Corporate Changes and Reorganizations

• Author: J. Anthony VanDuzer
• Pages: 334-372

334

CHA PTER 8

COR POR ATE CH ANGES

AND R EORGANIZATIONS

A. INTRODUC TION

After a corporation is incorporated, it may be necessary to change its

characterist ics for a variety of reasons. Perhaps a new class of shares

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

of directors needs to be increa sed so someone with useful ex perience

can be added to the board. Changing these characteristics involves

amending the articles of the corporation, and in this ch apter we dis-

cuss how this may be done. This chapter also sets out what is required

to effect various other corporate changes under the CBCA and othe r

Canadian corporate statutes, including adjustments to a corporation’s

stated capital, continuing the corporation under the laws of another

juris diction, am algamat ing the cor poration w ith other corporation s,

selling substant ially all of the corporation’s assets, and ter minating

the corp oration’s existence.

Some of these changes fund amentally alter the nature of the share-

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

under the applicable Canadian corporate statutes that are designed

to protect the interests 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.

Typically, shareholders must approve by a special resolution. Where

a corporation has multiple classes of shares, sometimes the holders

Corporate Ch anges and Reorgani zations 335

of each class of shares are given a right to vote, even if their shares do

not otherwise ca rry a voting right. If a class is prejudicially affected by

the change, holders of shares of that cla ss may even be entitled to vote

separately as a clas s, giving them a veto right over the change. As well,

with respect to some fund amental changes, shareholders who dis agree

with a decision have the right to have their shares bought by the cor-

poration. This is called a “dissent and appraisal right.” The distinctive

procedures that must be followed in connection with approving f unda-

mental changes are di scussed in this chapter.

B. CH ANGES IN CORPORATE

CH AR AC TER ISTICS

1) Amendment of Articles

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

remove any provision contained in the art icles (CBCA, ss 173–79).1

Amendment is required to do any of the following:

• change the corporate name;

• change the province of the corporation’s registered off‌ice;

• add, change, or remove provisions relating to t he classes of shares

of the cor poration;

• add, change, or remove any restriction on the is sue, transfer, or

ownership of shares;

• change the number or the min imum or maximum number of directors;

• add, change, or remove any restriction on the business the corpora-

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

• add any provision that might have been set out in articles or by-laws

on incorporation2 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 , RSC

1985, c C-44 [CBCA], has a scheme for amending ar ticles. For example, the On-

tario Busine ss Corporations Act, RSO 1990, c B.16 [OBCA], ss 168–72, and 273(3);

and the Alber ta Business Corporations Act, RSA 20 00, c B-9 [ABCA], ss 173–79.

British Columbi a’s scheme for amending the notice of art icles and articles is s et

out in the Business Corporat ions Act, SBC, c 57 [BCBCA], ss 54, 55, 58, 60, 61, 139,

and 257–63. Regardi ng the process in Ontar io, see Service Ontar io, online: www.

ontario.ca /page/amendment-busine ss-corporations. A rticles of amendment must

be f‌iled with t he Central Production and Verif‌ic ation Services Bra nch.

2 These provis ions are listed in Chapter 4, sect ion B(1)(a)(vii) (“Other Provisions”).

THE LAW OF PARTNERSHIPS AND COR PORATIONS336

Subject to the limited exceptions described below, amendment of

the articles 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 in writing by

all shareholders entitled to vote. A level of approval higher than two-

thirds may be specif‌ied in a shareholders’ agreement or in the corpora-

tion’s articles. As with all sh areholder meetings, notice of a meeting

to consider a resolution to amend the articles must be sent to share-

holders. 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 the amendment and must include

the text of the special re solution on which the shareholders will be

asked to vote (CBCA, s 135(6)). In addition, if the corporation has

more than f‌ifty shareholders, the management must send shareholders

a form of proxy and a management proxy circular t hat provide fur-

ther in formation (CBCA, s 149(1)).3 Shareholders may initiate amend-

ments to articles them selves by making a shareholder proposal (CBCA,

s 175(1)). Proposals and t he proxy solicitation process were discussed

in Chapter 7.

At the meeting, shareholders who would otherwise be entitled to

vote are permitted to do so. Additionally, any class or serie s of shares

that is affected by the amendment in a manner set out in section 176 of

the CBCA are entit led to vote separately as a class. Section 176 lists ex-

haustively the specif‌ic circumstances when such a separate class vote

is required. Essentially, a class or series is entitled to a s eparate vote

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

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

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

entitled to receive dividends before any div idends were paid to hold-

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

3 Under the OBCA this obl igation applies only to offering cor porations (OBCA,

s 111). Under the ABCA thi s obligation applies to all corpor ations that are not

“private iss uers” within the meani ng of provincial securit ies law (s 149). The

meaning of pr ivate issuer is discus sed in Chapter 11.

4 Section 176(1) of the CBCA contemplate s that the articles m ay exclude the

right to a clas s vote for amendments identif‌ied in s s 176(1)(a), (b), and (e). With

respect to a pa rticular class, t hese are amendments to (1) increase or de crease

any maximu m number of authorized share s of the class, or increa se any maxi-

mum number of authori zed shares of a class h aving rights and priv ileges equal

or superior to the sh ares of the class; (2) effect an excha nge, reclassif‌ication or

cancellat ion of all or part of the shares of suc h class; and (3) create a new class of

shares equa l or superior to the shares of t he class. See the identica l provision in

OBCA, s 170. The ABCA, does not permit the exc lusion of class votes in thi s way.