Business Law
Grigoras Law advises businesses, directors, shareholders, and investors across Ontario on corporate law matters under the CBCA and OBCA. We act where the governance and structure of a corporation is in dispute or needs to be built from the ground up — incorporation, shareholder agreements, director duties, oppression remedy applications, and dissolution. Our work spans the full lifecycle of a business, from the choice of structure at formation through reorganization, ownership disputes, and the legal obligations that follow when control of a corporation changes hands.
What We Do
Advice on the choice between federal and provincial incorporation, preparation and filing of articles of incorporation, adoption of by-laws, and the organizational steps required to establish a properly constituted corporation under the CBCA or OBCA. Guidance on corporate naming, registered office requirements, and initial records setup.
Read moreDrafting and review of unanimous shareholder agreements and non-unanimous shareholder agreements for closely held corporations. Advice on governance restrictions, buy-sell mechanisms, drag-along and tag-along rights, shotgun clauses, pre-emptive rights, and deadlock resolution procedures tailored to the ownership structure and commercial objectives of the principals.
Read moreAdvice to boards, individual directors, and officers on the scope and discharge of fiduciary duties and the duty of care under the OBCA. Guidance on the business judgment rule, conflict of interest disclosure obligations, corporate opportunity doctrine, and director independence requirements for offering corporations.
Read moreRepresentation of minority shareholders, creditors, directors, and officers in oppression remedy proceedings under section 248 of the OBCA. Analysis of reasonable expectations, structuring of relief sought — including forced buyouts, injunctions, and damages — and response to applications brought against controlling shareholders and boards.
Read morePursuit and defence of derivative actions on behalf of and against corporations where directors have committed breaches of fiduciary duty, misappropriated corporate assets, or taken corporate opportunities. Leave applications, litigation management, and coordination with oppression remedy proceedings where both causes of action arise from the same conduct.
Read moreCounsel on long-form and short-form amalgamations, court-supervised arrangements, article amendments, going-private transactions, and continuances under the OBCA. Advice on special resolution requirements, class voting entitlements, dissent and appraisal rights, and the preparation of amalgamation agreements and articles of amalgamation.
Read moreDefence of directors and officers facing personal liability claims under the OBCA, the Income Tax Act, the Excise Tax Act, the Employment Standards Act, and provincial and federal environmental legislation. Due diligence analysis, indemnification claims, and D&O insurance coverage advice in bankruptcy, receivership, and regulatory enforcement contexts.
Read moreAdvice on voluntary dissolution and winding-up under the OBCA, including preparation of articles of dissolution and compliance with pre-dissolution notification requirements. Representation of shareholders and creditors in court-ordered winding-up applications on just and equitable grounds, and guidance on the consequences of dissolution for directors, officers, and creditors.
Read moreYour Legal Team
Counsel — Civil & Appellate Litigation
Counsel — Civil & Appellate Litigation
When Clients Call Us
The minority holds 40% of the shares but has been excluded from management decisions for two years. The majority shareholder — who controls the board — has been awarding itself an escalating salary, approved by director resolutions the minority never saw, while redirecting the corporation's most profitable clients to a separate company it owns outright. We assess the minority's reasonable expectations having regard to the founding arrangements, advise on the grounds for an oppression application, identify the relief available — including a compelled buyout at fair value — and address whether the conduct also supports a derivative action for breach of fiduciary duty.
The two shareholders each hold 50% of the voting shares and the unanimous shareholder agreement requires board unanimity for all major decisions. One shareholder has ceased cooperating on contract renewals, hiring, and financial approvals. The other wants to exit at fair value but disputes the mechanism under the USA — the shotgun clause requires a minimum notice period the parties disagree about. We advise on enforcing the shotgun provision, the alternative of an oppression application seeking a court-ordered buyout, and whether a just and equitable winding-up application is appropriate if the deadlock is irresolvable.
The director resigned eight months before the corporation ceased operations and believes they took all reasonable steps to prevent the remittance failures during their tenure. The CRA's director liability assessment covers a period that straddles the resignation date, and the amount assessed is substantial. We analyze whether the two-year limitation period and the certificate registration requirements under the Excise Tax Act bar part of the assessment, reconstruct the director's actual knowledge and actions during the relevant period to build a due diligence defence, and advise on the objection and appeal process before the Tax Court of Canada.
The group completed an acquisition two years ago that resulted in the subsidiary being used as an intermediate holding company. That structure is no longer needed and maintaining a separate entity creates administrative cost and complexity. We advise on the availability of a short-form vertical amalgamation, the director resolutions required, the effect of the amalgamation on the subsidiary's contracts, licences, real property registrations, and banking arrangements, and the post-amalgamation filing requirements. Where third-party consents or landlord approvals are triggered by the amalgamation, we identify them in advance and advise on the sequence of steps.
The transaction involved the corporation purchasing real property from a company controlled by two of the four directors at a price that a subsequent appraisal suggests was 30% above market value. The remaining directors have declined to pursue the matter, citing their reluctance to damage business relationships. The complaining shareholder holds 25% of the shares. We advise on the requirements for leave under section 246 of the OBCA — including the 14-day notice obligation, the diligence assessment, and the "interests of the corporation" threshold — the scope of relief available in a successful derivative action, and whether the same facts also support a personal oppression claim.
The two founders currently hold equal common shares and have operated informally, but an incoming seed investor is requiring a preferred share class, anti-dilution protection, and information rights as conditions of investment. The founders also want to put in place vesting provisions for their own shares, a right of first refusal on transfers, and drag-along rights to facilitate a future exit. We advise on amending the articles to create a preferred share class with the required attributes, draft a shareholders' agreement covering founder vesting, transfer restrictions, drag-along and tag-along mechanics, and investor rights, and address the interaction between the shareholders' agreement and the articles to avoid internal inconsistency.
Insights & Coverage
Formation & Business Structure
Corporate law is the body of law that governs the creation, organization, management, and dissolution of corporations. It determines how corporations come into existence, how they are structured internally, what powers they have, how those powers are exercised, and when — and on what terms — a corporation's existence ends. In Ontario, corporate law is predominantly statutory in character: its rules are set out in comprehensive legislation that displaces much of the common law and provides adaptable, detailed frameworks for business enterprises of every size.
The fundamental purpose of corporate law is to facilitate the efficient organization of economic activity through the corporate form. The corporation is a remarkably flexible instrument. It can be used to conduct a corner store business operated by a single person or to organize a multinational enterprise with millions of shareholders. What distinguishes the corporation from other business forms — and what makes it so widely used — is a cluster of core features that corporate law provides: separate legal personality, limited liability for shareholders, perpetual existence, free transferability of shares, and centralized management by a board of directors. Understanding corporate law means understanding how these features work, how they interact, and where their limits lie.
A corporation is a legal person distinct from its shareholders. It can own property, enter contracts, sue and be sued, and commit offences entirely in its own name. Its obligations are its own and not those of the people who own it.
Shareholders are not personally liable for the corporation's debts or obligations. A shareholder's maximum loss is the amount invested in the shares. This feature is perhaps the single greatest incentive for using the corporate form.
A corporation continues in existence regardless of changes in its ownership. The death of a shareholder, the sale of shares, or the insolvency of an investor does not dissolve the corporation or disrupt its operations.
In Canada, corporations may be incorporated under either federal or provincial legislation. Federally incorporated corporations are governed by the Canada Business Corporations Act (CBCA). Ontario-incorporated corporations are governed by the Business Corporations Act (Ontario) (OBCA). The two regimes are broadly similar in structure — the OBCA was modelled substantially on the CBCA — but differ in important details, including residency requirements for directors, certain thresholds for shareholder approval, and specific remedies available under each act.
The choice between federal and provincial incorporation has practical implications. A federally incorporated corporation has the right to carry on business throughout Canada under its federal corporate name without separately registering in each province, although it will still need to register to carry on business in provinces that require it. A provincially incorporated corporation that wishes to carry on business outside its home province must register as an extra-provincial corporation in each jurisdiction where it operates. For corporations conducting business primarily in Ontario, provincial incorporation under the OBCA is commonly chosen for its simplicity and the familiarity of Ontario courts and practitioners with its provisions.
The foundational principle of corporate law is that a corporation is a separate legal entity from its shareholders. Established by the House of Lords in Salomon v. Salomon & Co. [1897] A.C. 22, this principle means that contractual obligations and liabilities belong to the corporation itself — not to the shareholders who own it. Courts will only "pierce the corporate veil" and impose liability on shareholders in exceptional circumstances, such as where the corporate form is used as a vehicle for fraud or where the corporation is merely the alter ego of a controlling shareholder with no independent existence of its own. The bar for piercing is high, and courts have consistently emphasized that the mere fact of control or a close relationship between shareholder and corporation does not justify setting aside the fundamental distinction between them.
Before choosing to incorporate, a business person should understand the alternatives. There are several forms of business organization in Ontario, each with distinct legal, liability, and tax implications.
