance practice in Canada is the potential influence of Canadian institutional investors such as pension funds. Many of these investors have distinct expectations regarding various corporate governance matters, including as relates to such issues as diversity, equity and inclusion (DEI) and sustainability, and they can proactively exert pressure on their portfolio companies towards these ends. This pressure can sometimes be significant, including where institutional investors together hold a sizeable shareholding and because many Canadian public companies are not as widely-held as more often occurs in certain other jurisdictions.
Overall, corporate governance in Canada continues to evolve and is an area of acute interest among companies, investors, regulators and other market participants.
1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares
Publicly traded companies in Canada are subject to various corporate governance rules and guidelines of both mandatory and voluntary application. Mandatory requirements are imposed principally by the company's governing corporate statute (see 1.1 Forms of Corporate/Business Organisations) or by applicable securities laws. Voluntary requirements result principally from non-legal sources such as the expectations of institutional investors (eg, pension funds; see 1.2 Sources of Corporate Governance Requirements), proxy advisory firm recommendations, and contemporary industry best practices.
Notwithstanding the 14 different corporations statutes (federal, provincial and territorial; see 1.1 Forms of Corporate/Business Organisations) available in Canada, the majority of Canadian public companies are incorporated under the CBCA. This makes the CBCA the most relevant Canadian corporations statute when discussing the corporate governance of Canadian public companies. Regarding securities laws, Canada does not have a national securities regulator similar to the Securities and Exchange Commission (SEC) in the United States. Instead, each province and territory generally has its own securities statutes and securities regulators. That said, there is significant harmonisation among these various securities laws, including further to the work of the Canadian Securities Administrators (CSA), which is an umbrella organisation of Canada's provincial and territorial securities regulators whose mandate is to improve, co-ordinate and synchronise the regulation of Canadian capital markets.
The two principal Canadian stock exchanges are the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV) and each of these have listing rules. However, these rules do not factor prominently as relates to corporate governance matters, which are generally left to Canadian corporate law and securities law.
2. Corporate Governance Context
2.1 Hot Topics in Corporate Governance
There are several current "hot topics" in corporate governance in Canada. These include (i) economic uncertainty posed by trade and tariff policies, (ii) diversity, equity and inclusion (DEI) matters, (iii) relatively new legislation addressing forced labour and child labour in supply chains, and (iv) relatively new legislation imposing corporate transparency and disclosure obligations. For discussion of "hot topics" involving ESG considerations, including regarding climate change disclosure, see 2.2 ESG Considerations. Economic uncertainty posed by the evolving trade and tariff policies of the new US administration is creating risks of varying degrees for different Canadian companies. The challenge for Canadian boards is to respond appropriately as warranted by the company's particular exposure and risk profile, including, for example, more regular meetings with management to discuss response strategies.
DEI is another area of recent focus for the CSA (see 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares). In early 2023, it published for comment a proposed rule that would require enhanced disclosure from non-venture issuers regarding how the issuers identify and evaluate new candidates for nomination to a company's board and how diversity is incorporated into those considerations. In particular, the CSA sought input on (i) whether the enhanced regime should require specific disclosure with respect to Indigenous peoples, LGBTQ2SI+ persons, racialised persons, persons with disabilities, or women, or (ii) whether the specific disclosure should be limited to women on a company's board and allow for voluntary disclosure with respect to other under-represented groups. In April 2025, the CSA announced it was pausing this matter to (i) support Canadian markets and issuers as they adapt to recent developments in the global and geopolitical landscape (ie, trade and tariff uncertainty), and (ii) focus on initiatives to make Canadian capital markets more competitive, efficient and resilient. However, the CSA also stated it expects to revisit the matter in the future. See also 6.2 Disclosure of Corporate Governance Arrangements.
Regarding forced or child labour in supply chains, Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act (FCLA) entered force in January 2024. The FCLA requires covered entities to file annual reports addressing the risk of forced or child labour in their supply chains, both in Canada and internationally. The reports must also address the company's related due diligence processes and employee training, if any. Covered entities include companies listed on a Canadian stock exchange or doing business in Canada that meet at least two of the following three thresholds for at least one of the last two financial years: at least (i) CAD20 million in assets, (ii) CAD40 million in revenue, and/or (iii) 250 employees.
