The steps for opening a company in Canadaare given by the regulations of the Company Law. Once the type of structure to be used is established, the shareholders must also decide who the company managers or directors will be before starting the incorporation procedure.
When appointing directors in Canada, investors will have to respect a set of legal requirements, in accordance with the stipulations of the law. Information on such rules can be offered by our team of consultants in company registration in Canada. We can also help foreign investors register a company in Canada and comply with the provisions related to the company management after the business is duly registered.
Company management requirements in Canada
The Canadian legislation is imposed at a federal and regional level which means that a company must comply with the provisions of the Company Law when appointing company directors, but also with local regulations with respect to the number of directors and their residency. The following requisites must be respected when it comes to nominating the directors of a company in Canada:
- a company must have at least one director who is at least 18 years old at the time of the appointment;
- only natural persons can occupy the function of the company director, as legal entities are not allowed;
- the person taking on the role of a company director must have a clean criminal record and must be of good morality;
- persons who have undergone personal bankruptcy cannot be appointed as company directors in Canada;
- at a national level the law stipulates that 25% of the company directors must have Canadian residency, in a company that has at least 4 directors, but this requirement was repelled in the province of Ontario starting with July 2021, under the Better for People, Smarter for Business Act.
What are the new regulations on appointing directors in Ontario, Canada?
Although Canada is a country that is favorable to foreign investments, as it has friendly policies towards foreign businessmen, the legislation can be further modified to provide better conditions for foreign businessmen – a recent improvement of the law was enforced in the province of Ontario. Under the new Ontario law, the residency requirements applicable to the directors of a Canadian company have been eliminated, and this is expected to have a positive effect on those who are planning to open a company in Canada.
Thus, it is necessary to know that the Business Corporation Act, the main legal act which regulates the incorporation and the activity of local businesses in Ontario, was recently amended under a Bill that had as a main purpose the elimination of the directors’ residency requirements. With regards to this matter, the following apply:
- on 20 November 2020, the Ontario Bill 213 was send to the General Governmentfor approval;
- the Bill, known as the Better for People, Smarter for Business Act 2020 wished to eliminate certain procedures that have a negative impact on the business environment or which do not stimulate foreign investments;
- the Act came into force on 5 July 2021 and the main amendment refer to the elimination of the residency requirements for the directors of companies located in Ontario and lower the thresholds on the approval of shareholders’ resolutions;
- the Act repelled the Section 118(3), which stipulated that a company should have at least 25% of its directors Canadian residents or, in companies with less than 4 directors, minimum 1 resident director;
- the Act also repelled the Section 104 regarding shareholders’ resolutions, which had to have 100% approval of all shareholders on various decisions.
Those who want to open a company in Canada will now benefit from simpler regulations and this should concern businessmen who want to become shareholders of local companies. Regarding the latter point in the list, under the new law, shareholders’ resolutions offered as written ordinary resolutions will now have to comply with a simple majority, not a 100% majority of the shareholders’ approval, and this should have a positive impact on the management of the company.
Please mind that the regulation is applicable for Canadian companies that are incorporated as private companies. Under the latest amendments, the said resolution should then be offered in a period of maximum 10 days to the other non-signing shareholders who were not part of the decision, but who were entitled to vote.
The regulation is expected to have a positive impact on the overall business environment, by reducing the time spent with completing various managerial tasks; this will also increase the rentability of the business, as a lot of time is wasted in completing various documents, forms and legal procedural steps when expecting minor shareholders to sign various documents.
This regulation does not apply, however, to corporate decisions that fall under the category of special resolutions. In this particular case, there is still a necessity to have at least two thirds of the shareholders approve the decision. This can be the case of adjusting the company’s capital by reducing it or by increasing it or by developing business activities in other jurisdictions or when deciding to continue a business activity in a foreign country, as well as for any other major business decision.
Please mind that companies that have signed articles of association or other bylaws which follow the regulations of the previous law will now have to adjust to the applicable law. In this situation, it is necessary to amend the company’s statutory documents and our team of consultants in company registration in Canadacan present the legal steps that have to be taken.
Thus, by applying this method, companies already operating in Ontario, Canada will be able to follow the new regulations and to eliminate procedures that are no longer necessary. Please mind that the certain types of business activities and companies in Canada may still need to have a Canadian resident appointed as a director. However, this is the exemption, and not the rule and for in-depth information concerning this subject, you can always rely on our consultants in company registration in Canada.
If you need further advice, our specialists can help you open a company in Canada and can present any other regulation that can apply to the management of your company (on matters related to shareholders, directors, administrators or representatives). Below, you can find out more details on the directors of a Canadian company.
Duties of company directors in Canada
The shareholders in the Canadian company have the task of appointing company directors in accordance with the law prior to the company registration procedure in Canada. This is because their names must be written in the documents filed with the Trade Register and the company’s articles of association. The directors of a Canadian company have a set of responsibilities. The main are presented below:
- the obligation to supervise on the execution of tasks for all the company’s structures, in accordance with the regulations of the Corporation Act;
- the fiduciary duty or the duty of loyalty towards the company and its shareholders, meaning acting in the best interest of the business;
- the duty or care which implies acting in good faith, with diligence and prudence, as reasonably expected;
- the duty of exercising a business judgment, which according to the Supreme Court of Canada, implies a decision should be based on various business alternatives;
- the duty of avoiding conflicts of interest related to contracts signed by the company or their fiduciary duties;
- the duty of not exercising oppression against other officers or employees in the company.
It should be noted that company directors can be appointed for a maximum period of 3 years. The duration of a company director’s mandate is usually set in the Canadian business’ bylaws. Also, if no duration of the mandate is established, the director will keep the function until the next meeting of the shareholders.
In order to be appointed as a director, an individual must consent in writing on taking on the role, according to the law. The person must consent to his/her election within 10 days from the nomination. Should you have any questions related to the appointment or duties of company directors, our company registration representatives in Canada can answer them.
Why invest in Canada?
Canada has an open economy with foreign investment policies that are suitable for foreign investors. Nevertheless, they must respect the requirements related to company directors in Canada; our team of specialists can help you open a company in Canada and can also help you in receiving legal advice on the rules regarding company directors. The Canadian economy:
- ended 2018 on a good note with a 2.1% economic growth;
- compared to 2017, Canadian exportsrose by 2% in 2018;
- it is necessary to know that Canadian businesses were responsible for the creation of more than 200,000 new jobs in 2018, most of them being full-time jobs;
- in 2019, Canada is expected to have an economic growth of approximately 2%, just like in 2018.
If you are interested in starting a business in Canada and need information on the election of company directors, please contact our local company registration agents. We can also assist with the business registration procedure. Our team can help you in all the stages of the process for company formation in Canada and can provide tax consultancy services as well.