As of July 5, 2021, corporations incorporated under Ontario’s Business Corporations Act will no longer be required to have at least 25% of directors be resident Canadians.
Effective July 5, 2021, subsection 118(3) of Ontario’s Business Corporations Act (“OBCA”) will be repealed, with the effect that corporations incorporated under, or continued into Ontario under the OBCA, will no longer be required to have any resident Canadians on their Board of Directors. Prior to July 5, 2021, the OBCA required that at least 25% of the directors of an Ontario corporation be “resident Canadians”, or where there were fewer than four directors, that at least one director must have been a “resident Canadian”.
Currently, the OBCA defines a resident Canadian as an individual who is:
- A Canadian citizen ordinarily resident in Canada,
- A Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or
- A permanent resident within the meaning of the Immigration and Refugee Protection Act (Canada) and ordinarily resident in Canada, meaning a person who is a permanent resident and has not lost that status.
While the definition of a resident Canadian will remain in the OBCA, it will be repealed on a date to be determined.
This and other changes are designed to modernize parts of the OBCA, and allow Ontario corporations to be more aligned with other provinces that have no Canadian residency requirements for their directors. Currently, some businesses “jurisdiction shop” in Canada to find the most suitable jurisdiction to incorporate their business in order to avoid the director residency requirements. For example, some companies are more likely to incorporate in British Columbia, which has not had a residency requirement for more than two decades, or incorporate in Alberta, which recently removed its directors residency requirement as of March 29, 2021. After July 5, 2021, the residency requirements will remain only for federally incorporated companies under the Canada Business Corporations Act, and in Manitoba, Newfoundland and Labrador, and Saskatchewan.
In effect, the removal of the Canadian residency requirements for directors will allow Ontario, Canada’s most populous province, to attract businesses seeking to incorporate in or continue under the OBCA, without such businesses needing to find resident Canadians willing to act as directors. It should be noted that care and attention will still need to be given to any tax issues that may arise depending on where a corporation’s mind and management exist, especially in the context of cross-border issues.
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