A sole proprietorship is the simplest form. It arises when a single owner carries on business in their own name or under a registered trade name. There is no legal distinction between the owner and the business: the proprietor owns all assets, is personally liable for all obligations, and pays income tax on all business income personally. A sole proprietorship requires no registration beyond the trade name registration required where the business is conducted under a name other than the proprietor's own legal name.
A partnership arises where two or more persons carry on business together with a view to profit. Ontario recognizes three forms: a general partnership, in which all partners have unlimited liability and all are presumed to be active managers; a limited partnership, which consists of one or more general partners with unlimited liability and one or more limited partners whose liability is capped at the amount they have contributed, provided they take no active role in management; and a limited liability partnership (LLP), which may only be created to carry on certain designated professional activities and provides partners with protection from liability for the negligence of their co-partners.
A co-ownership arrangement arises where two or more persons jointly own property. It is distinguishable from a partnership in that each co-owner deals with their interest in the property separately. Co-ownership is a common structure for real estate investments but is not a partnership unless the co-owners are also carrying on a business together with a shared profit motive.
The corporation is by far the most popular form of business organization, chosen for its ease of creation, flexibility, perpetual existence, and the limited liability it provides for its shareholders. Under the OBCA, a corporation has the capacity and the rights, powers, and privileges of a natural person — it can do virtually anything a human being can do in the context of carrying on a business.
| Structure | Limited Liability | Separate Legal Person | Perpetual Existence | Common Use |
|---|---|---|---|---|
| Sole Proprietorship | No | No | No | Individual service businesses; freelancers |
| General Partnership | No | No | No | Professional firms; joint ventures |
| Limited Partnership | Limited partners only | No | No | Investment funds; real estate structures |
| LLP | Partial (negligence of co-partners) | No | No | Law firms, accounting firms, other designated professions |
| Corporation | Yes (shareholders) | Yes | Yes | All business types; universal applicability |
A corporation cannot enter into a contract before it exists. However, the practical reality of business is that a promoter often needs to commit to agreements — leasing premises, retaining suppliers, engaging employees — before the corporation is formally incorporated. The OBCA addresses this directly: a person may enter into a written contract in the name of, or on behalf of, a corporation before it is incorporated. Until the corporation is incorporated and formally adopts the contract, the person who signed it is personally bound by it and is entitled to the benefits of it.
Once incorporated, the corporation may adopt the pre-incorporation contract by any action or conduct that signifies the corporation's intent to be bound. Upon adoption, the corporation becomes bound in place of the person who entered into the contract, and that person is released from liability, unless the contract provides otherwise. Where the corporation does not adopt the contract within a reasonable time, or where the parties agreed that the corporation would not be bound, the contracting person remains personally liable. This framework allocates the risk of pre-incorporation commitments sensibly: promoters are incentivized to complete incorporation quickly and secure adoption, and third parties dealing with promoters know that they have recourse against the individual until the corporation formally takes on the obligation.
Incorporation under the OBCA is accomplished by executing articles of incorporation and filing them with the Director appointed under the OBCA, together with the required supporting materials and fees. The articles of incorporation are the corporation's founding constitutional document. They must set out:
Upon receipt of the articles in proper form, the Director issues a certificate of incorporation. The certificate is conclusive evidence of the date of incorporation. From that moment, the corporation is in existence as a legal person. The articles may also include provisions dealing with the internal governance of the corporation — matters such as procedures for director elections, consent requirements for shareholder decisions, or restrictions on corporate powers — allowing founders significant flexibility to customize the corporation's constitutional framework at the outset.
The OBCA distinguishes between offering corporations and non-offering corporations. An offering corporation is one that offers its securities to the public — broadly, a corporation that has filed a prospectus or whose securities have been listed on a stock exchange in Ontario. Non-offering corporations (commonly called "private" corporations) are the far more common form. They must include in their articles a restriction on the transfer of shares, and must have no more than 50 shareholders (excluding current and former employees). These restrictions are the defining characteristics of the private corporation and give it certain advantages in terms of reduced regulatory burden under both the OBCA and Ontario securities legislation.
The name of a corporation must meet several criteria under the OBCA and the applicable Regulations. A proposed name must be distinctive — not confusingly or deceptively similar to the name of any existing entity — and must comply with a detailed set of prohibitions. The following are prohibited: obscene words; words indicating the practice of a profession for which the corporation is not licensed; words suggesting a connection with the Crown or with a government unless such a connection exists; and words likely to suggest that the corporation is a bank, trust company, insurance company, or other regulated financial institution unless it is one.
Every OBCA corporate name must include one of the following legal designators, or an approved abbreviation, to signal its corporate status to third parties: "Limited", "Limitée", "Incorporated", "Incorporée", "Corporation", "Ltd.", "Ltée", "Inc.", or "Corp."
Before filing articles containing a proposed corporate name, the applicant must obtain a NUANS (Newly Upgraded Automated Name Search) report — a computerized report showing names that are similar to the proposed name in databases maintained by Industry Canada and the Ontario government. The report must be dated not more than 90 days before the filing date. If the NUANS report discloses a similar name, the applicant must assess whether the proposed name is sufficiently distinctive to avoid confusion. A corporation may also be incorporated under a numbered name — for example, "1234567 Ontario Inc." — where speed of incorporation is a priority and a distinctive name has not yet been selected.
If a corporation wishes to identify itself publicly under a name other than its corporate name, it must register that trade name under the Business Names Act. Even with a registered corporate name, no protection against trademark infringement is automatically provided — separate trademark registration through the Canadian Intellectual Property Office is advisable for corporations with commercially valuable brand names.
After incorporation, the corporation must organize itself. The first directors named in the articles must hold an organizational meeting at which they may pass resolutions to: adopt forms of share certificates and corporate records; adopt a general by-law; appoint officers; appoint an auditor to hold office until the first shareholder meeting; establish a banking arrangement; and transact any other business required to organize the corporation.
The by-laws of a corporation are the internal rules regulating its business and affairs. They address practical matters such as procedures for meetings of directors and shareholders, the duties and powers of officers, the execution of corporate documents, the seal of the corporation (if any), and — where authorized — the corporation's borrowing powers. By-laws are optional, not mandatory, but in practice virtually every operating corporation adopts a general by-law at its organizational meeting.
The OBCA provides that by-laws are adopted, amended, or repealed first by the directors. A by-law takes effect from the date of the directors' resolution, but it must be confirmed by the shareholders at the next annual or special meeting. If the shareholders do not confirm the by-law, it ceases to have effect. Once confirmed, a by-law remains in effect until it is amended or repealed. The articles of incorporation and the by-laws together form the corporation's constitutional framework — the articles are the superior document, and any by-law inconsistent with the articles is of no force.
Every corporation must maintain a registered office in Ontario, and must keep certain records either at the registered office or at another designated location in Ontario. The location of the registered office may be changed within the same municipality by director resolution; a change to a different municipality requires an amendment to the articles.
The records that must be maintained at or available at the registered office include:
The register of individuals with significant control (ISC register) is a relatively recent addition to OBCA obligations. Non-offering corporations are required to maintain this register, which identifies the individuals who hold or control a significant number of shares (generally 25% or more) of the corporation. The corporation must take reasonable steps at least once per financial year to verify that the ISC register is accurate and up to date. Failure to maintain the register properly is an offence under the OBCA carrying a fine of up to $5,000, with additional liability for directors and officers who knowingly authorized or permitted the non-compliance.
The corporation must also maintain adequate accounting records and records of minutes of meetings and resolutions of directors and director committees. Accounting records must be retained for a minimum of six years. Shareholders, creditors, and their authorized representatives have a right to inspect certain records free of charge and to receive copies at prescribed fees.
A corporation incorporated under the CBCA or under the laws of any other Canadian province or territory is entitled to carry on business in Ontario but must first register under the Extra-Provincial Corporations Act (EPCA) and file a notice under the Corporations Information Act. A corporation is deemed to be carrying on business in Ontario if it has a resident agent, representative, warehouse, office, or place of business in Ontario, or if it holds or manages any part of its property in Ontario. An extra-provincial corporation that carries on business in Ontario without registering commits an offence, and its contracts with Ontario counterparties may not be enforceable in Ontario courts until it registers.
A "share" is the fractional piece of a corporation's capital that represents the shareholder's proportional right to participate in the corporation's assets upon a distribution — whether by dividend during the corporation's life or by distribution of remaining assets upon dissolution. Shares are a form of personal property: they can be transferred, pledged as security, and held in trust, subject to any applicable restrictions.
The authorized capital of a corporation is the maximum number and classes of shares the corporation is authorized to issue, as set out in its articles. The OBCA does not require a corporation to have a maximum on the number of shares it may authorize — many corporations authorize an unlimited number of shares of one or more classes. The authorized capital simply defines the universe of shares the corporation could issue; actual issuances come from within that universe.
The portion of authorized capital that has actually been issued to shareholders is the issued capital or stated capital. A corporation must maintain a stated capital account for each class and series of shares it issues, and must add to that account the full consideration received for each share issuance. All shares of an OBCA corporation are without nominal or par value — the concept of a fixed minimum price per share does not exist in Ontario corporate law. The price at which shares are issued is determined by the board of directors in the exercise of its business judgment.