Regarding corporate transparency, several Canadian corporate statutes (see 1.1 Forms of Corporate/Business Organisations) now require the disclosure of information regarding individuals with significant control over privately owned companies. For example, the CBCA requires the identification of any person owning or controlling 25% or more of the company's shares, whether individually or together with related persons. This has been the case since 2019. However, in 2024 the CBCA was amended to add a federal register of individuals with such significant control, parts of which register are publicly available. The aim of the disclosure is to assist authorities in fighting money laundering, tax evasion and similar illegal activities, and the legislation includes whistle-blower protections. Penalties for non-compliance include a maximum fine of CAD1 million.
For further discussion, including recent developments in ESG or sustainability reporting, see 2.2 ESG Considerations.
2.2 ESG Considerations
ESG reporting in Canada remains fluid as public companies continue to consider how best to approach ESG disclosure and build reliable internal systems to address evolving stakeholders' demands.
Key issues in ESG reporting in Canada have recently included:
- board oversight, where boards are taking a more active role in ESG oversight, with increasing involvement from audit committees;
- executive compensation, where some companies are incorporating ESG metrics into their short-term executive compensation decisions;
- reporting frameworks, where sustainability reports are becoming a key tool for ESG disclosure and with companies referencing one or more frameworks in their reporting;
- assurance, where companies are increasingly obtaining third-party assurance (typically limited assurance) for specific ESG disclosures;
- greenhouse gas (GHG) reporting, where some companies are addressing GHG emissions reduction targets;
- indigenous engagement, where some Canadian public companies are disclosing policies focused on engagement and reconciliation, particularly companies in Canada's resources and finance sectors (see also 2.1 Hot Topics in Corporate Governance);
- forced labour and child labour, where Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act has recently entered force; and
- shareholder proposals, where Canada's financial services industry receives the most ESG-related shareholder proposals.
Relatedly, the authors have begun witnessing the ESG disclosure of Canadian public companies shift from employing "ESG" terminology to broader "sustainability" terminology.
It remains unclear whether Canadian securities regulators will impose mandatory climate-related disclosure. Such requirements had been under development and were expect to be released toward the end of 2025. However, in April 2025 the CSA announced it was pausing this matter to (i) support Canadian markets and issuers as they adapt to recent developments in the global and geopolitical landscape (ie, trade and tariff uncertainty), and (ii) focus on initiatives to make Canadian capital markets more competitive, efficient and resilient. However, the CSA also stated it expects to revisit the matter in the future. The CSA also reminded reporting issuers that climate-related risks are "mainstream business issue and securities legislation already requires issuers to disclose material climate-related risks affecting their business in the same way that issuers are required to disclose other types of material information".
A related notable development is the passage of significant changes to Canada's Competition Act requiring companies to substantiate representations regarding the environmental or climate benefits of their products, services or business activities. This includes the introduction (beginning in June 2025) of a private right of action regarding greenwashing claims. Since the passage of the legislation, some Canadian companies have responded by reducing or withdrawing related voluntary ESG disclosure.
3. Management of the Company
3.1 Bodies or Functions Involved in Governance and Management
The management of Canadian companies is principally conducted by the CEO, CFO and the other members of the executive management team. The authority of management is as delegated to management by the board of directors. Best practice in Canada is for the board to devise a formal mandate for itself together with an associated delegation of authority to management.
3.2 Decisions Made by Particular Bodies
Best practice in Canadian corporate governance is for shorter term and general operational decision-making to be delegated by the board to management and for the board to retain authority over longer term and "bigger picture" issues. Matters over which the board retains authority are often allocated to board committees.
Audit committees are required at Canadian public companies. The committee must be composed of a minimum of three members and, subject to limited exceptions, each member must be independent.
Other common committees include a compensation committee, a corporate governance committee, an environmental or ESG committee, a nominating committee, a disclosure committee, a pension committee, a risk committee, a safety committee and/or a finance committee. The number and nature of committees formed by the board is generally a function of the size of the company and the nature of its business. Best practice is for a committee to be comprised of board members who have expertise in the particular area of the committee's mandate.
