Ontario will no longer require corporations to have a resident Canadian director, under new legislative amendments passed in Ontario Bill 213. This bill also includes legislation to make it easier for private corporations to pass written ordinary resolutions. Both these changes, which amend the Ontario Business Corporations Act (OBCA), come into force on July 5, 2021.

Director residency requirements

Corporations incorporating (or continuing) in Ontario will no longer need to have a resident Canadian acting as a director under this new change. Currently, the OBCA requires at least 25% of the directors of an Ontario corporation to be resident Canadians, or at least one Canadian resident director, for corporations with less than four directors.

KPMG observations

This change, which follows similar amendments in Alberta, may ease the entry of foreign businesses and investors in Ontario and reduce the associated administrative burden. Currently, foreign entities looking to establish a company in Ontario must either find a Canadian resident to act as a director, or incorporate in another province that does not impose this requirement (such as British Columbia or Nova Scotia), and then extra-provincially register in Ontario in order to do business in the province. This approach often results in additional filings and costs.

From a domestic tax perspective, a corporation incorporated in Canada is deemed to be a resident of Canada for Canadian tax purposes, unless the corporation is also resident in another country, and the treaty tie-breaker rules for dual residency apply to find corporate residency in the other jurisdiction. Therefore, it is important for corporations with non-resident directors to consider the residency thresholds of other jurisdictions, as well as understand the residency tie-breaker rules with Canada under the relevant treaty (including the potential application of the multilateral instrument (MLI) on those rules).

Written shareholder resolutions

Private corporations will also be able to pass ordinary resolutions by way of a written resolution signed by shareholders holding at least a majority of the shares entitled to vote on the matter, as a result of these amendments. Currently, written shareholder resolutions may only be passed in lieu of a shareholder meeting if the resolution is signed by all shareholders entitled to vote on the matter, under the OBCA.

This change only applies to "ordinary resolutions" (i.e., resolutions that require a simple majority to pass) rather than "special resolutions", which are required to be approved by two-thirds of the votes to pass. Additionally, where a corporation's articles or unanimous shareholders agreement requires more than a simple majority of votes to approve an ordinary resolution, this approval threshold will apply to a written resolution.

Under this change, a corporation must give written notice of an ordinary resolution to all shareholders who are entitled to vote who did not sign the resolution within 10 business days after the resolution is passed. This notice must include the text of the resolution, a description of the resolution and the reasons for the resolution.

KPMG observations

Some corporations may have difficulty obtaining a signed resolution from all shareholders. As a result, corporations with a large number of shareholders, shareholders that are not active in the business, or shareholders who simply do not wish to approve the resolution may welcome this change.

Ontario corporations — Review governing documents

Some corporations may require Canadian directors or require written shareholder resolutions to be signed by all shareholders in their corporate governing documents. Corporations should review their articles, by-laws and shareholder agreements to determine whether these documents require any amendments in light of these developments.

For more information, contact your KPMG advisor.

Information is current to June 21, 2021. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500