Corporate Law

Ontario Corporate Law — Business Corporations Act, Directors, Shareholders, and Fundamental Changes

A practical guide to Ontario corporate law: the Business Corporations Act RSO 1990 c B.16, incorporation, directors' duties, the oppression remedy, shareholders' agreements, fundamental changes, and dissolution.

March 2026·16 min read·Atticus Legal Research

The Business Corporations Act (OBCA) — Framework

The Business Corporations Act RSO 1990 c B.16 (OBCA) is the principal legislation governing corporations incorporated in Ontario. Federally incorporated companies are governed by the Canada Business Corporations Act RSC 1985 c C-44 (CBCA). The OBCA and CBCA are largely parallel but with important distinctions — notably, the CBCA's broader oppression remedy and the different rules for extra-provincial corporations.

A corporation is a legal person separate from its shareholders. The separate legal personality doctrine was confirmed in Salomon v Salomon & Co [1897] AC 22 — shareholders are not personally liable for the corporation's debts. The corporate veil may be lifted where the corporation is used as a vehicle for fraud or to evade legal obligations (Transamerica Life Insurance v Canada Life Assurance (1996) 28 OR (3d) 423 ONCA).

Incorporation

Ontario corporations are incorporated by filing Articles of Incorporation under Part II of the OBCA. The articles must contain: the corporate name; the address of the registered office (Ontario municipality); the number of directors; any restrictions on share transfer; and the authorized share structure (classes, maximum number, rights and restrictions).

Private corporations under s.1(1) are corporations whose articles: (a) restrict transfer of shares; (b) limit the shareholders to 50 (excluding employees); and (c) prohibit public offerings. Private corporation status allows exemption from the prospectus requirement under the Securities Act RSO 1990 c S.5 (various exemptions including the founder, control person, and private issuer exemptions under National Instrument 45-106).

Directors — Duties and Liability

Fiduciary Duty

Section 134(1) of the OBCA requires every director and officer to act honestly and in good faith with a view to the best interests of the corporation — the fiduciary duty. The SCC inBCE Inc v 1976 Debentureholders 2008 SCC 69 confirmed that "best interests of the corporation" means the best interests of the corporation viewed as a good corporate citizen, not only the interests of shareholders: the interests of shareholders, employees, creditors, consumers, governments, and the environment are all relevant.

Duty of Care

Section 134(1)(b) requires directors and officers to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances — an objective standard. Directors are expected to be informed and to exercise independent judgment.

The business judgment rule protects directors who act on a reasonably informed basis in good faith: courts defer to business decisions made within the range of reasonable choices (Maple Leaf Foods v Schneider Corp (1998) 42 OR (3d) 177 ONCA). The rule does not protect decisions made in bad faith, without information, or involving self-dealing.

Statutory Liability

OBCA directors face personal liability for:

  • Wages — s.131: directors are jointly and severally liable for up to 6 months' wages to employees if the corporation fails to pay; 2-year limitation from resignation or winding-up
  • Unlawful dividends — s.38: directors who voted for or consented to an unlawful dividend are jointly and severally liable to restore the amount to the corporation
  • Tax withholding — Income Tax Act s.227.1 and Excise Tax Acts.323: directors are personally liable for unremitted payroll source deductions and HST collected but not remitted; due diligence defence available

Shareholders — Rights and Remedies

Shareholder Rights

OBCA shareholders have statutory rights including: the right to vote at meetings (s.102); the right to receive dividends declared (s.38); dissent rights on fundamental changes (s.185); access to corporate records (s.144); the right to call special meetings (s.105(3)); and the right to propose resolutions (s.99).

Oppression Remedy — Section 248

Section 248 of the OBCA provides a broad remedy for oppression, unfair prejudice, or unfair disregard of a complainant's interests. Under BCE Inc, the two-part test is:

  • Did the claimant have a reasonable expectation (based on the relationship, context, and course of dealing)?
  • Was that expectation violated by conduct that was oppressive, unfairly prejudicial, or in unfair disregard of the complainant's interests?

Complainants include shareholders, officers, directors, and the Director under the OBCA (s.245). Remedies under s.248(3) are broad: the court may make any order it thinks fit — including winding up the corporation, directing the purchase of shares, appointing a receiver, restraining conduct, or awarding damages.

Derivative Actions — Section 246

A complainant may apply for leave to bring a derivative action in the name of the corporation where the directors have refused to bring the action or where bringing it directly would be impractical. The court must be satisfied that: the complainant has given 14 days' notice to directors; the directors have not acted; the complainant is acting in good faith; and the action appears to be in the interests of the corporation (s.246(2)).

Shareholders' Agreements

Shareholders' agreements supplement the OBCA and the articles to address matters that the statute leaves to contractual arrangement. Key provisions in Ontario shareholders' agreements typically include:

  • Governance — voting agreements; board composition (nominee directors); quorum requirements; reserved matters requiring unanimous or supermajority consent
  • Transfer restrictions — right of first refusal (ROFR); drag-along rights (majority can force minority to sell on same terms); tag-along rights (minority can participate in majority's sale)
  • Shotgun buy-sell — either party may trigger: A offers to buy B at price X; B must either sell at X or buy A at X
  • Employment and non-competition — conditions on shareholder-employees; treatment on termination; non-competition periods (must be reasonable to be enforceable — Shafron v KRG Insurance Brokers 2009 SCC 6)
  • Deadlock provisions — mechanisms for resolving deadlock in equally divided companies; mediation before shotgun; buyout at agreed valuation

Fundamental Changes

"Fundamental changes" under the OBCA require special resolutions (two-thirds majority) and may trigger dissent rights:

  • Amendment of articles — s.170: special resolution required for most article amendments; changes affecting class rights may require approval by each affected class
  • Amalgamation — s.175: the joining of two or more Ontario corporations into one; requires special resolution of each corporation; articles of amalgamation filed with the Director
  • Continuance — s.180: migration of a corporation to or from another jurisdiction; special resolution required
  • Arrangements — s.182: a flexible catch-all for reorganizations not covered by other provisions; requires court approval; used for complex multi-party transactions
  • Sale of substantially all assets — s.184: special resolution required where the corporation sells, leases, or exchanges all or substantially all of its property (other than in the ordinary course of business)

Dissent Rights — Section 185

Shareholders who dissent from certain fundamental changes (amalgamation, arrangement, continuance, sale of all assets) are entitled to be paid fair value for their shares. The dissent procedure under s.185 requires: written notice of dissent before the vote; the fundamental change must be approved; the dissenter must demand payment within the statutory period. Dissent and appraisal rights prevent majority shareholders from forcing minority shareholders to remain in a fundamentally different corporation without compensation.

Dissolution and Winding Up

A corporation may be dissolved voluntarily under s.238 (by special resolution) or involuntarily under s.240 (by court order on application of a shareholder or Director). The court may order winding up in the oppression context (s.248(3)(g)) or where it is just and equitable to do so (s.207 — applies the common law "just and equitable" ground including breakdown of mutual confidence, exclusion from management in quasi-partnerships, and deadlock).

On dissolution, the corporation must: discharge its liabilities; distribute the remaining assets to shareholders in priority order (preferred before common; liquidation preferences as specified in articles). Directors supervising an unlawful distribution in dissolution are personally liable under s.238.