To Amend or Not to Amend: That is the Question

By Jonathan Hureau

Amendments to the articles of Ontario business corporations are governed by sections 168 to 172 of the Business Corporations Act (Ontario)[1] (the “BCA”).[2] In particular, subsection 168(1) of the BCA provides that a corporation may from time to time add, change or remove any provision that is required to be set out in its articles.[3] The list of reasons for which a corporation can amend its articles specifically includes, but is not limited to, the following:

• changing its corporate name;
• creating a new class or classes of shares in the corporation;
• changing the designation of all or any of the corporation’s shares;
• adding, changing or removing any rights, privileges, restrictions and conditions with respect to any or all of the corporation’s shares, whether issued or unissued; and
• increasing or decreasing the number, or minimum or maximum, number of directors.[4]

In terms of internal approval requirements for a corporation to amend its articles under section 168 of the BCA, it is generally required for approval to be obtained in the form of a special resolution of the shareholders of the corporation. That being said, the board of directors of the corporation only may approve amendments of the articles in the following forms:

• changing the name of the corporation from a number name to an alphabetical name;
• creating a series of shares if the articles already authorize the directors in this regard; and
• changing of the rights, privileges, restrictions and conditions that are attached to the unissued shares of such a series.[5]

To confirm, the date when the resolution authorizing the amendment is approved by the shareholders and/or directors of the corporation cannot be a future date.[6] 

As for the effective date of an amendment of the articles, a future date can be selected that is as many as 30 calendar days into the future, but the earliest effective date will always be the date the articles of amendment and any other required documents and information are received by the Ministry of Public and Business Service Delivery and Procurement in an acceptable form.[7]

Changing the Corporate Name

In the case of articles of amendment to change the name of the corporation, a new name can be proposed or a request may be made for a number name. To clarify, a number name means a name that is automatically generated by numbers assigned to the requestor that is followed by “ONTARIO” and a legal element to the name that the requestor selects.[8] Further, it should be noted that the option of a number name cannot be selected if the corporation in question already has a number name, unless the request is to change only the legal element of the number name.[9]

There are many considerations to weigh in the selection of a corporate name that is not a number name and while a detailed review of these is beyond the scope of this article, it is crucial to note that such a corporate name must comply with the applicable requirements under the BCA and its regulations. In addition, an Ontario NUANS (i.e. Newly Upgraded Automated Name Search) report must be obtained to ensure such a name is available.

Changing Shares and Provisions

Where the shares and share provisions of a corporation are to be changed by articles of amendment, attention must be paid to ensure such changes are properly described in the relevant portions of the articles of amendment form itself (Form 5261E – Articles of Amendment - Business Corporations Act) (the “Form”). Specifically, it must be clearly stated whether the amendment in question is to add, remove, replace or change a provision in the existing articles.[10]

The aforementioned confirmation of the nature of the amendment is to be accompanied by a description identifying the particular section(s), paragraph(s) or sub-paragraph(s) of the existing articles that are being amended.  An example of such a description would be a statement beginning with language affirming that “the authorized capital of the corporation described in section 3 is amended by…”[11]

Changing the Number of Directors

In the event an amendment to the articles of a corporation is sought to change its fixed number, or minimum or maximum number, of directors, the related portion of the Form will require completion. While there are numerous factors beyond the reach of this article that should be considered in making such a change, the BCA sets out some fundamental requirements in respect of the directors of a corporation that must not be contravened. Specifically, the BCA requires that there must be at least one director for a non-offering corporation and at least three directors for an offering corporation.[12] Furthermore, in the case of an offering corporation a minimum of one-third of the directors are not to be employees or officers of the corporation or of any of its affiliates.[13]

Importantly, the BCA mandates that a director is not to be a non-natural person, under 18 years of age, or incapable.[14] Moreover, a director cannot be a person who has a status of bankrupt.[15] It is notable that as of July 5, 2021 there is no requirement for a director to be a Canadian resident for BCA corporations.[16] Lastly, it bears mention that an individual does need to be a shareholder of the corporation to be a director, unless the articles of the corporation otherwise provide.[17]

Summary

A concluding requirement of note for the submission of articles of amendment is that the Form requires the signature of a director or officer of the corporation who, among other things, must confirm that the amendment of the articles has been duly authorized pursuant to sections 168 and 170 of the BCA, as applicable.

In closing, there are many additional considerations and factors pertaining to the subject matter of articles of amendment under the BCA that have not been addressed here. The foregoing is intended to provide a non-exhaustive examination of some purposes of articles of amendment in view of related procedural and substantive requirements.

Legal Disclaimer: The above article is for informational purposes only. It does not constitute legal advice on any matter or create a solicitor-client relationship.