Gregory M. Prekupec, Rutendo Muchinguri
The Ontario Business Corporations Act (OBCA), RSO 1990, cB.16, governs how corporations in Ontario should operate. Understanding the key provisions of the OBCA is essential for corporate governance and for those drafting documents related to commercial transactions. One of the most critical sections for Ontario corporations to be aware of is Section 168, which addresses Fundamental Changes.
What are the Fundamental Changes Under the OBCA?
Section 168 of the OBCA outlines specific actions that require more than a simple majority of shareholder approval—these actions are known as Fundamental Changes. These decisions significantly impact the corporation and must be authorized through a special resolution, requiring at least a two-thirds majority of shareholder votes during a specially called meeting.
Examples of Fundamental Changes in Ontario Corporations
The following actions are considered Fundamental Changes under the OBCA, and thus require special shareholder approval:
- Changing the company’s name
- Adding or removing business restrictions
- Modifying the maximum number of authorized shares
- Creating new classes of shares
- Changing the designation, rights, or privileges of shares
- Altering issued or unissued shares
- Dividing a class of shares
- Authorizing directors to divide unissued shares
- Changing the minimum or maximum number of directors
- Amending the issue, transfer, or ownership rights of shares
Special Resolutions for Fundamental Changes
For any of the above fundamental changes to be validly implemented, the corporation’s Articles of Incorporation must be amended. According to Section 168(5) of the OBCA, these amendments require a special resolution—a vote that must pass with at least two-thirds of shareholder approval during a special meeting called specifically to address the proposed changes.
Why Understanding Fundamental Changes is Crucial
Corporations in Ontario must ensure that any action classified as a fundamental change is properly authorized by their shareholders. Failure to follow the proper procedure, including securing a special resolution, can lead to legal complications and invalidate the proposed amendments.
After the special resolution is passed, the corporation can proceed with the process of amending its Articles to reflect the approved changes.
Conclusion
Understanding the requirements for fundamental changes under the OBCA is vital for any corporation operating in Ontario. Ensuring compliance with these regulations protects the corporation’s legal standing and ensures that significant decisions are made with the appropriate level of shareholder approval.
