In an effort to increase the flexibility of public and private Ontario corporations, the Government of Ontario proposed to amend the Ontario Business Corporations Act (the “OBCA”) by introducing Bill 213, the Better for People, Smarter for Business Act, 2020 (the “Bill”).

Bill 213 seeks to make Ontario a more welcoming province for business. If adopted, the Bill will result in two important amendments to the OBCA:  a) eliminating the long-standing requirement that at least 25% of the directors of an Ontario corporation be Canadian residents; and b) lowering the approval threshold for written shareholder resolutions passed in lieu of a meeting, from unanimity to a majority, for privately held corporations.

Director residency requirement

The Act’s proposal to amend the OBCA to eliminate the requirement that at least 25% of the directors of an Ontario corporation be Canadian residents is beneficial for foreign businesses, as they would be able to elect whomever they believe to be best qualified for the role rather than relying on their resident status as a defining factor.

Corporate vehicles in Canada may be established under a federal statute or using one of the thirteen provincial and territorial Business Corporations Act or equivalent. Oftentimes, foreign-controlled businesses choose to incorporate in Canadian provinces that do not impose residency requirements on boards of director, even if their operations, employees and facilities are or will be principally located in Ontario. This causes the foreign-controlled businesses to deal with unnecessary administration and regulation. The elimination of the director residency requirement would provide an opportunity for foreign businesses with existing Ontario corporations to revisit and adjust their board composition, and for foreign businesses that incorporated in a jurisdiction other than Ontario solely because of the director residency requirement, to export their corporation to Ontario.

If passed, this amendment will come into force on proclamation and will apply to both privately and publicly held corporations in Ontario.

Reduced Approval Threshold

Currently, it is typical corporate practice for private corporations to obtain shareholder approval by written resolution rather than by holding actual shareholder meetings.  Written resolutions are preferred since no formal notice need be provided and concerns regarding quorum and the affirmative vote of holders of a majority of voting shares in attendance are effectively eliminated. Nevertheless, written resolutions come with their own set of challenges, namely the requirement to obtain the signatures of each and every voting shareholder of a corporation. This requirement often means that management of Ontario corporations need to chase signatures of shareholders, who are oftentimes unresponsive or unreachable for various reasons, which in turn may leave the corporation with no option but to hold an unwanted shareholders’ meeting (at the risk of great expense and lost time) in order to get on with business.

Bill 213 proposes to amend the OBCA to allow a written shareholders’ resolution signed by a majority of shareholders to be a valid substitute for an ordinary resolution passed at a shareholders’ meeting.[1] This change would allow Ontario businesses to make decisions more rapidly if needed.  To ensure that all shareholders are made aware of approved resolutions, notice of any written resolution signed under the proposed rules must be provided by the corporation to all shareholders who did not sign it within 10 days of the resolution being passed. In light of the proposed changes and assuming the Bill becomes law, corporations should review their articles, by-laws, and unanimous shareholders’ agreements to ensure that they align with and address corporate governance objectives.

The reduction of the approval threshold for written resolutions is yet another measure that provides flexibility in the operation of an Ontario business corporation and, coupled with the changes in residency requirements, will make Ontario a more attractive jurisdiction for foreign businesses.

[1] Note: Ordinary resolutions are passed for decisions on routine matters and require a simple majority (50 percent plus 1) of votes cast by shareholders, whereas special resolutions are passed for fundamental matters or changes and must have the approval of two thirds of the votes cast.

The proposed amendment would apply to privately held corporations and to ordinary resolutions. No change would come to those resolutions relating to matters requiring a special resolution.

Article by Martin Aquilina with assistance from Andrea Parodis