Corporate Changes and Reorganizations

• Author: J. Anthony VanDuzer
• Profession: Faculty of Law University of Ottawa
• Pages: 302-337

302

Cha pter 8

CORPOR ATE

CHANGES AND

R EOR GA NIZ AT IONS

a. INtrODUCtION

After a corporation i s incorporated, it m ay be necessary to change its

characterist ics for a variety of rea sons. Perhaps a new cl ass of shares

must be created to meet the needs of a new investor, or the number of

directors needs to be increased so someone with usef ul experience can

be added. Changing these characteristics involves amending the arti-

cles of the corporation, and in this chapter we discuss how this may be

done. This chapter also sets out what is required to effect various other

corporate changes under the CBCA and other Canadian corporate stat-

utes, including adjustments to a corporation’s stated capital, continuing

the corporation under the laws of another jurisdiction, amalgamating

the corporation with other corporations, selling substantia lly all of the

corporation’s assets, and termin ating the corporation’s existence.

Some of these changes fundament ally alter the nature of the share-

holders’ investment. As a result, they are subject to special procedures

under the applicable Canadian corporate statutes that a re designed

to protect t he interest s of shareholders, as well as others with a stake

in the corporation. While the specif‌ic features of the procedure vary

somewhat, in most cases adequate disclosure regarding the nature of

the change to shareholders and shareholder approval are required. Typ-

ically, this approval is required to be by a special resolution of share-

holders. Where a corporation has multiple classes of shares, sometimes

the holders of each class of shares may be given a right to vote, even if

Corporate Cha nges and Reorganization s 303

their shares do not otherwise carry a voting right. If a class is prejudi-

cially a ffected by the change, holders of sh ares of that cl ass m ay even

be entitled to vote separately a s a class, giving them a veto right over

the change. As well, with respect to some fundamental changes, share-

holders who disagree with a decision have the right to have their shares

bought by the corporation. This is called a “dissent and appraisal right.”

The dist inctive procedures that must be followed in connection w ith

approving fundamental ch anges are discu ssed in thi s chapter.

B. Cha NgeS IN COrpOrate

Ch ar aC ter IStICS

1) Amendment of Articles

The a rticles of the corporation must be amended to add, change, or

remove any provision conta ined in the articles (CBCA, ss. 173–79).1

Amendment is required to do any of the following:

 

 

 

the corporation;

            

ownership of shares;

  -

tors;

 

may carr y on or on the powers the corporation may exercise; or

              

laws at the time of incorporat ion2 but was not included at that time

(CBCA, s. 173).

1 Each province w ith a statute based on the Can ada Business Corporations Act ,

R.S.C. 1985, c. C-44 [CBCA], has a scheme for amendi ng articles. For ex-

ample, the Ontar io Business Corporations Act, R. S.O. 1990, c. B.16 [OBCA], ss.

168–172, and 273(3); and the Alber ta Business Corporations Act, R. S.A. 2000,

c. B-9 [ABCA], ss. 173–179. British Columbia’s scheme for amending t he notice

of articles a nd articles is set out in the Bus iness Corporations Act, S.B.C., c. 57

[BCBCA], ss. 54, 55, 58, 60, 61, 139, and 257–263. Regarding the process i n On-

tario, see Mi nistry of Government S ervices, Companies a nd Personal Property

Security B ranch, Information Sheet, Ame ndment (Business Corporat ions) (30

November 2007).

2 These provisions are listed in Chapter 4, section B(1)(a)(vii) (“Other Provisions”).

THE LAW OF PARTNERSHIPS AND COR PORATIONS304

Subject to the exceptions described below, amendment of the arti-

cles requires approval by special resolution. This is a resolution that is

either passed at a meeting of shareholders by a majority of not less than

two-thirds of the votes cast or is consented to i n writing by all share-

holders entitled to vote. A level of approval higher than two-thirds may

be specif‌ied in a shareholders’ agreement or in the corporation’s articles.

As with all shareholder meetings, notice of a meeting to consider a reso-

lution to amend the art icles must be sent to shareholders. The notice

must state the nature of the proposed amendment in suff‌icient detail to

permit shareholders to form a reasoned decision about whether to vote

for or against t he amendment and must include the text of t he special

resolution on which the sha reholders wi ll b e asked to vote (CBCA, s.

135(6)). In addition, if the corporation has more than f‌ifty sharehold-

ers, the management must send shareholders a form of proxy and a

management proxy circular that provide furt her information (CBCA, s.

14 9(1 )). 3 Shareholders may initiate amendments to ar ticles them selves

by making a shareholder proposal (CBCA, s. 175(1)). Proposals and the

proxy solicitation process were discussed in Chapter 7.

At the meeting, shareholders who would otherwise be entitled to

vote are per mitted to do so. Additionally, any class or s eries of shares

that i s affected by the amendment in a manner set out in section 176

of the CBCA are entitled to vote separately as a class. S ection 176 lists

exhaustively the specif‌ic circumstances when such a separate class vote

is required. Essential ly, a class or series is entitled to a separate vote

whenever it will be prejudicially affected by the adoption of the amend-

ment in comparison to the other classes or series. This might occur, for

example, where an amendment would create a new class that would be

entitled to receive dividends before any d ividends were paid to hold-

ers of shares of an existing class.4 A separate vote is required even if

the class or ser ies of shares would not otherw ise have the r ight to vote

3 Under the OBCA thi s obligation applies only to offeri ng corporations (OBCA, s.

11). Under the ABCA th is obligation applies to all cor porations that are “priv ate

issuers” wit hin the meaning of provi ncial securities l aw (s. 149). The meaning

of private issue r is discussed in Ch apter 11.

4 Section 176(1) of the CBCA contemplates that the a rticles may exclude the r ight

to a class vote for amend ments identif‌ied in ss. 176(1)(a), (b), and (e). With re-

spect to a part icular class, the se are amendments to (i) increase or de crease any

maximum num ber of authorized shares of t he class, or increas e any maximum

number of authorized shares of a cla ss having rights and privileges eq ual or

superior to the sh ares of the class; (ii) effect an exch ange, reclassif‌icat ion or can-

cellation of al l or part of the shares of such cla ss; and (iii) create a new class of

shares equ al or superior to the shares of t he class. See the identic al provision in

OBCA, s. 127. The ABCA, does not permit the exc lusion of class votes in thi s way.