Since shareholders have invested their money in a corporation, they have some protections in place. In addition to any rights provided by an applicable shareholder agreement, the Business Corporations Act (Ontario) (“OBCA”) and the Canada Business Corporations Act (“CBCA”) provide shareholders with some rights. These rights are intended to give shareholders protections and to foster transparency in the corporation. If you would like more information regarding equal shareholder-director disputes click here.
1. Rights with Respect to Shareholder Meetings
Shareholders are entitled to have notice of and attend shareholders’ meetings. All OBCA and CBCA corporations, no matter how small and inactive they are, must hold at least one annual meeting of shareholders every year. At this meeting, the shareholders are required to:
- consider the financial statements;
- consider the auditor’s report, if any;
- appoint the auditor or dispense with the requirement; and
- elect directors, if necessary.
Under Subsection 94(1) of the OBCA and Section 133 of the CBCA an annual meeting of shareholders must be called not later than eighteen months after the corporation comes into existence and subsequently not later than fifteen months after holding the last preceding annual meeting. There are also special meetings of shareholders. The directors can call a special meeting at any time. Under Section 105 of the OBCA and Section 143 of the CBCA shareholders with at least 5 per cent of the issued shares can also requisition the directors to call a meeting of shareholders. At both annual meetings and special meetings, a director can be removed.
Shareholder meetings can also be completed by a written resolution in lieu of a meeting. However, this resolution must be signed by all shareholders, whereas at a shareholder meeting a majority can typically pass a resolution.
2. Voting rights
As a shareholder you have a right to receive notice and attend these shareholder meetings. Depending on the specifics of your corporation you may or may not have the ability to vote at these meetings. Typically, under Subsections 119(4) and 100(2) of the OBCA and Section 106 of the CBCA, shareholders also have voting rights that allow them to control the makeup of the board of directors and the ability to remove directors. Directors can appoint and remove officers. However, the Articles of Incorporation may provide certain shareholders with limited voting rights.
3. Access to Information Rights
Shareholders are entitled to various information and access rights. PART XI Books AND Records of the OBCA and PART IV – Registered Office and Records list the specific information rights available to shareholders. Corporations have the duty to maintain certain records and shareholders have the right to examine any of these records during business hours and take extracts of those records free of charge. These records include shareholder registers and other important documents.
4. Audit Rights
One of the most important rights that a shareholder has is their ability to require the corporation to audit its financial statements. Under Sections 155 and 159(1) of the OBCA and Section 158 of the CBCA, the annual financial statements of a corporation must be audited by a qualified auditor unless all shareholders agree to exempt the corporation from having its annual financial statements audited. If a shareholder does not agree to exempt the corporation form this requirement, the corporation must audit its financial statements and allow the shareholder to inspect these audit statements.
5. In the Event of Liquidation and Dissolution
Under Subsection 193(1) of the OBCA and Subsection 210(3) of the CBCA, by special resolution, which requires two thirds support as compared to an ordinary resolution which requires one half support, the shareholders can require the corporation to be wound up voluntarily. This right allows shareholders to end a corporation’s existence. If the corporation is wound up, it must distribute any remaining assets to shareholders after paying off its liabilities.
Every situation is unique as corporations have different articles of incorporation, by-laws, and shareholder agreements in place. Pawlina Law is prepared to help you determine and assert your shareholder rights. Please do not hesitate to contact us.