Bill 213, Better for People, Smarter for Business Act, 2020
Bill 213, the Better for People, Smarter for Business Act, 2020, has received Royal assent. Schedule 1 of the Act contains amendments to the Business Corporations Act (Ontario) (“OBCA”), and mostly came into force on July 5, 2021. Sections 1 and 10 of Schedule 1 do not yet have a scheduled proclamation date, but they only pertain to repealing definitions and will not affect the application of the substantive sections which are now effective.
There are two main changes to the OBCA contained in Schedule 1: removing the Canadian residency requirements for directors and lowering the threshold for approval by shareholders of ordinary resolutions. These steps were taken to modernize the OBCA by reducing red tape and harmonizing the legislation with that of other Canadian (and American) jurisdictions. Practically, the changes should encourage more businesses to incorporate in the province of Ontario rather than alternative jurisdictions, such as British Columbia.
Removal of the Canadian Residency Requirement
With Section 118(3) of the OBCA now repealed, a company is no longer required to have 25% of its directors be Canadian residents. This requirement was challenging for foreign companies who wanted to set up subsidiaries in Ontario but did not otherwise have on their team a Canadian resident who could serve as a director. This meant that such foreign companies were more likely to incorporate in one of those other provinces which do not have the residency requirement. In the second parliamentary reading, harmonization with other Canadian jurisdictions where possible and targeting the elimination of unnecessary red tape were cited as one of the guiding principles in working on Bill 213. Removing the Canadian residency requirement certainly reflects these principles, since it will bring Ontario’s legislation in line with what is becoming the standard across Canada. Now, only the provincial legislation in Manitoba, Saskatchewan and Newfoundland and Labrador, and the federal Canadian Business Corporations Act, still contain a Canadian residency requirement for directors.
New Approval Threshold for Ordinary Shareholder Resolutions
In order for shareholders to approve a resolution in writing (in lieu of a meeting of the shareholders), the OBCA previously required all shareholders entitled to vote to sign such resolution, notwithstanding the fact that only a simple majority of the outstanding votes would be required to pass the same resolution at a meeting. The amendment in Bill 213 now permits corporations, which are not offering corporations, to pass ordinary shareholder resolutions where a simple majority of the shares entitled to vote are represented by the signing shareholders. To take advantage of this option, the amendment requires that written notice (including a copy of the written resolution) be given to the shareholders who did not sign the resolution within 10 business days of its passing. It should be noted that this change only applies to an ordinary resolution (matters requiring approval by a simple majority of the outstanding votes), and not where a special resolution is required (matters which require approval of a at least two-thirds of the outstanding votes). A corporation can establish a higher threshold than required by this amendment, through provisions in either its articles or in a unanimous shareholder agreement.
Ontario is the first jurisdiction in Canada to lower the threshold for signatures on some written resolutions below unanimity. Unlike the removal of the residency requirement, this change can be seen as a more innovative (and hopefully trendsetting) step towards modernizing legislation, bringing Ontario’s corporate statute in closer alignment to the Delaware General Code, the jurisdiction of choice for most emerging growth companies south of the border.
Based on the second parliamentary reading of Bill 213, it appears that the purpose of the bill was not to compete with British Columbia and other jurisdictions for attracting new businesses to incorporate. Instead, the stated objective was reducing the regulatory burden on existing Ontario small businesses, in light of COVID-19 and also in the long-term. However, modernizing the approval process in Ontario will likely be a boon to its popularity as a jurisdiction for incorporation of private businesses.
The content provided in this bulletin is for information purposes only and does not constitute legal advice. The choice of jurisdiction for incorporation is fact-dependent and we would be happy to discuss your business and to advise you on what jurisdiction is most suitable in your circumstances. Whether you are a Canadian entrepreneur looking to get your startup incorporated, or a foreign entity creating a new Canadian office, please do not hesitate to contact our lawyers at LaBarge Weinstein LLP to discuss your incorporation or other corporate legal needs.