OBCA modernization takes effect: Ontario reduces shareholder approval thresholds, eliminates director residency requirements

28 June 2021

Significant changes to the Ontario Business Corporations Act come into force on July 5 making Ontario a more welcoming province for business.

Gowling WLG previously discussed these changes in its October 2020 article. Notable changes coming into force on July 5 include:

  • The elimination of the long-standing requirement that at least 25% of the directors of an Ontario corporation be Canadian residents; and
  • The lowering of the approval threshold for written shareholder resolutions passed in lieu of a meeting, from unanimity to a majority, in the case of privately held corporations only.

Director residency requirement abolished for Ontario corporations

The elimination of the requirement that at least 25% of the directors of an Ontario corporation be Canadian residents is a welcome change as Ontario follows Alberta in instituting these changes and becomes one of several other Canadian jurisdictions free of such requirements. For foreign businesses, these changes provide the opportunity to revisit and adjust the board composition of their existing Ontario corporations or repatriate their corporations to Ontario if they had previously incorporated in another jurisdiction because of the director residency requirement.

Before making changes to the composition of a board of directors, foreign businesses should nevertheless consult their tax advisors or a member of Gowling WLG's tax practice group, as some tax treaties consider the place of effective management (most often, the place where the board of directors executes its decisions) as a factor in resolving dual residence of a corporation.  A corporation whose board of directors is comprised of non-residents and makes its decisions outside Canada may, in certain circumstances, cause the corporation to become a non-resident of Canada for income tax purposes (having the potential to result in significant unintended tax consequences). Notably this includes Canada's tax treaty with the United Kingdom, which considers place of management as a factor under its tie-breaker rules, but does not include Canada's tax treaty with the United States, which tie-breaks based on the place of incorporation.

Reduced approval threshold for certain written shareholder resolutions

The reduction of the approval threshold for a written shareholder resolution seeks to more closely mimic existing approval requirements for resolutions passed at a shareholders' meeting. Subject to a corporation's articles or unanimous shareholders' agreement, this change permits a written resolution to be effective if signed by shareholders holding a majority of the votes, as opposed to all voting shareholders of the corporation. This will allow Ontario businesses to make decisions quickly when needed. Furthermore, this change only applies to privately held corporations and only to decisions that currently require an ordinary resolution (being routine matters, including the election and removal of directors, the appointment and removal of auditors and the confirmation of by-laws). To ensure all shareholders are made aware of approved resolutions, notice of any written resolution must be provided by the corporation to all shareholders who did not sign it within 10 days of the resolution being passed.

Interested in more information? Speak to Gowling WLG's corporate team

Are you interested in hearing more about these upcoming changes to the Ontario Business Corporations Act?  Get in touch with Karen Hennessey, David Campbell, Carl Hinzmann, Martin Roy or another member of our corporate team, for more information on these changes and to see how Gowling WLG can support your business in the Province of Ontario.

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