If a corporation has only one class of shares, all shareholders are equal: each has the right to vote at all shareholder meetings and the right to share equally in the remaining assets upon dissolution. In practice, most corporations — and virtually all closely held corporations — have more than one class of shares, because the ability to customize the rights attached to different classes is one of the most powerful tools available in corporate planning.
Where there is more than one class, the articles must specify the rights, privileges, restrictions, and conditions attaching to each class. At a minimum, the articles must ensure that at least one class of shares carries the right to vote and at least one class carries the right to receive remaining property on dissolution (these rights need not reside in the same class). Common share characteristics include:
Share issuances must be approved by the board of directors. The directors must accept the subscription, allot the shares, and record the issuance in the corporation's securities register. A corporation cannot issue shares until the full consideration for them has been received. Consideration for shares may be in the form of cash, property, or services already rendered to the corporation — but not future services or promissory notes.
Where shares are issued for consideration other than money, the board of directors must determine both the dollar equivalent of what the corporation would have received if the shares had been issued for money, and the fair value of the property or past services being exchanged. The directors are jointly and severally liable to restore to the corporation any amount by which the actual consideration received was less than the fair equivalent of the consideration that should have been received. This provision protects both the corporation and its existing shareholders against improper share issuances that dilute the value of their holdings without fair consideration flowing to the corporation.
Shares are freely transferable at common law, subject to any restrictions in the corporation's articles or a unanimous shareholder agreement. For non-offering (private) corporations, the OBCA requires that the articles include a restriction on share transfer — typically either a right of first refusal in favour of the other shareholders, a requirement that transfers be approved by the board or by a specified majority of shareholders, or both. These restrictions serve to keep ownership within a defined group and to prevent unwanted third parties from becoming shareholders.
Under the OBCA, the rights attaching to shares are exercisable only by the registered owner — the person listed in the corporation's securities register. A beneficial owner who holds shares through a nominee or broker is not the registered owner and has no direct standing to exercise shareholder rights in their own name. The distinction between registered and beneficial ownership is practically important in private corporation disputes, where shareholders sometimes hold shares through holding companies or in trust, and in determining who is entitled to attend and vote at shareholder meetings.
A corporation must register all valid transfers of shares. Where the corporation refuses to register a transfer without lawful justification, or maintains an inaccurate register, a shareholder or aggrieved person may apply to court for an order rectifying the register.
A corporation may purchase its own shares for cancellation, subject to its articles and a two-part statutory solvency test. The solvency test requires that at the time of the proposed purchase: (a) there are no reasonable grounds to believe that the corporation is, or would after the payment be, unable to pay its liabilities as they become due; and (b) the realizable value of the corporation's assets would not, after the payment, be less than the aggregate of its liabilities and stated capital of all classes. Both conditions must be satisfied. Where a corporation purchases or redeems shares in violation of the solvency test, the directors who consented to the transaction are jointly and severally liable to restore to the corporation any amounts paid that the corporation is entitled to recover.
Upon purchase or redemption, shares are generally cancelled automatically. If the articles limit the maximum number of authorized shares of the relevant class, the corporation may instead restore the purchased shares to the status of authorized but unissued shares. In either case, the corporation must deduct from the stated capital account for the relevant class the portion of stated capital attributable to the shares reacquired.
A corporation may amend its authorized capital by amending its articles of incorporation. Amendments may change the maximum number of shares authorized; add or remove classes of shares; alter the designation, rights, privileges, restrictions, or conditions attaching to any class or series; or consolidate or subdivide existing shares. Any such amendment requires approval by special resolution — a resolution passed by not less than two-thirds of the votes cast by shareholders at a meeting called for that purpose, or a written resolution signed by all shareholders entitled to vote. Where an amendment would affect the rights of a class of shares, the holders of that class are generally entitled to vote separately as a class on the amendment, even if those shares would not otherwise carry a vote. Shareholders who vote against certain amendments that adversely affect their shares may be entitled to exercise dissent rights and compel the corporation to purchase their shares at fair value.
Subject to any unanimous shareholder agreement, the directors of a corporation are collectively responsible for managing and supervising the management of the business and affairs of the corporation. This is the central organizing principle of corporate governance under the OBCA: management authority resides in the board, not in the shareholders. Shareholders elect directors, but once elected, directors exercise independent judgment in managing the corporation's affairs within the legal framework established by the articles, by-laws, and applicable statutes. Shareholders may influence the board through the election and removal process, through their approval rights over fundamental transactions, and through the oppression remedy and other statutory protections, but they cannot directly direct the board on operational matters without a unanimous shareholder agreement that explicitly restricts the directors' powers.
The board's powers include all acts necessary or incidental to carrying on the business — entering contracts, acquiring and disposing of property, borrowing money, issuing securities, hiring and firing officers and employees, and approving financial statements. Certain fundamental decisions — those that represent major changes to the corporation's existence or constitution — require shareholder approval and cannot be made by the board alone.
The articles of a corporation must specify the number of directors, or a minimum and maximum number. Non-offering corporations must have at least one director; offering corporations must have at least three directors, at least one-third of whom must be neither officers nor employees of the corporation or any of its affiliates (the "independence" requirement). The following persons are disqualified from serving as a director under the OBCA: any person under the age of 18; a person found to be incapable of managing property; and a person who has the status of bankrupt.
The first directors are named in the articles and hold office until the first shareholder meeting. At the first meeting and each subsequent annual meeting, the shareholders elect directors by ordinary resolution (simple majority). Directors hold office until the next annual meeting unless they resign, are removed, or become disqualified before that time. Unless the articles provide for cumulative voting, shareholders may remove any director before the expiry of their term by ordinary resolution at a special meeting called for that purpose.
A director who ceases to hold office — whether by expiry of term, resignation, removal, or disqualification — is entitled to submit a written statement to the corporation giving reasons for their departure or opposing any proposed action triggering their resignation. The corporation must send this statement to shareholders and to the relevant securities regulator (in the case of an offering corporation). This right to give reasons is important in disputed corporate situations: a departing director can use it to put their concerns on the public record before the situation deteriorates further.
Any change in the directors of a corporation must be reported to the relevant provincial authority within 15 days by filing a notice of change under the Corporations Information Act.
As of March 2018, directors of an OBCA corporation may hold board meetings at any place — within or outside Ontario — unless the by-laws restrict meeting locations. Meetings may also be held by telephonic or electronic communication facilities, provided all participants can communicate with each other simultaneously and adequately. Board meetings held electronically are treated as meetings held at the place where the majority of directors are located when the meeting is held (or where the chair of the meeting is located, if the by-laws so provide).
A majority of the number of directors stated in the articles (or of the minimum number, if a range is provided) constitutes a quorum at a board meeting. A director who is present at a board meeting is deemed to have consented to any resolution passed at that meeting, unless they request that their dissent be entered in the minutes, file a written dissent with the secretary of the meeting before it ends, or send a written dissent immediately after the meeting ends. Documenting dissent is important for directors who wish to avoid potential liability for board decisions they opposed.
A resolution in writing, signed by all directors entitled to vote on that resolution, is as valid and effective as if it had been passed at a meeting of directors. Written resolutions are widely used in private corporation governance for routine matters — approvals of financial statements, declarations of dividends, signing resolutions for corporate transactions — where convening a formal meeting would be unnecessarily cumbersome.
The directors may delegate many of their powers to a managing director or a committee of directors, subject to certain limitations. Powers that cannot be delegated include: submitting matters to shareholders for approval; filling vacancies on the board or appointing the chief executive officer, chief financial officer, chair, or president; issuing shares except as previously authorized; purchasing, redeeming, or acquiring issued shares; approving financial statements; declaring dividends; approving a management information circular; approving amalgamations; and amending articles. These non-delegable powers reflect the board's residual and non-transferable responsibility for the corporation's most significant decisions.
The directors designate the offices of the corporation, appoint officers, specify their duties, and delegate to them powers to manage the day-to-day business and affairs of the corporation. Officers serve at the pleasure of the board and may be removed at any time. Under the OBCA, officers are subject to the same standard of care and fiduciary obligations as directors, and must disclose any conflict of interest they have with respect to a material contract or transaction with the corporation. An individual may simultaneously hold multiple offices and may also be a director.
The directors may fix the remuneration of directors, officers, and employees, subject to the articles, by-laws, and any unanimous shareholder agreement. In assessing whether compensation is excessive or constitutes oppressive conduct, courts apply the business judgment rule: they will not interfere with compensation decisions made without evidence of fraud, illegality, or conflict of interest, provided the decision was within the range of reasonable decisions open to the board in the circumstances.
The OBCA permits a corporation to indemnify its directors and officers against a broad range of civil, criminal, and administrative proceedings arising from their service. Indemnification is available where the director or officer acted honestly and in good faith with a view to the best interests of the corporation and, in the case of criminal or quasi-criminal proceedings, had reasonable grounds to believe that their conduct was lawful. A director who met these standards and was not found by a court to have committed any fault is entitled to be indemnified as of right, even if the corporation wishes to withhold indemnification. Corporations commonly purchase directors' and officers' (D&O) liability insurance as a supplement to contractual indemnification, providing coverage for amounts that the corporation is not permitted to indemnify.
