Quick Guide to Basic Shareholders’ Rights

Federal vs Provincial Incorporation

In Canada, one can incorporate under either federal or provincial law. For the purposes of this guide, reference is made to Ontario Business Corporation Act (OBCA). Most corporate law statutes across Canada are fashioned to mirror the federal Canada Business Corporations Act (CBCA) and are largely the same across all provinces.

The rights provided to shareholders under OBCA can be broadly categorized as voting rights, rights with respect to meetings, and rights pertaining to access to information.

1) Voting Rights

The most fundamental right of a shareholder is their right to vote. Shareholders exercise control over the corporation and most specifically control the constitution of the board of directors. They participate in major business decisions affecting the corporation by voting in accordance with their class of shares and their holding percentage.

The Right to Vote

However, voting rights can be limited by the terms in the Articles of Incorporation and by-laws of the corporation. Not all shares have attached to them the right to vote. To be sure, one must review the attributes to the shares set out in Section 7 of the Articles of Incorporation.

Audited Financial Statements

It is a requirement of law that a corporation appoint an auditor and produce audited financial statements in every fiscal year. However, shareholders may consent under section 148 of OBCA to exempt the corporation from the requirement of an audit in respect of that year’s financial statements and reporting. This type of resolution exempting the corporation from audit expires each year and must be signed by all shareholders in each year if the corporation wishes to be exempt from its statutory audit requirements.

2) Rights to Receive Notice of Meetings and Attendance

Under the OBCA, the corporation must call for an annual meeting of shareholders no later than fifteen months following the last held annual meeting, in addition to any special meetings which can be held at any time. Typically, shareholders’ meetings are held once every 12 months. In lieu of a shareholder’s meeting, the shareholders may instead resolve to prepare an annual resolution, which is most common in small business corporations.

Annual meetings or resolutions must consider minutes of the previous shareholder’s meeting, financial statements, auditor’s report, election of directors, and appointment of auditors.

Under normal circumstances the right to call shareholders’ meetings is vested in the board of directors. In certain situations however, shareholders have the right to requisition shareholders’ meetings. Under section 105 of the OBCA, holders of at least 5% of the shares who are entitled to vote at meetings may require the directors to call a meeting. If directors do not do so within 21 days following receipt of the shareholders’ written requisition, any shareholder who made the original request may call the meeting in the usual way. However this is subject to specific circumstances as the right to requisition a meeting is not absolute. It is crucial for you to seek professional advice to ensure your rights are protected.

3) Access to Information

It is important for shareholders to have access to information about the business and affairs of the corporation prior to exercising their right to vote. Section 140(1) of the OBCA states that the corporation shall prepare and maintain in a designated place the corporate minute book, which includes the articles and by-laws of the corporation and any amendments thereto; copies of any Shareholders Agreement or Unanimous shareholders agreement known to its directors; minutes of meeting and resolutions of directors and shareholders; copies of the director’s register, officer’s register, as well as the shareholder’s register and shareholder’s ledger.

In addition to the above, the corporation must prepare adequate accounting records, as shareholders and creditors, along with their agents and counsel, are to be provided access to the books and records maintained by the corporation during the usual business hours of the corporation (s.141(1),(2) and s. 146(1)).

Shareholders must bear in mind that the Articles of Incorporation and by-laws of the corporation, along with any Shareholders’ Agreements, may trump statutory provisions in some circumstances.

If access to corporate or financial information is denied to you, this may violate your shareholder right and engage an action for oppression remedy.

F.A.Q’s:

What kind of rights do I have as a shareholder?

Under the OBCA, the Ontario Business Corporations Act, shareholders have rights that broadly relate to the following categories: voting rights, rights to receive notice of meetings and attendance, and rights to access information. More specifically, shareholders have the right to the following:

vote at the shareholders' meeting (if their shares have a right to vote)
receive a share of the profits (dividends) of the corporation
receive a share of the property of the corporation when the corporation is dissolved
be notified about shareholders' meetings and attend them
elect and dismiss directors
approve by-laws and by-law changes
appoint the auditor of the corporation (or waive the requirement for an auditor)
examine and copy corporate records, financial statements and directors' reports
receive the corporation's financial statements at least 21 days before each annual meeting
approve major or fundamental changes (such as those affecting a corporation's structure or business activities).

Do all shareholders have the right to vote?

The right to vote is one of the most fundamental rights a shareholder has. Through the voting process, shareholders exercise control over the corporation’s constitution of the board of directors, and major business decisions affecting the corporation. That being said, voting rights vary in accordance with the class of shares and a shareholder’s holding percentage. Generally speaking and unless your articles provide otherwise in section 7 of the Articles of Incorporation, each share in the corporation entitles the shareholder to one vote. The larger the number of shares a shareholder holds, the larger the number of votes the shareholder can exercise.

Does a corporation have to appoint an auditor to produce audited financial statements every fiscal year?

How often does a corporation have to call an annual meeting of shareholders?

Who has the right to call a shareholders’ meeting, the directors or the shareholders?

As a shareholder, what kind of information do I have a right to have access to?

It is important for shareholders to have access to information about the business and affairs of the corporation prior to exercising their right to vote. Generally speaking, shareholders have a right to the following:

Corporate Minute books, which includes the articles and by-laws of the corporation and any amendments thereto
A copy of any shareholders agreements or unanimous shareholders agreement known to its directors
Minutes of meeting and resolutions of directors and shareholders
A copy of the director’s registrar
A copy of the officer’s register
A copy of the shareholder’s register and ledger
Accounting records

We’re Here to Help™

At Kalfa Law we are happy to counsel you in respect of the constitution of your corporation as well as review any Shareholders Agreement prior to your execution of same to ensure your rights as shareholder are protected.

-Ghazal Hamedani, Associate Lawyer

Ghazal’s practice is focused on corporate-commercial law, including business formations, corporate reorganizations, shareholder agreements, commercial contracts, the purchase and sale of businesses, as well as secured and unsecured lending transactions. After graduating from University of Toronto with distinction, Ghazal completed her law studies with honours at Cardiff Law in 2017. Ghazal is a lawyer licenced to practice law by the Law Society of Ontario. She is also a member of the Canadian Bar Association and Canadian Corporate Counsel Association Ontario.

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.