Special board committees are typically formed in certain circumstances, such as in connection with a possible change of control transaction (eg, an unsolicited takeover bid), in relation to an internal investigation (eg, regulatory noncompliance), or in response to an emergency or crisis situation (eg, a data breach).
3.3 Decision-Making Processes
Canadian corporate law limits the board's ability to delegate its authority in that certain decisions are within the sole authority of the directors. For example, under the CBCA, only the board may (i) submit to shareholders matters requiring their approval, (ii) declare dividends, (iii) approve financial statements for distribution to shareholders, (iv) approve a management proxy circular, takeover bid circular or other circular, or (v) amend or repeal the company's by-laws. However, committees can (and often do) advise on these matters before the full board makes a final decision.
Even where it is legally permissible to delegate decision-making to a board committee or management, best practice in Canada is for the board to carefully consider whether to do so. Typically, matters of strategic importance or material policy, while sometimes at first instance the responsibility of a committee, are reserved for final determination by the board (eg, after the committee has made its recommendations). For example, while risk committees have become common at large Canadian public companies, ultimate authority over the "risk-reward" balance to be assumed at the enterprise level is often reserved for the full board.
4. Directors and Officers
4.1 Board Structure
Canada's business corporations statutes prescribe basic requirements regarding board structure. Private companies are generally required to only have a single director. Public companies are generally required to have a minimum of three directors, at least two of which are not officers or employees of the company or its affiliates. Typically, a public company's articles will allow for a range in the number of directors so that the board can be expanded or reduced as circumstances warrant and without having to amend the company's articles. In order to fulfil its duties, a board should have sufficient directors for its own direct needs and to serve on the board's committees.
4.2 Roles of Board Members
The allocation of roles and responsibilities among board members is generally approached on a case-by-case (ie, company-specific) basis in Canada. Best practice is to develop and implement a formal mandate for the board, which includes a considered delegation of authority to management. Best practice in Canada is also for the board to continually evaluate which specific skill sets are most relevant to its needs and which of those might be absent and thus should be added.
4.3 Board Composition Requirements/ Recommendations
Several of Canada's business corporations statutes impose residency requirements. For example, under the CBCA, a minimum of 25% of the company's directors must be resident Canadians. For requirements relating to board size, see 4.1 Board Structure. For requirements relating to director independence, see 4.5 Rules/Requirements Concerning Independence of Directors. In addition, public companies are required to have audit committees composed of directors that are independent directors (see 4.5 Rules/ Requirements Concerning Independence of Directors) and that are financially literate.
4.4 Appointment and Removal of Directors/Officers
In Canada, shareholders elect the company's directors at the company's AGM or at a special meeting called, in whole or in part, for the election of directors. Directors are generally removed either by being replaced at a subsequent AGM or by resolution at a special meeting held between AGMs. Majority voting applies to uncontested elections at companies governed by the CBCA or listed on the TSX or other nonventure exchanges. The board appoints the company's officers and these officers serve at the pleasure of the board.
4.5 Rules/Requirements Concerning Independence of Directors
There are different definitions of "independence" as it relates to corporate governance in Canada. The CBCA provides that a director is independent if they are not employed by the company or any of its affiliates. Canadian securities laws define independence as the lack of "material relationship" with the company.
A material relationship is defined as one which could be reasonably expected to interfere with the exercise of independent judgement. Certain relationships are automatically deemed to be material, including being a current or recent executive officer (or other employee) of the company or being a current or recent partner (or employee) of the company's auditor.
Canadian securities laws also require that public companies disclose which directors are independent and which are not. Where a majority of the board does not qualify as independent, the company must disclose what the board does to ensure the independent exercise of judgement in fulfilling its duties. Canadian securities laws also require that all members of an audit committee are independent and provide guidance (which is adhered to by almost all public companies) that all members of a compensation committee should be independent.
Directors must disclose the nature and extent of any conflict of interest they have in a material contract or material transaction, whether made or proposed, with the company where the director (i) is a party to the contract or transaction, (ii) is a director of a party to the contract or transaction, or (iii) has a material interest in a party to the contract or transaction. Subject to limited exceptions (see 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers), the director cannot vote on any board resolution relating to the contract or transaction.