Every director and officer of a corporation owes a statutory fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation. This duty is codified in section 134(1) of the OBCA and mirrors the common law fiduciary obligations that equity courts developed for corporate directors long before any statute existed. The Supreme Court of Canada has confirmed that the fiduciary duty is owed to the corporation itself — not to the shareholders as individuals, not to specific classes of shareholders, and not to creditors (absent special circumstances). The corporation is the beneficiary of the duty, and actions for breach of fiduciary duty belong to the corporation, not to its individual shareholders directly.
The fiduciary duty has several distinct applications in practice:
Acting in the best interests of the corporation. Directors must exercise their powers for the benefit of the corporation and its stakeholders as a whole, not for their personal benefit or the benefit of any particular interest group. In determining what is in the best interests of the corporation, the Supreme Court confirmed in BCE Inc. v. 1976 Debentureholders [2008] 3 S.C.R. 560 that directors may consider the interests of shareholders, employees, creditors, customers, and the broader community — and must treat all affected stakeholders equitably and fairly, even while fulfilling their primary duty to the corporation. However, the Court confirmed that the statutory fiduciary duty is not owed directly to creditors, even when a corporation is approaching insolvency.
Prohibition on corporate opportunities. It is a breach of fiduciary duty for a director or officer to divert to themselves a business opportunity that belongs to the corporation. The Supreme Court in Canadian Aero Service Ltd. v. O'Malley [1974] S.C.R. 592 held that this prohibition applies even after a director or officer has resigned from the corporation, and extends to opportunities that were known to the director or officer in their corporate capacity. The factors a court considers include the position held, the nature of the corporate opportunity, its ripeness, the director's relationship to it, and the amount of knowledge the director possessed.
Two senior officers of a corporation resigned and immediately incorporated their own company to take advantage of a contract that their former employer had been actively pursuing. The Supreme Court held that both officers breached their fiduciary duty and were liable to account for the profits derived from the opportunity. The Court confirmed that the fiduciary duty continues beyond resignation and that the strictness of the duty is calibrated to the seniority of the officer's role and the degree of their involvement with the relevant opportunity. The fact that the former employer might not itself have been able to win the contract was not a defence.
In addition to the fiduciary duty, every director and officer owes a duty of care to the corporation: a duty to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. This is an objective standard — the question is not what a particular director knew or was capable of, but what a reasonably prudent person in that director's position would have done. The standard is higher under the OBCA than at common law: the common law required only the care expected of a person with the director's own level of knowledge and experience; the OBCA requires the care that a reasonably prudent person would exercise, regardless of the director's personal attributes.
Directors and officers have a corresponding duty to comply with the OBCA, the regulations, and the corporation's articles, by-laws, and any unanimous shareholder agreement. A director who fails to attend board meetings, who rubber-stamps management decisions without independent inquiry, or who ignores obvious warning signs of corporate misconduct will not be able to hide behind ignorance as a defence. At the same time, the OBCA recognizes that directors must be able to rely on qualified advisers: a director will not be liable for a breach of the duty of care if they relied in good faith on financial statements presented by the corporation's officers or auditor, or on the report of a professional whose expertise the director had reasonable grounds to trust.
Courts do not sit as supervisory boards reviewing every corporate decision for wisdom or optimality. The law recognizes that directors must make decisions in conditions of uncertainty and imperfect information, and that entrepreneurial risk-taking is the engine of economic value creation. The business judgment rule is the judicial doctrine that protects directors from liability for decisions made honestly, in good faith, and with a reasonable process, even if those decisions turn out to be wrong in hindsight.
The Ontario Court of Appeal confirmed that courts will defer to the business decisions of directors provided the directors exercised their powers honestly and in good faith and the decision itself was within the range of reasonable alternatives. The proper question is not whether the court would have made the same decision, but whether the board's process was a reasonable one and whether the decision was within the range of reasonable decisions open to an informed board exercising business judgment. The business judgment rule is not a licence for sloppy decision-making: the board must have gathered sufficient information, considered the relevant factors, and reached a considered conclusion — but within those parameters, the law leaves the ultimate decision to the directors.
Under the OBCA, a director or officer who is a party to, or has a material interest in, a material contract or transaction with the corporation must disclose that interest. For directors, disclosure must be made at the meeting of directors at which the contract or transaction is first considered or, if the director was not then interested, at the first meeting after they became interested. For officers, disclosure must be made in writing or by requesting that it be entered in the minutes of a board meeting. The disclosure obligation extends to any situation in which a director or officer becomes a director or officer of a corporation that is a party to a material contract with the corporation.
A director who has disclosed their interest must not attend any part of the board meeting at which the contract or transaction is considered, may not vote on any resolution approving it, and the contract or transaction will not count toward the quorum for voting purposes. These restrictions exist to ensure that the board's approval reflects the independent judgment of disinterested directors, not the vote of those whose personal interests are engaged.
If a director or officer properly discloses their interest and the contract was reasonable and fair to the corporation when approved, the director or officer is not accountable to the corporation for any profit made from the contract. If disclosure was not properly made, the corporation, a shareholder, or (in the case of an offering corporation) the Ontario Securities Commission may apply to court for an order setting aside the contract and requiring the director or officer to account for any profit made. Courts will apply an analysis that distinguishes between directors who used their position to extract personal benefit at the corporation's expense and those who inadvertently failed to disclose a technical interest.
The question of whether directors owe fiduciary duties directly to creditors has been a source of significant litigation and academic debate. The Supreme Court of Canada addressed the issue definitively in Peoples Department Stores Inc. (Trustee of) v. Wise [2004] 3 S.C.R. 461 and confirmed it in BCE Inc. v. 1976 Debentureholders [2008] 3 S.C.R. 560. The Court held that the statutory fiduciary duty under the CBCA (which uses identical language to the OBCA) is owed to the corporation, not to creditors. Directors are entitled to consider the interests of creditors when determining what is in the best interests of the corporation, but creditors have no independent right to enforce the fiduciary duty.
However, the Court in Peoples also held that directors and officers may owe a duty of care directly to creditors as persons who are sufficiently proximate to the directors' conduct and whose loss is foreseeable if the duty of care is breached. This creates an important distinction: while the fiduciary duty is owed only to the corporation, the duty of care may create direct obligations to creditors in circumstances where their interests are concretely affected by the directors' conduct — particularly as the corporation approaches insolvency. The precise scope of this duty continues to evolve in the case law.
A shareholder's fundamental rights under the OBCA fall into three categories: the right to vote, the right to receive distributions, and the right to information. These rights are the baseline protections that shareholders receive from the statute itself, independent of what the articles may provide.
The right to vote — at all meetings of shareholders where the shares carry a vote — is the primary mechanism through which shareholders exercise collective authority over the corporation. Voting matters include the election and removal of directors, appointment of auditors, approval of fundamental changes requiring special resolutions, and any other matter the directors submit to a shareholder vote. Each share of a corporation entitles the shareholder to one vote unless the articles provide otherwise, and the articles may create multiple voting classes or shares with no vote at all.
The right to share in assets upon dissolution — the right to receive the remaining property of the corporation after all liabilities are satisfied — is the ultimate economic right of shareholders. This right belongs to whichever class or classes the articles designate as participating upon dissolution. Preferred shareholders typically receive a fixed preference and no more; common shareholders receive the residual.
The right to information encompasses the statutory right to receive annual financial statements at each annual meeting, to inspect and copy certain corporate records at no charge, to receive a copy of the register of shareholders and to obtain the shareholder list in prescribed circumstances, and to receive notice of and attend shareholder meetings. These information rights are important not merely for their economic utility but as the foundation for the exercise of all other shareholder rights.
Another essential shareholder protection is limited liability for any act, default, obligation, or liability of the corporation. A shareholder's liability for corporate debts is capped at the amount unpaid, if any, on the shares they hold. The statute does create certain limited circumstances in which shareholders may be required to return amounts received from the corporation — for example, on a reduction of stated capital that violates the solvency test — but these are narrow exceptions to the general rule.
Shareholder rights are typically exercised collectively at meetings. The OBCA mandates two types of meetings: annual meetings and special meetings. An annual meeting must be called not later than 18 months after the corporation comes into existence and subsequently not later than 15 months after the last annual meeting. At every annual meeting, the directors must present audited financial statements (or review-engagement statements, where permitted), the auditor's report, and any other information required by the articles. The meeting must also transact the ordinary business of the corporation: election of directors and appointment or reappointment of the auditor.
A special meeting may be called by the directors at any time. Holders of at least 5% of the issued shares carrying voting rights may requisition the directors to call a special meeting for purposes stated in the requisition. If the directors fail to call the requisitioned meeting within 21 days, the requisitioning shareholders may themselves call the meeting. If it is impractical to call a meeting in any of the prescribed ways, a director or a shareholder entitled to vote may petition the court to call a meeting — a remedy of particular practical importance in deadlocked corporations where one faction is preventing the other from convening a meeting.
