Canada

Canadian resident directors no longer needed for Ontario corporations

TAX ALERT  | 

Currently, federal legislation and most provincial legislation require that at least 25% of a corporation’s directors be resident in Canada. If a corporation has fewer than four directors, at least one of them must be resident in Canada. This requirement may create obstacles for foreign investors if they need to source Canadian-resident directors with relevant skills and experience. Several provinces and territories do not have this requirement (e.g., British Columbia, Nova Scotia, New Brunswick and Quebec). As a result, foreign-owned Canadian subsidiaries tend to be incorporated in these provinces. 

As of July 5, 2021, Ontario will repeal the Canadian residency requirement for corporate directors. This change was included in the amendments to the Business Corporations Act (Ontario) (OBCA) in Bill 213, the Better for People, Smarter for Business Act, 2020. The amendment eliminates the Canadian-resident director requirement not only for newly incorporated corporations, but also for existing Ontario corporations, thereby allowing for revisions to the composition of a board of directors. However, companies incorporated federally remain subject to the at least 25% Canadian residency requirement for directors. 

Among other things, Bill 213 includes amendments to the approval process for written ordinary resolutions of the shareholders. Before the amendment, any written ordinary resolution had to be approved by all the shareholders who are entitled to vote on the matter (to achieve unanimous agreement). To streamline the approval process, Bill 213 reduced the threshold for these resolutions, such that a resolution can be approved by the shareholders if they hold a majority of the shares and are entitled to vote. In addition, the corporation is required to notify all the other shareholders who did not sign the ordinary resolution, within 10 business days of the resolution being signed. This amendment only applies to ordinary resolutions that cover basic corporate matters. Special resolutions will remain subject to unanimous approval.

The Bill 213 amendments will likely facilitate foreign investment and reduce financial and administrative burdens for businesses in Ontario. 

RSM CONTRIBUTORS


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