Ontario Eliminates Director Residency Requirements and Permits Majority Shareholder Resolutions in Writing

Bennett Jones LLP

Bennett Jones LLPIn November of 2020, we wrote about forthcoming changes to the Ontario Business Corporations Act (OBCA) proposed by the Government of Ontario in Bill 213 Better for People, Smarter for Business Act, 2020. After receiving Royal Assent in December of 2020, these amendments came into force on July 5, 2021. The changes to the OBCA included: (i) removing the Canadian residency requirements for directors; and (ii) permitting private corporations to pass ordinary resolutions in writing with a majority (rather than unanimous) shareholder approval in certain circumstances.

Removing Canadian Residency Requirements for Directors

Removing the Canadian residency requirement, by repealing subsection 118(3) of the OBCA, brings the Ontario corporate statute into alignment with the majority of Canadian provinces and territories including British Columbia, Alberta, Quebec, Nova Scotia and New Brunswick. We expect this change to be welcomed by foreign investors participating in the Canadian economy directly or through an Ontario subsidiary.

In anticipation of the proposed Ontario Business Registry, expected later in 2021, the Ontario Ministry of Government and Consumer Services will still require OBCA corporations to include the residency status of directors in their current filings including, for example, their Articles of Incorporation (Form 1) and the initial and annual returns under the Corporate Information Act. To that end the definitions of "resident Canadian" and "non-resident corporation" remain in the OBCA, at least for now.

Written Shareholder Resolutions with Majority Approval

A new clause 104(1) of the OBCA allows private Ontario corporations to pass ordinary shareholder resolutions in writing, in lieu of a shareholder meeting, where they have been approved by a majority of shareholders entitled to vote on the resolution. Shareholder meetings can be replaced by a written resolution endorsed by a majority of shareholders provided that it addresses all matters required by the OBCA to be dealt with at a shareholder meeting and all such matters require only an ordinary resolution. The amendment requires that notice of any such written resolution passed by a majority of shareholders be given, within 10 days, to all shareholders entitled to vote on such resolutions who did not sign it. The ability to pass written resolutions by majority shareholder approval is subject to any higher voting thresholds that might exist within the corporation's articles or a unanimous shareholder agreement. These materials should be reviewed carefully to ensure they do not limit a corporation's ability to avail these new corporate reforms. While the new provisions do not provide for the bylaws of a corporation to contain higher voting thresholds, a corporation's bylaws should be reviewed for potential overlap or confusion on this issue, especially if they are of the "long form" variety, as amendments may be prudent. The changes also do not remove the higher voting threshold for matters requiring a special resolution from shareholders or approval from a specific class of shareholders.

OBCA corporations should review these changes closely and consider their implications on administrative practices and their corporate governance. The removal of the residency requirement for directors will permit OBCA corporations to cast a wider net for director candidates and ensure primacy is placed on value to the corporation rather than geography. Organizations seeking to take advantage of the additional flexibility provided by the change to the threshold for written shareholder approvals should ensure that their corporate articles, bylaws, unanimous shareholder agreements, policies and practices are updated to allow for written resolutions passed by majority shareholder approval, where permitted and desirable, by the corporation's shareholders as well as eliminating any director residency requirements that had previously been replicated in the bylaws of the corporation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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