Notice of a shareholder meeting must be sent to each shareholder entitled to vote, to each director, and to the auditor. For offering corporations, notice must be sent at least 21 days before the meeting; for non-offering corporations, at least 10 days. If "special business" is to be transacted — any business other than the ordinary business of an annual meeting — the notice must describe the nature of the special business in sufficient detail to permit a shareholder to form a reasoned judgment about it.
A quorum at a shareholder meeting is a majority of the shareholders entitled to vote, present in person or by proxy, unless the articles or by-laws provide for a different quorum. In practice, quorum provisions in private corporation articles and shareholders' agreements are carefully negotiated, because a quorum requirement that gives a minority shareholder the power to block a meeting by absenting themselves can be a powerful protective device or a significant source of deadlock.
As an alternative to holding a physical meeting, all shareholder resolutions may be passed by a written resolution. For offering corporations, a written resolution must be signed by all shareholders entitled to vote. For non-offering corporations, a written resolution signed by a majority of shareholders (or such greater majority as the articles require) is as valid as a resolution passed at a meeting. The written resolution procedure is the standard mechanism for private corporation governance and avoids the notice and procedural requirements of formal meetings.
Every shareholder entitled to vote at a shareholder meeting may appoint a proxy — a named individual authorized to attend the meeting and vote on the shareholder's behalf. A proxyholder need not be a shareholder. The proxy must be in writing signed by the shareholder or their attorney. A shareholder may revoke a proxy before the meeting by executing a later proxy, by filing a written revocation with the corporation, or by personally attending the meeting and voting.
For offering corporations, management must solicit proxies from all shareholders entitled to attend and vote at a meeting, and must send each shareholder a management information circular in prescribed form. The circular must disclose a broad range of information, including the identity of the persons making the solicitation, the revocability of the proxy, the matters to be voted on, executive compensation arrangements, and information about proposed directors and their independence. These requirements are designed to give shareholders the information they need to make an informed decision about how to direct their proxyholder.
Shareholder proposals are a related mechanism by which shareholders may place items before a meeting. Any shareholder entitled to vote may submit a notice of a matter to be raised and discussed at a shareholders' meeting. Subject to certain exceptions, the corporation must include the proposal in the management information circular or notice of meeting. The corporation may refuse to circulate a proposal if its primary purpose is to enforce a personal claim, if it was submitted after the applicable deadline, or if it does not relate in a significant way to the business or affairs of the corporation.
A unanimous shareholder agreement (USA) is a written agreement among all registered holders of issued shares of a corporation — or among all shareholders and one or more other persons — that restricts the powers of the directors to manage or supervise the management of the business and affairs of the corporation. The USA is one of the most significant and distinctive features of Canadian corporate law, permitting shareholders to fundamentally alter the governance structure of the corporation.
The defining feature of a USA is the shift in both powers and liabilities from the directors to the shareholders. To the extent that a USA restricts the directors' powers, the shareholders who are party to it assume the duties, liabilities, and rights that would otherwise belong to the directors. This means that shareholders who have assumed directors' powers under a USA are subject to the same fiduciary duty and duty of care that directors owe to the corporation — a consequence that parties sometimes fail to appreciate when they enter into sweeping USA provisions.
USAs are particularly important in closely held corporations as a governance tool. They can be used to:
A USA is binding on every person who acquires shares in the corporation while the USA is in effect, provided the person had or ought to have had knowledge of the USA at the time of acquisition. A corporation is required to note on any share certificate it issues the existence of a USA and the fact that a copy may be obtained from the corporation. If a share certificate does not bear this notation, a subsequent purchaser without actual knowledge of the USA is not bound by it.
Not every agreement among shareholders is a unanimous shareholder agreement with the force of the OBCA behind it. A USA must restrict the powers of directors to have the statutory effect of transferring liability from directors to shareholders. An agreement that merely creates obligations among shareholders — such as a voting agreement, a right of first refusal, or a co-sale agreement — is not a USA and is governed by ordinary contract law. The distinction matters because only a USA benefits from the statutory protections against third-party claims and triggers the liability-shifting regime. Where parties intend to create a governance structure with the full force of the OBCA, they must be careful to draft the agreement as a genuine USA, explicitly restricting the directors' management authority with respect to the matters covered.
Shareholders may enter into agreements that do not constitute a USA — agreements that create obligations among shareholders without restricting the directors' powers. These ordinary shareholder agreements are governed by contract law and are enforceable as between the parties to them, but they cannot override the OBCA or bind the corporation itself to act contrary to the statute.
Common provisions in non-unanimous shareholder agreements include:
The traditional common law rule — known as the rule in Foss v. Harbottle (1843), 2 Hare 461 — held that where a wrong has been done to a corporation, only the corporation may bring an action to remedy it, and a simple majority of shareholders may ratify the conduct of the directors and prevent a minority from complaining. This rule, while defensible in principle, proved harsh in closely held corporations where the majority could oppress the minority without remedy. Modern corporate statutes have substantially modified the rule by providing minority shareholders with a suite of statutory remedies.
The oppression remedy under section 248 of the OBCA is the most broadly available and most frequently used corporate law remedy in Ontario. It allows a "complainant" — a broadly defined term that includes current and former shareholders, directors, officers, and any other person the court considers appropriate — to apply to the court for an order rectifying oppressive, unfairly prejudicial, or unfairly disregarding conduct.
The statutory test requires the court to be satisfied that the business or affairs of the corporation have been conducted, or that the directors have exercised their powers, in a manner that is:
The oppression remedy has been interpreted broadly by Ontario courts. The key analytical framework, developed in Chiaramonte v. World Wide Importing Ltd. [1996] 28 O.R. (3d) 641 and confirmed repeatedly since, focuses on the "reasonable expectations" of the complainant — the understanding of the parties about how the corporation's affairs would be conducted, assessed practically and contextually rather than by reference to the strict terms of formal documents.
Whether conduct has been oppressive turns on the reasonable expectations of the complainant, having regard to the arrangements existing between the principals. Evidence of bad faith or wilful harm is not required. There must be actual detriment or a real threat of loss. The purpose of the remedy is corrective, not punitive. The remedy is administered on the understanding that courts do not interfere lightly with the internal affairs of corporations. The remedy was essentially designed for the interpersonal breakdowns experienced in smaller, closely held corporations, though it is available in larger corporations as well.
The OBCA gives courts almost unlimited discretion in fashioning relief. Orders available under the oppression remedy include: orders requiring the corporation to purchase the complainant's shares at fair value; orders directing the corporation to pay damages; orders restraining conduct complained of; orders appointing a receiver; orders amending the articles or by-laws; orders directing meetings of shareholders; and orders dissolving the corporation. The breadth of the court's remedial discretion allows it to craft relief precisely tailored to the harm identified and the complainant's legitimate interests.
The oppression remedy has practical advantages over a derivative action: it does not require leave of the court, it is a personal action (so shareholder ratification of the conduct does not defeat it), and it focuses directly on the harm to the complainant rather than requiring the complainant to establish harm to the corporation. However, where the wrong complained of is harm to the corporation rather than to a shareholder personally, the derivative action may be the more appropriate vehicle.
A derivative action allows a complainant to bring or defend an action in the name of the corporation where the corporation itself, being controlled by those who committed the wrong, will not act on its own behalf. The classic case is where the directors have committed a breach of fiduciary duty — misappropriating corporate assets, taking corporate opportunities, engaging in self-dealing — and are unlikely to authorize the corporation to sue themselves.
A complainant seeking to bring a derivative action must first obtain leave of the court. The court will grant leave only if the complainant has given at least 14 days' written notice to the directors of the complainant's intention to apply, the directors of the corporation have not diligently pursued the cause of action, and it appears to be in the interests of the corporation or its shareholders that the action be brought. The notice requirement gives the corporation's board an opportunity to correct the wrong before litigation commences.
The cause of action in a derivative action belongs to the corporation — the complainant is pursuing the corporation's claim on its behalf. Any recovery flows to the corporation, not to the complainant personally. Courts have broad powers in a derivative action, including the power to provide for the costs of the proceedings from the corporation's funds, which addresses the practical barrier that a complainant must often advance legal costs to pursue the corporation's own claim.
There are situations where the choice between an oppression remedy and a derivative action is not straightforward. Abuse of corporate assets, unauthorized corporate transactions, and conflicted director decisions may all support both types of proceedings. The oppression remedy does not require leave of the court, is quicker and procedurally simpler, and does not require the complainant to establish a cause of action belonging to the corporation. Conversely, a derivative action may be more appropriate where the harm is clearly to the corporation as a whole and cannot be characterized as direct harm to any individual complainant.
The dissent and appraisal remedy under section 185 of the OBCA gives a shareholder who objects to certain fundamental changes the right to require the corporation to purchase their shares at fair value. This right is available where shareholders are asked to approve:
The procedural requirements for exercising dissent rights are strict and must be followed precisely: the shareholder must send written notice of dissent before the vote is taken, must vote against the resolution (or abstain), and must send a written demand for payment within 20 days after the vote. Failure to comply with any step forfeits the dissent right.
