Proposed Amendments to the Ontario Business Corporations Act: Reducing corporate governance red tape

Proposed Amendments to the Ontario Business Corporations Act: Reducing corporate governance red tape

Michael Brown
Posted November 25, 2020 Category: Businesses
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On October 6, 2020, the Government of Ontario proposed amendments to the Ontario Business Corporations Act (“OBCA”) by introducing Bill 213, Better for People, Smarter for Business Act, 2020 (“Bill 213”).

As of the date of this article, Bill 213 is not yet law but is currently referred to the Standing Committee of General Governance. If passed, Bill 213 would relax some corporate governance red tape in Ontario, most notably by:

  1. eliminating the Canadian residency requirement for directors of private and public corporations; and
  1. lowering the threshold for passing a written ordinary resolution of shareholders for private corporations.

Eliminating the Director Residency Requirement

Currently under the OBCA, Ontario corporations are required to have at least 25% of its directors be Canadian residents. If the corporation has less than four directors, then at least one of them must be a Canadian resident.

Bill 213 would eliminate this residency requirement completely and open the doors to non-resident investors and entrepreneurs who want to incorporate in Ontario but are currently restricted from doing so because of the residency requirement.

Ontario would not be the first province to take this step; Alberta, British Columbia and Nova Scotia for example do not impose a minimum residency requirement for directors.

Lower Threshold for Ordinary Written Resolutions of Shareholders

Currently under the OBCA, in lieu of calling a meeting to pass a resolution, shareholders of a privately held Ontario corporation may pass a written ordinary resolution provided all shareholders entitled to vote on that resolution sign the written resolution; in other words, it must be unanimous.

Bill 213 would lower this unanimous threshold to a simple majority of the shareholders entitled to vote on that resolution.

Where a majority of shareholders entitled to vote pass a written ordinary resolution, the corporation must provide written notice of such resolution to each of the shareholders who did not sign. The written notice must include the text of the resolution and a statement that contains a description of and reasons for the business dealt with by the resolution.

It’s important to note this lower threshold is only applicable to written ordinary resolutions and not written special resolutions under the OBCA.

What this means for our economy and you

The elimination of a minimum director residency requirement could see increased investment and business in Ontario contributing to Ontario’s economic recovery. By removing this barrier, non-resident investors and entrepreneurs would be able to incorporate and otherwise carry on business in Ontario without the need to find Canadian resident directors. This will make Ontario a more attractive place to conduct business for some investors and entrepreneurs and that would otherwise look elsewhere.

The lower threshold for written ordinary resolutions would allow shareholders to pass resolutions more efficiently where holding a meeting or obtaining unanimous approval would be onerous or impossible; for example, where there is a large number of shareholders or some shareholders are unreachable. This lower threshold is also subject to the articles and bylaws of an Ontario corporation and any shareholders’ agreement in place. If Bill 213 is passed, business owners should consult with their legal advisor to determine if they are subject to a higher threshold under their constating documents than the OBCA would then require and whether revision to these documents would be desirable to align with this lower threshold.

If you would like to discuss these notable changes further or have any other business law questions, our dedicated team is here to help, please do not hesitate to contact us.

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Michael Brown
Posted November 25, 2020 Category: Businesses

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