Ontario Opens Incorporation to Foreign-Owned Entities

Bill 213, Ontario’s Better for People, Smarter for Business Act, was introduced in October as a means to make incorporating in Ontario simpler and more accessible for companies with foreign ownership. The Bill proposes several amendments to various pieces of legislation, but for the purposes of this post, we will focus on the changes to the Business Corporations Act.

Current Residency Requirements for Directors of Ontario Corporations

Under the Business Corporations Act, s. 118 (3)  currently requires that a percentage of a corporation’s directors must be resident in Canada:

(3) At least 25 per cent of the directors of a corporation other than a non-resident corporation shall be resident Canadians, but where a corporation has less than four directors, at least one director shall be a resident Canadian.

Bill 213 will repeal this section, removing the requirement for a Canadian director. The change brings Ontario in step with other provinces, such as Alberta, British Columbia and Nova Scotia, that had already done away with the residency requirements for directors. The purpose of the change is to encourage more foreign-owned or run corporations to bring their businesses to the province instead of bypassing Ontario in favour of more advantageous rules elsewhere in the country. The change will apply to both publicly and privately held corporations.

Changes to the Resolution Approval Process for Private Corporations

Under the Business Corporations Act, s. 104(1) currently states that a privately-held corporation may approve a resolution in writing so long as the shareholders unanimously agree, and each sign the written resolution:

104 (1) Except where a written statement is submitted by a director under subsection 123 (2) or where representations in writing are submitted by an auditor under subsection 149 (6),

(a)  a resolution in writing signed by all the shareholders or their attorney authorized in writing entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders; and

(b)  a resolution in writing dealing with all matters required by this Act to be dealt with at a meeting of shareholders, and signed by all the shareholders or their attorney authorized in writing entitled to vote at that meeting, satisfies all the requirements of this Act relating to that meeting of shareholders.

The purpose of the existing legislation is to allow the passing of resolutions without the need or expense of a shareholder’s meeting. However, the requirement for a unanimous agreement has proven to be onerous. If just one shareholder objects and refuses to sign, the corporation would be required to hold a meeting to vote in person, creating an undue delay in the process.

Bill 213 will amend the Business Corporations Act by removing the necessity for unanimous agreement among the shareholders in order to approve a resolution in writing. Instead, private corporations will now have the ability to approve an ordinary resolution in writing so long as the majority of shareholders agree to sign.

In addition to making the process to pass an ordinary resolution more convenient, this new process will allow corporations to move ahead with business decisions in the face of the COVID-19 pandemic when in-person shareholder meetings are inadvisable.

Exceptions to the Rule – Special Resolutions

The new rule allowing a majority of voting shareholders to sign off on a written resolution will only apply to ordinary resolutions. Special resolutions making significant changes such as a sale of assets, mergers, acquisitions or changes to the Articles of Incorporation will still be carried out as before. Further, a corporation is also free to enact more stringent requirements for the passing of written resolutions in its own Articles of Incorporation to require more than a simple majority of shareholder signatures.

Our business lawyers can advise on how best to protect your business and adapt your policies to reflect these new legislative changes. We will ensure you are aware of all updates to the law affecting your business operations so you can be sure you are compliant. Contact GLG LLP in downtown Toronto for efficient and skilled advice on the management of your business. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.