For a discussion of key legal issues related to nominee directors, see 5.1 Relationship Between Companies and Shareholders.
4.6 Legal Duties of Directors/Officers
The principal legal duties of officers and directors under Canadian corporate law are twofold: the duty of care and the duty of loyalty.
Satisfying their duty of care in managing the company requires that officers and directors exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. This includes the officers and directors sufficiently informing themselves and considering all related material information before taking action.
Satisfying their duty of loyalty in managing the company requires that officers and directors act honestly and in good faith with a view to the corporation's best interests. They must act impartially and free of self-interest or self-dealing and always put the company's best interests first, regardless of any competing or conflicting interests, including their own or of any of the company's shareholders.
Importantly, and unlike in certain other jurisdictions, neither the duty of care nor the duty of loyalty can be waived, whether in the company's articles, by contract or otherwise. That said, as further discussed at 5.1 Relationship Between Companies and Shareholders, such duties can be partially or wholly transferred from the officers and directors to the company's shareholders by the functioning or express terms of a unanimous shareholders' agreement governing the company.
4.7 Responsibility/Accountability of Directors
Canadian law is clear that directors owe their duties to the company and not to any of its stakeholders, including shareholders. However, the CBCA and a substantively similar ruling by the Supreme Court of Canada (Canada's highest court) provide that, in pursuing the company's best interests, directors may take into account, without limitation, (i) the interests of shareholders, employees, retirees and pensioners, creditors, consumers and governments, (ii) the environment, and (iii) the corporation's long-term interests.
Directors and officers in Canada also benefit from the "business judgement rule." This provides that, so long as the company's directors and officers act honestly, in good faith, and with a reasonable degree of care and diligence, Canadian courts will not second-guess their business decisions, even where those decisions ultimately result in negative consequences for the company. Stated differently, the business judgement rule recognises that directors and officers often face complex and uncertain business situations, and thus should be afforded a degree of discretion in making decisions without fear of personal liability, provided they act in pursuit of the corporation's best interests and within the scope of their authority.
4.8 Consequences and Enforcement of Breach of Directors' Duties
As the duties of care and loyalty are owed by directors and officers to the company, a claim for breach of these duties lies with the company. However, and as further discussed at 5.4 Shareholder Claims, Canadian corporate law allows for derivative actions whereby a shareholder can pursue a claim against the directors or officers on behalf of the company for a breach of duty owed by them to the company.
4.9 Other Bases for Claims/Enforcement Against Directors/Officers
As further discussed at 5.4 Shareholder Claims, the actions of directors and officers may give rise to an oppression claim under Canadian corporate law, which is a broad and potentially powerful statutory remedy. That said, Canadian courts have held the fundamental purpose of the oppression remedy is to provide recourse regarding actions taken by the company. As such, the actions of the directors or officers will generally only be oppressive when they are acting in their capacity as directors and officers, and the claim is against the company as opposed to the directors.
4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers
The CBCA expressly permits directors to vote on their own remuneration as directors, notwithstanding the conflict of interest. That said, management typically provides significant input into the compensation process, including by considering recent "comparables" and/or by engaging compensation advisers. Canadian securities guidelines recommend that the company's compensation committee is ultimately responsible for making recommendations on director compensation, and this best practice is generally followed. "Say-on-pay" shareholder proposals have been common for Canadian public companies for several years. "Say-on-pay" votes by shareholders (ie, non-binding advisory votes) are not yet mandated by securities law or the CBCA but have been voluntarily adopted by many large public Canadian companies.
4.11 Disclosure of Payments to Directors/Officers
Canadian securities law requires the disclosure of the process followed in deciding director and officer remuneration. This should include explanation of the board's process, the rationale for the board's decision, and why the remuneration is otherwise appropriate or justified. Best practice includes also disclosing the frequency and form of compensation. This disclosure of officer remuneration is required to be included in the Compensation Discussion and Analysis portion of a public company's proxy circular.
To view the full article click here
Originally published by Chambers and Partners.
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.
