Ontario Proposes to Relax Long-Standing Rules on Directors and Shareholder Approvals

Written By Ian Michael and Tyler McAuley

Important changes to the Ontario Business Corporations Act (OBCA) have been proposed by the Government of Ontario in Bill 213: Better for People, Smarter for Business Act, 2020, that would:

• remove Canadian residency requirements for directors; and
• permit private corporations to pass ordinary resolutions in writing with majority (rather than unanimous) shareholder approval.

Removing Canadian Residency Requirements for Directors

At present, the OBCA requires at least 25 percent of the directors of an Ontario corporation to be resident Canadians. By abandoning this requirement, Ontario's corporate statue falls into line with the corresponding legislation of several other Canadian provinces including, British Columbia, Quebec, Nova Scotia and New Brunswick and, pending final proclamation, soon also Alberta. These statutory changes reflect, in part, a recognition of the artificiality of requiring a resident Canadian on the board of an Ontario corporation in the absence of a business rationale, a requirement that is often neutralized in any event by implementing a unanimous shareholder declaration that elevates meaningful decision-making powers to shareholders. We expect this change to be welcomed by foreign investors, including private equity sponsors, looking to participate in the Ontario economy.

Written Shareholder Resolutions with Majority Approval

The second change would allow 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. 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 proposed amendments would require that notice of any such written resolution be given within 10 days of signature by the holders of at least a majority of the shares to all shareholders entitled to vote on such resolutions who did not sign it. This new provision for written resolutions approved by a majority is subject to any higher voting thresholds that might exist within the corporation's articles or a unanimous shareholder agreement. It does not apply to matters requiring a special resolution from shareholders or approval from a specific class of shareholders.

The move to permit written resolutions by the holders of a majority of shares in place of holding a shareholder meeting will provide Ontario companies with additional administrative flexibility. At present, a written shareholder resolution must be unanimous. Unanimity can be a difficult standard for many corporations to achieve including those that have a large number of shareholders or an uncooperative or inattentive minority shareholder. Recent experience with attempting to hold shareholder meetings during the COVID-19 pandemic has highlighted concerns about the requirement to call, otherwise unnecessary, shareholder meetings to pass resolutions that have already received the requisite, but not unanimous, shareholder support. On the other hand, companies may wish to consider the impact of reduced shareholder engagement or other unintended consequences of these changes to their long-standing corporate governance practices.

The implications of these proposed changes on your existing corporate governance arrangements and practices should be reviewed. The future availability of Ontario as a jurisdiction that accommodates your corporate governance needs and desire to integrate with existing corporate groups incorporated in Ontario should be considered.

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