OBCA Amendments To Make Business Corporations More Flexible

Bill 213 & Corporate Changes

On December 8, 2020, Bill 213 – the Better for People, Smarter for Business Act, 2020 – received royal assent after passing third reading at the Ontario Legislature, paving the way for Bill 213 to come into force on a proclamation date to be announced. The Bill provides for two significant amendments to the Ontario Business Corporations Act (OBCA):

(i) lowering the threshold, in privately-held corporations, for approving an ordinary written shareholders resolution to a simple majority of shares entitled to vote on the resolution; and
(ii) eliminating the requirement that at least 25% of directors be resident Canadians.

Lower Threshold for Approving Certain Resolutions
Currently, the OBCA allows private Ontario corporations to pass certain written resolutions, in lieu of a shareholders meeting, if it is signed by all of the shareholders of the corporation entitled to vote on that resolution. This can be a burdensome process that leads to lengthy delays in passing a resolution, or ultimately having to organize a meeting to obtain the required signatures.

The OBCA amendments would allow private Ontario corporations to pass ordinary written shareholders resolution if signed by shareholders holding at least a simple majority of shares entitled to vote on that resolution. The corporation would be required to provide, within 10 business days of the resolution passing, written notice of the passed resolution to all shareholders who did not sign. This written notice must also include the text of the resolution.

The lower thresholds will allow for a more efficient process for routine business decisions and avoid added time and costs associated with obtaining consent from smaller shareholders.

Notably, these amendments do not apply to any matter that requires special resolutions of the shareholders, which still must be approved by at least two-thirds of the shares entitled to vote on that resolution. Additionally, the lower threshold would still be subject to any provision in a unanimous shareholders agreement requiring a greater number of votes.

Removal of Residency Requirements for Directors
The current OBCA provisions require that 25% of the directors of an Ontario corporation be “resident Canadians”. Where the board is less than four directors, a minimum of one director must be a resident Canadian. The amendments under Bill 213 would remove this director residency requirement, making Ontario the seventh Canadian province to do so.
Eliminating the residency requirement will remove a barrier to foreign investors and businesses looking to incorporate in Ontario as they will no longer be required to find a Canadian to serve on their board. Rather, these foreign business will be provided with flexibility in selecting their directors, being able to focus on merit and expertise instead of residency.

Looking Forward
Ontario corporations should consider reviewing their articles of incorporation, unanimous shareholders agreements and other governing documents for provisions that are more restrictive than the amendments under Bill 213, and consider whether amendments are desired to allow the lower voting threshold to apply. It may also be beneficial to consider board composition in the absence of the director residency requirement.

At KMB Law our Corporate/Commercial Group works with your business on a variety of matters related to incorporation, organization and governance to advance your business interests. If you have any questions relating to the above, contact the Corporate/Commercial Group to discuss further.