Clients should be aware that Bill 152, which received Royal Assent on December 20, 2006, and which will come into force on August 1, 2007, will make significant changes to the Business Corporations Act ("OBCA") as well as an important change to the limited liability shield for limited liability partnerships ("LLPs") under the Partnerships Act (Ontario). What follows summarizes the highlights.
1. Reducing the Board Residency Requirement
Bill 152 will reduce the usual residency requirement for directors of an OBCA corporation from a majority (51%) to 25% of the directors. This conforms to the board residency threshold under the Canada Business Corporations Act ("CBCA") and recent changes made to the general corporate statutes of Alberta, Saskatchewan and Manitoba. It appears that the Ontario government was concerned that elimination of the residency requirement entirely would make it more difficult to enforce provincial tax statutes against corporations conducting business in Ontario if those corporations opt for boards without resident Canadian directors. Foreign investors and others who wish to avoid any Canadian residency requirement will, therefore, have to opt for incorporation, or continuance, under the corporate laws of British Columbia, New Brunswick, Nova Scotia or any of the territories. The by-laws of an OBCA corporation may require amendment if they have hard-wired the existing majority residency requirement. The OBCA amendments will not override existing by-laws.
2. Eliminating the Canadian Residency Requirement at Board and Committee Meetings
However, unlike the CBCA, the OBCA will no longer require that there be any minimum level of resident Canadians at a board meeting. Likewise, the OBCA will not require any resident Canadians on any board committees. Nor will the managing director of an OBCA corporation still have to be a resident Canadian. However, again, existing by-laws may have to be revisited to take advantage of the increased flexibility that Bill 152 will bring.
3. Repealing the Financial Assistance Provisions
The OBCA was amended in 2000 to considerably emasculate the much-maligned financial assistance provision, s. 20. The OBCA adopted a variant of Saskatchewan model post-transaction disclosure regime, replacing the former double solvency tests. In 2001, the CBCA went one step further by entirely abolishing s. 44, the federal financial assistance provision. Bill 152 will follow the federal lead and eliminate the provision. Thus, the OBCA will no longer have a specific provision requiring disclosure to the corporation's shareholders of related-party or sharepurchase financial assistance.1
4. Facilitating Corporate Finance
Bill 152 will make several useful amendments to Part III of the OBCA, which deals primarily with share capital. For example:
(a) the OBCA will be clarified so that separate classes of shares can exist without necessitating differences in their respective rights, privileges, restrictions and conditions. No longer will it be necessary to invent artificial distinctions between share classes to ensure that they will be legally recognized as separate classes;
(b) like the CBCA, the OBCA will enable a corporation to add to its stated capital account less than the full consideration received for shares issued in exchange for property (whether from arm's length or non-arm's length purchasers). This facilitates rollover transactions involving arm's length parties. The OBCA contains a minor improvement on the corresponding CBCA regime in that the consent of existing shareholders of the class to an issuance of shares in exchange for property to an arm's length purchaser is only needed where the issuance would result in a dilution of the mean stated capital per share (exposing existing shareholders to a potential tax increase on a future deemed dividend);