Amending the articles of a corporation is a common type of fundamental change to the constitution of a corporation. Active businesses often experience a fundamental change during their lifespan.
In Ontario, the Ontario Business Corporations Act (OBCA) allows for almost any change to the corporation’s constitution. Usually, the most significant changes are made by amending the corporation’s articles, which adds, deletes, or modifies provisions in the existing articles. The OBCA provides a comprehensive list of changes in section 168(1) that can be made, including altering the corporation’s name, adding or removing restrictions on the business or powers of the corporation, changing the number of shares authorized to be issued, creating new classes of shares, changing the rights, privileges, restrictions, and conditions attached to shares, changing the number of shares in a class or series, dividing a class of shares into series, authorizing the directors to divide unissued shares into series, increasing or decreasing the number of directors, and adding or removing restrictions on the issue, transfer, or ownership of shares of any class or series.
The process of amending a corporation’s articles is typically done through a special resolution. This can be achieved by a resolution approved by no less than two-thirds of the votes cast at a meeting of shareholders, or by a written resolution signed by all eligible shareholders. (However, the articles of incorporation or a unanimous shareholders agreement may require a higher number of votes for the amendment to be approved.)
Under section 169 of the OBCA, a proposal to amend the articles can be made by the board of directors collectively or by any shareholder who is eligible to vote at the annual meeting of shareholders. If a shareholder makes the proposal, they must follow the procedures outlined in section 99 of the OBCA. Notice of a meeting to consider a proposal to amend the articles must include the text of the proposed amendment and, if applicable, state that a dissenting shareholder is entitled to receive the fair value of their shares under section 185 of the OBCA.
An exception to the general rule requiring shareholder approval for any changes to the corporation’s share structure is if the authorized capital includes a class of shares that can be issued in series. In Ontario, a corporation’s articles can authorize the directors to issue shares in series, specify the number of shares in each series, and determine the rights, privileges, restrictions, and conditions attached to each series; in such cases, shareholder approval is not required, but the directors must still file articles of amendment that detail the specifics of each series of shares they designate.
Holders of a class or series of shares are entitled to vote separately as a class or series on certain specified types of proposed amendments to the articles, unless the articles state otherwise. This right to a separate vote applies even if the shares do not otherwise carry a right to vote.
In the event that the articles are amended in a way that negatively impacts any class or series of shares, shareholders of the affected class or series who voted against the proposal may demand that the corporation purchase their shares for fair value. Additionally, shareholders can also use their oppression remedy and apply to the court for an order to prevent a specific amendment to the corporation’s articles.
In conclusion, amending the articles of a corporation is a common and important aspect of the life of a company. The OBCA provides a comprehensive framework for making such changes, allowing for a wide range of amendments to be made to the articles. Whether proposed by the board of directors or by a shareholder, the process of amending the articles requires careful consideration and must be carried out in accordance with the procedures outlined in the OBCA. It’s important to understand the rights and obligations of shareholders when it comes to amending the articles, as well as the potential consequences of such changes. Ultimately, amending the articles is a means of ensuring that a corporation remains well-suited to meet the evolving needs of its stakeholders and to continue to succeed in the future.
