Changes Coming to the OBCA Will Give Ontario Businesses More Flexibility

Ontario’s Bill 213 – the Better for People, Smarter for Business Act, 2020 (the “Act”) – recently received Royal Assent, and its provisions, as they pertain to Ontario’s Business Corporations Act (the “OBCA”), will come into force on July 5, 2021. The amendments under the Act are designed to provide more flexibility for Ontario businesses, and re-position Ontario as an attractive jurisdiction in which to conduct business.

The OBCA Amendments

The amendments impact the OBCA in a number of ways, but two significant amendments will:

• eliminate director residency requirements; and
• for private corporations, lower approval thresholds for written shareholder resolutions.

Elimination of Director Residency Requirements

Currently, Section 118(3) of the OBCA requires that at least 25% of the directors of an Ontario corporation be “resident Canadians” (or, for a board with fewer than four members, a minimum of one “resident Canadian”).

Once the OBCA amendments come into force, Section 118(3) will be repealed; a change generally welcomed by local and foreign business communities. This means there will no longer be a requirement for a “resident Canadian” to sit on the board of an OBCA corporation. Historically, foreign investors who desired a Canadian corporation would need to incorporate in a Canadian jurisdiction without director residency requirements, or, if an Ontario corporation was preferred, to identify an appropriate “resident Canadian(s)” to sit on the board. The amendment will remove the burden for foreign investors, who wish to incorporate under the OBCA, to identify a Canadian resident board member. Investors will be able to focus on expertise and experience, rather than on mere residency, in appointing board members.

Removal of this requirement aligns the OBCA with the corporate statutes in British Columbia, Alberta, Quebec, the Maritime provinces, and the Territories, each of which previously removed the Canadian residency requirement. Note that corporations incorporated under the Canada Business Corporations Act will still need to comply with “resident Canadian” director requirements.

Lowering of Approval Threshold for Written Shareholder Resolutions

Section 104 of the OBCA currently requires written resolutions to be signed by all shareholders of a corporation. For non-offering (i.e., private) corporations (particularly widely-held private corporations), obtaining a signature from 100% of shareholders can be burdensome, and often leaves a board with no choice but to convene a shareholders’ meeting to pass even an immaterial resolution; a step that often causes unnecessary delays and adds unnecessary costs.

The amendments lower the approval threshold for written ordinary (not special) resolutions to a simple majority (i.e., 50%) of shares entitled to vote on that resolution. This lower threshold only applies to privately-held corporations, and stipulates that within 10 business days after the resolution is signed, written notice be provided to all non-signing shareholders who were entitled to vote on the resolution. A corporation can opt out of the new default regime by including a provision in its articles or unanimous shareholder agreement (“USA”) that requires a greater number of votes to pass an ordinary resolution.

Preparing for the Changes

The articles, by-laws and USAs of many private OBCA corporations may currently contain provisions that are more restrictive than the amendments in the Act provide for. Notably, the amendments would not apply in these cases, as the articles and USA of a corporation prevail over these amendments. Corporations incorporated under the OBCA should review their articles, by-laws, and USAs, and consider amending these documents (in particular, their articles and/or USAs) if they would like the new OBCA director residency requirements and/or threshold for written shareholder resolutions to apply.

For further information on these amendments or to discuss potential changes to your articles or USA, please contact any member of our Mergers and Acquisitions Group.