Canada: Repeal of director residency requirements, relief for shareholders resolutions (Ontario)

Corporations no longer will be required to have a resident Canadian director.

Corporations no longer will be required to have a resident Canadian director.

Under new legislative amendments in Bill 213, corporations no longer will be required to have a resident Canadian director.

The legislation also makes it easier for private corporations to pass written ordinary resolutions. Both changes amend the Ontario Business Corporations Act and have an effective date of 5 July 2021.

Director residency requirements

Corporations incorporating (or continuing) in Ontario no longer need to have a resident Canadian acting as a director, whereas under the prior rules, at least 25% of the directors of an Ontario corporation must be resident Canadians, or must be at least one Canadian resident director for corporations with less than four directors.

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. Corporations with non-resident directors need 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 also can 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. This change only applies to "ordinary resolutions" (i.e., resolutions that require a simple majority to pass) rather than "special resolutions" that are required to be approved by a two-thirds vote to pass.

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

Read a June 2021 report prepared by the KPMG member firm in Canada

 

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