The fair value of the shares is the value at the date before the proposed action was announced, without any discount for minority interest. The courts determine fair value using a combination of valuation methods — net asset value, earnings capitalization, market value, and discounted cash flow — weighted according to the particular characteristics of the corporation and its business. The prohibition on minority discounts is significant: it ensures that minority shareholders receive the same per-share value that would be paid to a majority shareholder, reflecting the principle that all shareholders are entitled to equal treatment on a per-share basis in the context of a fundamental corporate change.
For offering corporations, an additional and more powerful form of the appraisal remedy is available where a bidder acquires 90% or more of a class of securities: the remaining minority shareholders can compel the bidder to purchase their shares at fair value, and the bidder can compel the minority to sell, at a court-determined price.
A shareholder may apply for a court order directing an investigation of the corporation where there are reasonable grounds to believe that the business of the corporation has been conducted with intent to defraud any person; that the business has been or is being conducted in a manner that is oppressive or unfairly prejudicial to a shareholder; that a shareholder has been or is likely to be substantially prejudiced; or that the corporation was formed for a fraudulent or unlawful purpose. The court may appoint an inspector with broad inquiry powers to conduct the investigation and report to the court.
In appropriate circumstances, a shareholder may apply for a court order winding up the corporation — dissolving it and distributing its assets — where it is just and equitable to do so. Grounds recognized in the case law include: deadlock between shareholders that prevents the corporation from functioning; the corporation having been effectively operated as a partnership among the shareholders, such that partnership dissolution principles apply; loss of confidence in management of the corporation attributable to mismanagement or breach of duty; fraud or dishonesty on the part of management; and circumstances where the corporation has ceased to carry on its business without prospect of revival.
The articles of incorporation may be amended at any time by a special resolution of the shareholders — a resolution passed by not less than two-thirds of the votes cast at a duly constituted shareholder meeting, or a written resolution signed by all shareholders entitled to vote. The special resolution threshold reflects the significance of constitutional change: ordinary business decisions require only a simple majority, but changes to the corporation's fundamental governing document require a higher degree of consensus.
Where a proposed amendment would detract from the rights of a particular class or series of shares, the holders of that class or series are generally entitled to vote separately as a class, even if those shares do not otherwise carry voting rights. This class vote provides holders of non-voting shares with a veto over changes that specifically disadvantage their class — a protection of particular importance in corporations with complex multi-class share structures.
Shareholders who vote against certain amendments affecting their share rights may exercise dissent rights and require the corporation to purchase their shares at fair value. In addition, shareholders may apply for an oppression remedy if an amendment is used to squeeze out or improperly disadvantage a particular group — courts have granted oppression relief against article amendments structured to dilute a minority shareholder's economic interest or voting rights without any legitimate corporate justification.
An amalgamation is the combination of two or more corporations into a single continuing corporation. In Canadian corporate law, the word "merger" has no precise legal meaning; it is the amalgamation procedure that accomplishes what other jurisdictions might call a merger. Upon amalgamation, each of the amalgamating corporations ceases to exist as a separate entity, and the amalgamated corporation succeeds to all of their property, rights, obligations, and liabilities. An existing judgment or proceeding against an amalgamating corporation may be enforced against or continued by the amalgamated corporation.
The standard long-form amalgamation procedure requires:
A short-form vertical amalgamation is available where a parent corporation amalgamates with one or more of its wholly owned subsidiaries. This procedure requires only director resolutions from each amalgamating corporation — no amalgamation agreement, no shareholder vote, and no dissent rights — reflecting the absence of any conflict between the interests of the parent as sole shareholder and the amalgamating subsidiaries. The resolutions must provide for the cancellation of the subsidiary's shares without repayment of capital, and for the continuation of the parent's articles as the articles of the amalgamated corporation.
A short-form horizontal amalgamation is also available where two or more wholly owned subsidiaries of the same parent are amalgamated with each other, again requiring only director resolutions and no shareholder approval.
An arrangement is a court-supervised procedure for effecting fundamental corporate changes that do not fit neatly within the standard statutory procedures for amalgamation, article amendment, or asset sale. Arrangements can encompass a broad range of transactions: amalgamations, transfers of property, amendments to articles, continuances, dissolutions, and combinations of these. They are particularly useful for complex multi-party transactions — going-private transactions, business combinations involving multiple classes of securities, or restructurings involving creditors as well as shareholders.
The arrangement procedure requires both a shareholder resolution (typically a special resolution) and court approval. The court's role is not to substitute its business judgment for that of the shareholders, but to ensure that the arrangement is fair and reasonable to all affected parties and that adequate procedural safeguards were in place. Dissenting shareholders retain their right to dissent and obtain fair value for their shares.
A going-private transaction is an amalgamation, arrangement, consolidation, or other transaction that would terminate the interest of a holder of participating securities of an offering corporation without the holder's consent. Ontario is unique among Canadian jurisdictions in specifically regulating going-private transactions under both the OBCA and securities legislation.
The OBCA requires that an offering corporation proposing a going-private transaction prepare an independent valuation of the affected securities and obtain approval of the transaction from holders of a majority of the affected securities, excluding those held by the acquiring party and its related entities (the "majority of the minority" vote). Ontario Securities Commission Policy 61-501 and National Instrument 61-101 impose additional requirements, including a formal valuation by a qualified valuator and enhanced disclosure in the information circular sent to shareholders.
A continuance is the procedure by which a corporation governed by the laws of one jurisdiction is exported to and continued under the laws of another jurisdiction. Ontario may both import corporations from other jurisdictions and export its own corporations to other jurisdictions.
To export an Ontario corporation, the shareholders must approve the continuance by special resolution, and dissenting shareholders may exercise their dissent rights and demand payment of fair value for their shares. The Directors of the OBCA must be satisfied that the export will not prejudice the interests of shareholders or creditors before authorizing the continuance. Continuance to another jurisdiction is sometimes used as a planning tool — for example, to re-domicile a corporation in a jurisdiction with more favourable corporate governance rules or to consolidate the governance of an international corporate group under a single jurisdiction.
A sale, lease, or exchange of all or substantially all of the property of a corporation, other than in the ordinary course of business, is a fundamental transaction requiring approval by special resolution. A sale is "in the ordinary course of business" where it is a normal part of the corporation's regular operations — for example, a retail corporation selling its inventory. A sale is outside the ordinary course where it represents the disposition of the corporation's business or a major part of it, leaving the corporation as a shell or fundamentally transforming its character.
Courts have emphasized that the determination of whether a transaction involves "substantially all" of the property requires both quantitative and qualitative analysis. Even if the assets sold represent only a modest proportion of the corporation's total assets by book value, a qualitative assessment may establish that the assets are so central to the corporation's business that their disposition amounts to a fundamental change. Shareholders who vote against the special resolution approving such a transaction may exercise their dissent rights and demand fair value for their shares.
In addition to potential liability for breach of fiduciary duty and the duty of care, directors and officers of OBCA corporations face personal liability under a wide range of other statutes. The breadth of this statutory exposure is a significant feature of Canadian corporate law and a major practical consideration in any decision to accept a directorship.
Under both the OBCA and the Employment Standards Act, 2000 (ESA), directors are jointly and severally liable to employees of the corporation for up to six months' wages for services performed while they were directors, plus up to 12 months' vacation pay accrued while they were directors. This liability arises where the corporation has not paid the amounts owing, the employee has sued the corporation, execution against the corporation has been returned unsatisfied, or the corporation has gone into insolvency or bankruptcy proceedings. The ESA also extends director liability to certain termination and severance pay entitlements.
Director liability for wages is a strict liability in the sense that it does not require any personal fault or misconduct — a director who was not responsible for the failure to pay wages is nevertheless liable if the statutory conditions are met. The only practical defences are to demonstrate that the conditions triggering liability have not been met (for example, that the employee has not exhausted remedies against the corporation) or to seek indemnification from the corporation, though the latter is only useful if the corporation is solvent.
Directors may also face liability under the Pension Benefits Act, 1985 (PBA) where the corporation fails to make required pension plan contributions. Every person who is an administrator of a pension plan (a role often occupied by directors of the sponsoring corporation) must exercise the care, diligence, and skill of a prudent person with knowledge of pension matters. Breach of this duty may attract personal liability and quasi-criminal penalties.
Director liability for corporate tax obligations is one of the most practically significant areas of director risk. Under the Income Tax Act (Canada) (ITA) and the Excise Tax Act (Canada) (ETA — which governs GST/HST), directors are jointly and severally liable with the corporation for its unremitted source deductions and unremitted GST/HST. Source deductions include employee payroll deductions (income tax, CPP contributions, and EI premiums) that the corporation is required to collect and remit to the Canada Revenue Agency on behalf of its employees.
The standard for establishing director liability under the ITA and ETA is whether the director failed to exercise the degree of care, diligence, and skill that a reasonably prudent person would have exercised in comparable circumstances to prevent the corporation's failure to remit. This is a due diligence defence, assessed objectively. The Canada Revenue Agency has published administrative guidelines that, in its opinion, assist directors in demonstrating reasonable diligence: ensuring regular financial reporting to the board, establishing adequate internal controls over payroll and tax remittances, seeking independent professional advice when problems are identified, and taking immediate action when remittance failures come to light.
