Ontario Updates Director Residency Requirements

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 no longer require businesses to have a resident Canadian director. Prior to July 5, 2021, the OBCA required that Ontario corporations must satisfy that at least 25% of the directors of an Ontario corporation be resident Canadians, or where there are fewer than four directors, 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While the definition of a resident Canadian is still defined in the OBCA, the definition of resident Canadian will be repealed on a date to be determined,

These changes are designed to modernize parts of the OBCA, and allow Ontario corporations to be more aligned with residency requirements in other provinces, such as British Columbia and Alberta. 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 director residency requirements will allow Ontario businesses to attract foreign entities aiming to enter or expand into Canada. Removing this barrier will allow Ontario to remain a competitive corporate headquarters for more foreign businesses, and remain the top-spot for enterprises looking to expand into the ever-growing Canadian market.

This article is authored by Richard Schuett.

The content of this article is intended to provide a general guide to the subject matter and should not be relied upon for accuracy or for legal advice. Proper legal advice should be sought about your specific circumstances.