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Upcoming Changes to the OBCA Poised to have a Positive Lasting Impact on Business Efficacy in Ontario

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    Upcoming Changes to the OBCA Poised to have a Positive Lasting Impact on Business Efficacy in Ontario

    OBCA

    Ontario’s Business Corporations Act (“OBCA”) is poised to receive some welcome amendments with Bill 213 – the Better for People, Smarter for Business Act, 2020 having received Royal Assent as of December 8, 2020. Bill 213 has a broad reach, touching upon many of Ontario’s business focused legislation with the stated objective to reducing legislative barriers and burdens upon people and businesses in the province. Bill 213 will make two relatively small amendments to the OBCA which should have a positive, long-lasting, impact on the efficacy of conducting business in the province. These changes are: (i) the removal of the director residency requirement; and, (ii) allowing private corporations to pass written majority shareholder resolutions.

    While Bill 213 has received Royal Assent, the changes to the OBCA will not come into force until they are proclaimed by the Lieutenant Governor. As of the date of this article, a proclamation date has yet to be determined.

    Removal of Director Residency Requirement

    Currently, section 118(3) of the OBCA requires that at least 25% of the directors of a corporation be resident Canadians and, where a corporation has less than four directors, at least one director shall be a resident Canadian. Although a well-intentioned attempt to promote Canadian involvement in business, the residency requirement has ultimately proven to be a needless source of frustration to prospective non-resident investors and larger boards of directors alike. Furthermore, given that other Canadian jurisdictions do not have the residency requirement (e.g. British Columbia, Nova Scotia and Quebec), the continued existence of the residency requirement in the OBCA has merely served to make Ontario a less competitive incorporating jurisdiction as many non-resident investors have chosen to incorporate elsewhere in order to avoid the residency requirements entirely – a jurisdictional loophole which surely played a factor in Ontario deciding to remove its residency requirement from the OBCA.

    Ultimately, the removal of the residency requirement in the OBCA will have a positive impact upon business in Ontario. Non-resident investors will now easily be able to incorporate in Ontario without having to find a nominal resident board member (e.g. a lawyer) or by incorporating in another Canadian jurisdiction. Boards of directors will also benefit from this change as they will be able to make legitimate board composition decisions based on expertise and without having to consider the residency of their board members. The removal of the residency requirement should also allow Ontario to become a preferred incorporating jurisdiction when incorporating in Canada (note: the Canada Business Corporations Act still has a 25% director residency requirement).

    Written Ordinary Resolutions

    Currently, section 104 of the OBCA requires that shareholder resolutions in writing must be signed by all the voting shareholders of the corporation. This provision can prove to be inconvenient for private corporations where one or more of its shareholders is unwilling to sign the resolution or is otherwise non-participating. In situations such as this, private corporations are forced to call a shareholders meeting which leads to extra costs and time needlessly being spent.

    Bill 213 seeks to solve this problem by amending section 104 in order to allow matters that may be resolved by ordinary resolution to be passed by a written resolution signed by the shareholders of not less than a majority of the voting shares (i.e. a majority written resolution). Under these new changes to the OBCA, shareholders need not be given notice of the contemplated resolution, but notice of the passed majority written resolution must be given within 10 business days to every shareholder who did not vote. Furthermore, it’s important to stress that these changes to the OBCA are only applicable to matters that may be decided by ordinary resolution pursuant to the respective corporation’s constating documents (i.e. articles of incorporation, by-laws and any applicable shareholder agreements). Matters requiring a special resolution still requires a written resolution signed by all the voting shareholders of the corporation, or, failing that, a resolution duly passed at a special or annual meeting of the shareholders.

    Conclusion

    The face of corporate law is ever changing as we continue to see amendments across both the provincial and federal legislations. Contact a lawyer at Kalfa Law to help you with any of your Corporate-Commercial legal needs.


    Christopher Manderville, Associate Lawyer

    © Kalfa Law, 2021

    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.

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