Matthew Czerwinski
Ontario is the economic engine of Canada, offering a wealth of opportunities for foreign corporations seeking to establish a company or subsidiary in Canada. However, before the most recent amendments to the Business Corporations Act (Ontario) (“OBCA”), Ontario corporations were subject to specific residency thresholds for their boards of directors. Now that the Better for People, Smarter for Business Act, 2020 is in force, there are two significant changes to the OBCA:
(i) eliminating the requirement that at least 25% of directors be resident Canadians; and
(ii) 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.
These much-welcomed changes make Ontario a more attractive jurisdiction to start a business or attract an existing Canadian business from another part of the country.
Removal of residency requirements for directors
As of 05 July 2021, the former requirement for Ontario corporations to maintain a minimum of 25% “resident Canadian” directors on their boards has been repealed.
All directors of an Ontario corporation may now be non-resident Canadians. This change provides Ontario businesses with an opportunity to revisit and reform their board composition, and removes a challenging burden that many foreign businesses faced when establishing a subsidiary in Ontario.
Prior to the OBCA amendments, corporations that could not meet the director residency requirement would often incorporate in another Canadian province, such as British Columbia or Nova Scotia, that did not have similar director thresholds. This cumbersome process however would lead to extra costs and corporate filings to continue the corporation in Ontario, and lead to a corporation having a head office outside the province where it conducted most of its business activities.
Eliminating the residency requirement is an attractive amendment to multinational and foreign businesses who are now provided with flexibility in selecting their directors, being able to focus on merit and expertise instead of residency. These amendments make incorporating and conducting business in Ontario easier and more efficient.
Going forward, Ontario corporations, foreign corporations looking to incorporate an Ontario business, and corporations who predominately conduct business in Ontario but are incorporated in another Canadian province, should consider the benefits of the removal of resident Canadian requirements for board composition and evaluate the opportunities these changes provide. Such opportunities include incorporating in the province
where you conduct most of your business operations and simplifying corporate filings and fee payment.
Lower threshold for approving certain resolutions
Under the previous OBCA provisions, private Ontario corporations could only pass certain written resolutions, in lieu of a shareholders meeting, if it was signed by all of the shareholders of the corporation entitled to vote on that resolution. With the new OBCA amendments, private Ontario corporations can now pass ordinary written shareholders resolution when signed by shareholders holding at least a simple majority of shares entitled to vote on that resolution.
Under this method, the corporation is required to provide, within 10 business days of the resolution passing, written notice of the passed resolution to all shareholders who did not sign.
These lower thresholds allow for a more efficient process for routine business decisions and avoids added time and costs associated with obtaining consent from smaller shareholders.
Looking forward
The amendments to the OBCA provide opportunities and greater flexibility to those seeking to establish a business in Ontario. Whether it is focusing on a director’s capabilities rather than their residency, or streamlining the approval of shareholder voting, Ontario corporations have been provided a long-awaited update.
XLNC MAGAZINE | No. 08 | November 2021