Several limitations on director liability under the ITA and ETA are important in practice:
Directors and officers face personal liability under both federal and provincial environmental legislation. Environmental offences are generally classified as "strict liability" offences — they do not require proof of intent or knowledge, but defendants may establish a defence of due diligence by demonstrating that they took all reasonable steps to prevent the offence. This means that directors must be active and informed about the corporation's environmental compliance program, not passive recipients of assurances from management.
Under the Canadian Environmental Protection Act, 1999 (CEPA), a director or officer of a corporation that commits an environmental offence is personally liable if they directed, authorized, assented to, acquiesced in, or participated in the commission of the offence. Ontario's Environmental Protection Act (EPA) and Ontario Water Resources Act (OWRA) impose similar personal liability, with fines of up to $50,000 per day for a first conviction and up to $100,000 per day plus imprisonment for subsequent convictions.
The leading Ontario case on director liability for environmental offences. The court held that the due diligence defence requires directors to: ensure a pollution prevention system is in place with regular supervision and improvement; ensure corporate officers are instructed to set up a compliance system and report back to the board regularly; review environmental reports provided by officers; follow up on environmental concerns raised by regulators; be aware of industry environmental standards; and react immediately and personally when they learn a system has failed. Directors who are merely passive recipients of management assurances will not meet the due diligence standard.
The appointment of a receiver — whether by court order or by private appointment under a secured creditor's security agreement — suspends the directors' and officers' powers to deal with the assets under the receiver's control. However, the directors' statutory duties to the corporation do not cease upon the appointment of a receiver. Directors retain an ongoing obligation to shareholders and creditors to manage the corporation in a manner consistent with the receiver's authority, and may continue to bring or defend legal proceedings on behalf of the corporation that do not impinge on the receiver's position.
Under the Bankruptcy and Insolvency Act (Canada) (BIA), directors may incur personal liability if the corporation declares dividends, redeems or purchases shares, or makes other distributions within one year preceding the date of bankruptcy. Directors who consented to such a payment face liability for the amount of the distribution to the extent the corporation is unable to pay it back. A director avoids liability by demonstrating that they protested the payment, or by showing they had reasonable grounds to believe the corporation met the applicable solvency test at the time of the payment.
Additionally, the BIA and the Companies' Creditors Arrangement Act (CCAA) impose obligations on directors to cooperate with the trustee in bankruptcy or the monitor in CCAA proceedings. Failure to do so is an offence. Breach of fiduciary duty owed to a corporation by its directors and officers can also form the subject matter of a civil conspiracy claim by the trustee in bankruptcy in appropriate circumstances.
The directors of a corporation may declare dividends to distribute after-tax income to shareholders. A dividend is the corporation's distribution of its profits (or, in limited circumstances, capital) to its shareholders in proportion to their shareholdings. Once a dividend has been declared, it becomes a debt of the corporation owed to each shareholder entitled to receive it — it may be sued upon as an ordinary debt if the corporation subsequently fails to pay.
Dividends may be paid in money, by issuing fully paid shares of the corporation (a stock dividend), or by distributing property of the corporation (a dividend in kind). The method of payment must comply with the articles and any applicable unanimous shareholder agreement. The declaration of dividends is one of the board's non-delegable powers: it cannot be delegated to a managing director or a committee of directors.
The OBCA prohibits the declaration or payment of dividends where there are reasonable grounds to believe that: (a) the corporation is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the corporation's assets would, after the payment, be less than the aggregate of its liabilities and stated capital of all classes. Directors who authorize a dividend payment in violation of this solvency test are jointly and severally liable to restore to the corporation any amounts distributed that the corporation is unable to recover from the shareholders who received them.
The directors of a corporation must present annual financial statements to shareholders at every annual meeting, together with the auditor's report (if one is required). Financial statements must comply with applicable accounting standards and be approved by the board, evidenced by the signature of any authorized director at the bottom of the balance sheet. For offering corporations, financial statements must be filed with the Ontario Securities Commission under the continuous disclosure regime in Part XVIII of the Securities Act.
Every corporation must appoint an auditor to review its financial records and report to shareholders. Non-offering corporations may be exempt from the auditor requirement — but only if all shareholders unanimously consent in writing each year to dispense with the audit. This unanimous consent requirement is strict: a single dissenting shareholder can compel a non-offering corporation to retain an auditor.
A person is disqualified from acting as auditor if they are not independent of the corporation, its affiliates, or its directors and officers. Independence is assessed contextually: financial interests, family relationships, prior employment, and scope of non-audit services provided to the corporation are all relevant factors. An auditor who ceases to be independent must resign immediately. The shareholders may remove the auditor at any time by ordinary resolution at a special meeting, but the auditor has the right to make written submissions to the corporation concerning the proposed removal that must be circulated to shareholders.
Every offering corporation must have an audit committee composed of at least three directors, a majority of whom are neither officers nor employees of the corporation or any affiliate. The audit committee must review the corporation's financial statements before they are approved by the board and must report its findings to the board. The audit committee also supervises the corporation's relationship with its auditor, including recommending the auditor's engagement and evaluating its performance.
The OBCA provides three paths to terminating a corporation's existence where the corporation is neither bankrupt nor insolvent: voluntary dissolution, voluntary winding-up (a more formal process involving a liquidator), and involuntary dissolution by the Director or by court order. Where a corporation is insolvent, dissolution proceeds under the federal Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act.
Voluntary dissolution is the most common mechanism for terminating the existence of a corporation that has ceased to serve a useful purpose. The procedure differs depending on whether shares have been issued and whether the corporation has unpaid liabilities. Where no shares have been issued, the directors may simply authorize dissolution by resolution. Where shares have been issued and the corporation has no liabilities, the shareholders may authorize dissolution by special resolution (or a lower majority, as low as 50%, if the articles provide). Where shares have been issued and the corporation has liabilities, the directors must first pay or make adequate provision for payment of all known liabilities before filing articles of dissolution.
To complete voluntary dissolution, articles of dissolution in the prescribed form must be filed with the Director under the OBCA. The Director issues a certificate of dissolution, which terminates the corporation's legal existence. Prior to filing the articles, the corporation must send a notice to the Director of Tax Policy under the Taxation Act, 2007 (Ontario) indicating that the corporation is about to be dissolved.
The alternative voluntary procedure — a voluntary winding-up — involves the appointment of a liquidator (by shareholder resolution) to oversee the orderly realization and distribution of the corporation's assets. The liquidator, who need not be a shareholder or director, takes custody of all property, pays or provides for all liabilities, and distributes the balance to shareholders in accordance with their entitlements. The winding-up procedure is more formal and is better suited to corporations with complex assets, numerous creditors, or shareholders whose interests in the distribution are disputed.
A corporation may be dissolved involuntarily in two ways: by the Director under the OBCA on administrative grounds, or by a court order on substantive grounds.
The Director under the OBCA has the power to cancel a corporation's certificate of incorporation where the Director has been shown "sufficient cause." Grounds include: failure to maintain the required number of directors, failure to comply with prescribed financial statement delivery requirements under the Securities Act, failure to file returns required under the Corporations Information Act, and failure to comply with a court order. Before cancelling a certificate, the Director must give the corporation a reasonable opportunity to remedy the default. A corporation that is dissolved by the Director for failure to comply with administrative requirements may apply for revival within 20 years of dissolution.
A court-ordered dissolution under section 207 of the OBCA is available where the court is satisfied that it is "just and equitable" to order that the corporation be wound up. The phrase "just and equitable" comes from equity and has been given an expansive interpretation by Ontario courts. Recognized grounds include:
Before making a winding-up order, a court will consider whether a less drastic remedy — such as an oppression remedy order directing a buyout of the complainant's shares — would adequately address the situation. Courts regard a winding-up order as a remedy of last resort, particularly where the corporation is a going concern and dissolution would destroy its value for all shareholders.
The consequences of dissolution require careful attention in practice. A former officer, director, or liquidator is generally required to maintain the corporate records for five years after dissolution. If an action was started against the corporation prior to dissolution, the action may continue as if the corporation had not been dissolved — the fact of dissolution does not extinguish the right of a creditor or claimant to pursue the matter.
Service of process on a dissolved corporation, made upon one of the last directors or officers as shown on statutory filings, is deemed to be good service. This means that dissolved corporations can still be parties to litigation, and that the last directors may find themselves being served with claims against a corporation they believed was no longer in existence. Former directors and officers of a dissolved corporation should be aware that their statutory duties do not entirely cease upon dissolution.
The shareholders of a dissolved corporation continue to be liable to any person bringing a civil, criminal, or administrative action against the corporation — but only up to the amount of the corporation's assets that were distributed to that shareholder upon dissolution. A shareholder who received a distribution is not exposed to liability beyond the amount received. This limited post-dissolution liability gives creditors who were not fully paid upon dissolution some recourse against shareholders who received a distribution before all claims were satisfied.
