SIGNIFICANT CHANGES TO THE BUSINESS CORPORATIONS ACT

On October 6, 2020, the Government of Ontario introduced Bill 213, Better for People, Smarter for Business Act (the “Bill”) for its first reading. The Bill seeks to modernize the law that governs how companies and people conduct business in Ontario. This includes significant changes to the Business Corporations Act (the “Act”). The hope is that these amendments will reduce the burdens placed on businesses and persons under current legislation. In December 2020, the Bill received Royal Assent, which is the formal process by which a bill becomes law in Canada. As such, the amendments to the Act come into effect on July 5, 2021.

Major changes to the Act include eliminating the director residency requirement, whereby 25% of the directors must be Canadian residents as defined by the Act, and enacting greater flexibility with regards to approving written ordinary resolutions for privately held corporations.

Elimination of the Director Residency Requirement

Under the current legislation, 25% of the directors of a corporation in Ontario must be “resident Canadians”. This means that 25% of the directors must be:

  • Canadian citizens who ordinarily reside in Canada;
  • Canadian citizens who do not ordinarily reside in Canada but are a member of a prescribed class of persons; or
  • are permanent residents who ordinarily reside in Canada.

As of July 5, the director residency requirement will be removed from the Act to give businesses in Ontario more flexibility to select directors and an incentive to foreign-based companies to incorporate in Ontario.

Greater Flexibility in Passing Ordinary Resolutions in Writing for Privately Held Corporations

Currently, ordinary resolutions in writing can only be passed with unanimous approval of the shareholders, meaning that all shareholders who are entitled to vote on the resolution at a shareholder meeting must sign the resolution. If one single shareholder is unresponsive or uncooperative, the corporation’s only other option is to hold a shareholder meeting where the resolution may pass by simple majority, which is equivalent to 50% + 1 votes from shareholders. In some cases, this can pose significant time and expense on the corporation, especially where the board consists of a large number of shareholders to make minor changes.

As of July 5, the Act is amended to lower the approval threshold from unanimous approval for an ordinary resolution in writing to simple majority, so that only 50% of the shareholders + 1 person may vote to pass an ordinary resolution in writing.

The amendments are still subject to the prescribed exceptions contained in section 104 of the Act. For example, if the articles of incorporation or unanimous shareholder agreement requires a higher approval threshold than what is outlined in the Act, the higher threshold prevails. The amendment is also only applicable to ordinary resolutions. Special resolutions still require 2/3 approval at the shareholder meeting or unanimous approval if the resolution is in writing.

Once the resolution is signed, the corporation must give written notice within ten days of the resolution being signed to all shareholders who were entitled to vote on the resolution but did not sign it. These changes help to provide a more modernized approach to corporate decision-making, especially during the COVID-19 pandemic.

If you have any questions or concerns about the changes to the Act, contact Walker Law civil litigation lawyers to obtain answers to your legal questions and for assistance with your legal disputes. Please note that this article is intended for educational purposes only. It contains general information about legal matters and should not be considered legal advice.

Tags: Commercial litigation law

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