Property of a dissolved corporation that was not disposed of at the date of dissolution is forfeited to and vests in the Crown. This means that assets inadvertently left in a dissolved corporation's name become Crown property, which is recoverable only through a formal revival of the corporation. This forfeiture risk is a practical reason to ensure that all corporate assets are properly transferred before dissolution and that dissolution is not undertaken prematurely.
Common Questions
Both the Canada Business Corporations Act (CBCA) and the Business Corporations Act (Ontario) (OBCA) provide a robust framework for carrying on business through a corporation, and the choice between them turns on practical considerations rather than significant substantive legal differences — the two statutes are broadly similar in structure.
The principal advantage of federal incorporation under the CBCA is name protection: a federally incorporated corporation has the right to use its corporate name across Canada and cannot be forced to change it by a later provincial incorporation with a similar name. A federal corporation also has the right to carry on business in any province without being perceived as an "outsider," although it will still need to register as an extra-provincial corporation in provinces where it actively carries on business. Federal incorporation may also carry reputational weight for companies seeking to project a national or international presence from the outset.
The principal advantage of provincial incorporation under the OBCA is simplicity and familiarity for companies whose business is concentrated in Ontario. Ontario courts, practitioners, and counterparties are deeply familiar with the OBCA, and there is a well-developed body of case law. Provincial incorporation also tends to involve lower filing fees and a more streamlined organizational process for purely local businesses. For the vast majority of Ontario-based closely held corporations, provincial incorporation under the OBCA is the standard and appropriate choice. Federal incorporation is worth considering where the corporation plans to operate across multiple provinces from inception, has a strong interest in national name protection, or where professional advisers with a federal practice preference are involved.
The oppression remedy under section 248 of the OBCA is the broadest and most powerful shareholder remedy in Ontario corporate law. It allows a "complainant" — a term defined to include current and former shareholders, directors, officers, and any other person the court considers appropriate — to apply to court for an order rectifying conduct that is oppressive, unfairly prejudicial, or that unfairly disregards the complainant's interests.
The analytical framework applied by Ontario courts centres on the concept of reasonable expectations: the court asks what understanding existed between the principals about how the corporation would be governed, and whether the impugned conduct departed from that understanding in a way that was unfair. Evidence of bad faith or malicious intent is not required — honest but unreasonable conduct that violates the complainant's legitimate expectations can ground an oppression application. There must, however, be actual detriment or a real threat of loss, and courts do not intervene lightly in the internal affairs of a corporation.
Common conduct that has been found to constitute oppression includes:
The court has virtually complete discretion over the relief it grants — orders available include a forced buyout of the complainant's shares at fair value (the most commonly sought remedy), damages, injunctions, amendments to the corporation's articles, and, in extreme cases, dissolution of the corporation. The oppression remedy does not require leave of the court before proceeding, which gives it a significant procedural advantage over a derivative action.
Under section 134 of the OBCA, every director and officer of a corporation owes two distinct duties to the corporation: a fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation, and a duty of care to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. Both duties are owed to the corporation itself — not to individual shareholders, creditors, or other stakeholders directly, though those groups may benefit indirectly from the directors' compliance.
The fiduciary duty requires directors to place the corporation's interests ahead of their own. Its most concrete applications are the prohibition on taking corporate opportunities — exploiting for personal benefit a business opportunity the corporation was pursuing or would have pursued — and the mandatory disclosure and recusal regime for conflicts of interest, which requires a director who has a material interest in a contract or transaction with the corporation to disclose that interest and abstain from voting on it.
Personal liability for a business decision that turns out badly is, however, significantly constrained by the business judgment rule. Courts will not substitute their judgment for that of the board on matters of business strategy or commercial decision-making, provided the directors: acted honestly and in good faith; gathered sufficient information to make an informed decision; considered the relevant factors; and reached a conclusion that fell within the range of reasonable alternatives open to an informed board. A director who followed a proper process and made a reasoned decision will not be held personally liable merely because the decision proved commercially unsuccessful in hindsight.
Where personal liability does arise — for example, for breach of fiduciary duty, for authorizing an unlawful dividend, or under employment or tax statutes — directors are entitled to seek indemnification from the corporation, and corporations routinely purchase directors' and officers' (D&O) liability insurance to cover these exposures.
A unanimous shareholder agreement (USA) is a written agreement among all registered holders of issued shares of a corporation — or among all shareholders and one or more other persons — that restricts the powers of the directors to manage or supervise the management of the business and affairs of the corporation. It is a distinctly Canadian corporate law instrument, unique in that the OBCA explicitly recognizes it as capable of altering the fundamental constitutional allocation of power between shareholders and directors.
The critical legal consequence of a USA is a transfer of both powers and liabilities: to the extent that a USA restricts the directors' management authority, the shareholders who are party to it assume the duties, liabilities, and rights that would otherwise belong to the directors in respect of those restricted matters. This means shareholders who have assumed directors' powers under a USA are subject to the same fiduciary duty and duty of care as directors — a consequence parties sometimes underestimate when negotiating sweeping governance provisions.
An ordinary shareholders' agreement — one that does not restrict the directors' powers — is governed purely by contract law. It can create obligations among shareholders, establish transfer restrictions, allocate voting rights, and set out dispute resolution mechanisms, but it cannot shift the constitutional authority of the board or bind the corporation to act contrary to the OBCA. Common provisions in non-unanimous shareholder agreements include rights of first refusal, drag-along and tag-along rights, pre-emptive rights against dilution, shotgun clauses, and non-competition and non-solicitation covenants.
The practical distinction matters in several ways:
For closely held corporations with two or more founders or investors, a well-drafted USA is often the single most important governance document — more flexible and practically significant than the articles of incorporation themselves.
Yes — director liability for corporate obligations under external statutes is one of the most practically significant and frequently encountered risks of serving as a director in Ontario. Unlike the general rule of limited liability that shields shareholders, directors can be assessed personally for certain corporate defaults that occur during their tenure.
The two most common statutory liability exposures are:
Directors also face personal exposure under provincial and federal environmental legislation and, in certain circumstances, under pension legislation. The practical response to these risks is active engagement in the corporation's financial and compliance affairs, prompt professional advice when remittance problems are identified, and well-maintained D&O liability insurance. A director who becomes aware of unremitted tax obligations should take immediate and documented steps to address them — delay compounds both the corporation's liability and the director's personal exposure.
An amalgamation under the OBCA is the combination of two or more corporations into a single continuing entity. Upon amalgamation, each of the amalgamating corporations ceases to exist as a separate legal person, and the amalgamated corporation automatically succeeds to all of their property, rights, privileges, liabilities, and obligations — including contracts, licences, and pending litigation. The amalgamated corporation is treated as the same legal person as each of the amalgamating corporations for most purposes, which makes amalgamation a powerful restructuring tool for consolidating related entities without the complications of individual asset transfers.
The OBCA provides two procedurally distinct paths:
In either case, articles of amalgamation must be filed with the Director under the OBCA, who issues a certificate of amalgamation that is conclusive evidence of the amalgamation and its effective date. Before proceeding, it is important to identify contracts, leases, licences, regulatory approvals, and banking arrangements that contain change-of-control or anti-assignment provisions triggered by an amalgamation, as these may require third-party consents before the amalgamation takes effect.
Where a corporation is neither bankrupt nor insolvent, the OBCA provides three paths to terminating its existence: voluntary dissolution by its own management, voluntary winding-up under court supervision with a liquidator, and involuntary dissolution either by the Director under the OBCA on administrative grounds or by court order on just and equitable grounds.
Voluntary dissolution is the most commonly used procedure for a corporation that has ceased to serve its purpose. If shares have been issued, the shareholders must approve dissolution by special resolution. Before filing articles of dissolution with the Director under the OBCA, the corporation must pay or make adequate provision for all known liabilities and must notify the Director of Tax Policy under the Taxation Act, 2007 that it intends to dissolve. Failure to satisfy outstanding liabilities before dissolving can expose the directors to claims that the dissolution was effected in breach of the OBCA's solvency requirements.
Involuntary dissolution by court order on just and equitable grounds is available where, for example, shareholders are deadlocked and the corporation can no longer function, where management has acted fraudulently, or where the corporation has effectively been operated as a partnership and grounds for dissolution exist by analogy. Courts treat winding-up as a remedy of last resort and will consider whether a less drastic remedy — such as an oppression remedy buyout order — would adequately address the situation before making a dissolution order.
The consequences of dissolution require careful attention:
Proper pre-dissolution planning — ensuring all assets are transferred, all contracts are wound up, all tax accounts are cleared, and all corporate records are archived — significantly reduces the risk of post-dissolution complications for former directors, officers, and shareholders.
Corporate Law
From the moment of incorporation to the resolution of a shareholder dispute, corporate law shapes every decision a business makes. The structure of your share capital, the terms of your shareholders' agreement, the scope of your directors' duties, and the remedies available when things go wrong are all governed by rules that reward precision and punish improvisation. Grigoras Law advises founders, directors, investors, and corporations at every stage — whether you are organizing a new venture, navigating a deadlock, defending a director liability assessment, or taking a corporation through a fundamental change. We bring the same analytical rigour to a two-person closely held corporation as to a complex multi-party restructuring.
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