Special Resolution

Ontario's Business Corporations Act (OBCA) sets two standard levels of shareholder approval in section 1(1). An ordinary resolution passes with a majority of the votes cast at a meeting. A special resolution needs at least two-thirds of the votes cast at a meeting of shareholders duly called to consider it, or the written consent of every shareholder entitled to vote on it. The federal Canada Business Corporations Act (CBCA) uses the same two-thirds-of-votes-cast test.

The higher bar reflects what special resolutions do. Directors manage the business, but the statute reserves decisions that change the corporation itself (its constitution, its capital, its existence or the business it owns) to the shareholders, and it wants broad agreement before they happen. Many special resolutions are carried out by filing articles of amendment; others authorize an amalgamation, a continuance or a sale. The resolution is the authority; the filing or the closing carries it out.

Votes cast, not shares outstanding. The two-thirds is measured against the votes actually cast for or against the resolution. Shares that are not represented at the meeting, and holders who abstain, are left out of the count, so staying home is not a vote against. The meeting still needs a quorum: unless the by-laws say otherwise, holders of a majority of the voting shares must be present in person or by proxy (section 101). Once a quorum is present, holders who cast more than one-third of the votes against the resolution can defeat it.

Class votes. When an amendment would change the rights of a class or series of shares in the ways listed in section 170, that class votes separately and must approve by its own special resolution, even if its shares are otherwise non-voting. The articles can remove that class vote for a few of the listed changes, such as creating a new equal or superior class. Class votes also apply to an amalgamation whose terms would trigger one if made by amending the articles, and to a sale of substantially all the property that affects one class differently from another.

Written resolutions need everyone. Instead of meeting, shareholders can pass a special resolution in writing, but only if every shareholder entitled to vote signs it. The July 2021 OBCA amendment that lets holders of a majority of the shares sign a written resolution in a non-offering corporation covers ordinary resolutions only. Our guide to written resolutions instead of meetings explains that procedure and its limits.

Higher thresholds by agreement. Under section 5(4), the articles or a unanimous shareholder agreement can require more votes than the statute does, and the higher number then governs. An ordinary shareholder agreement cannot change the statutory threshold, but it can bind the shareholders who signed it to give, or withhold, their consent.

Notice. For a corporation that is not an offering corporation, notice of the meeting must be sent 10 to 50 days before it. Because a special resolution is special business, the notice must describe the business in enough detail for shareholders to form a reasoned judgment and must include the text of the resolution.

The OBCA requires a special resolution for these decisions, among others:

• Amending the articles under section 168, for example to change the corporate name, create or change a class of shares, add or remove restrictions on share transfers or on the business, or change the number of directors
• Setting the number of directors within a range fixed by the articles, unless the special resolution lets the directors set it (section 125(3))
• Reducing stated capital, subject to solvency tests (section 34)
• Moving the registered office to a different municipality in Ontario (section 14(4))
• Approving a long-form amalgamation (section 176) or a statutory arrangement (section 182)
• Authorizing a continuance into another jurisdiction (section 181)
• Approving a sale, lease or exchange of all or substantially all the corporation's property outside the ordinary course of business (section 184); our guide to shareholder approval for selling business assets covers that deal-specific process
• Requiring a voluntary winding up (section 193) and authorizing a voluntary dissolution (section 237); for dissolution, a non-offering corporation's articles can set a different proportion, but never less than 50% of the votes of all shareholders entitled to vote

Two carve-outs are worth knowing. Directors alone can change a number name to a word name, and can divide a class into series when the articles authorize them to. Routine annual business, such as electing directors and appointing an auditor, needs only an ordinary resolution.

The last row matters because owners often assume a special resolution is the highest bar in the statute. It is not. An audit exemption under section 148 needs the written consent of every shareholder, voting or not, and the articles or a unanimous shareholder agreement can impose unanimity on other decisions.

Some special resolutions give shareholders who object a statutory exit. Under section 185, a shareholder entitled to vote who follows the procedure can dissent from amendments that add, change or remove restrictions on the issue, transfer or ownership of shares or on the business, certain class-right changes, long-form amalgamations, continuances and substantial asset sales, and be paid the fair value of their shares. A name change or a reduction of stated capital does not, on its own, create a dissent right. The objection, demand and court steps run on tight deadlines, set out in our entry on dissent rights.

A special resolution to amend the articles can also be undone before it takes effect. If the resolution itself authorizes it, the directors can revoke it without further shareholder approval at any time before the certificate of amendment is endorsed.

A copy of every written resolution must be kept with the shareholder minutes, so the signed resolution, or minutes recording the vote count, belongs in the corporate minute book. A buyer, lender or registry examiner who later asks how a change was authorized will look there first.

Credit River Freight Inc., a Mississauga logistics company governed by the OBCA, wants to change its name to Credit River Logistics Inc. and raise the maximum number of directors in its articles from three to five. Both are articles amendments, so each needs a special resolution. Its 100 voting common shares are held by Tamsin Brennan (45), Kaveh Nasser (25), Ewa Novak (20) and Rosa Delgado (10).

A written resolution would need all four signatures, and Rosa, who now lives abroad, does not respond. The company calls a meeting instead, sending notice 14 days ahead with the text of both resolutions. Tamsin, Kaveh and Ewa attend, so holders of 90% of the voting shares are present and there is a quorum; Rosa does not. Tamsin and Kaveh vote in favour of both resolutions, and Ewa votes against the board change only. On the board change, 70 of the 90 votes cast are in favour, or 77.8%, so it passes; the name change passes with every vote cast. Neither amendment carries a dissent right. The company files articles of amendment, receives its certificate, and places the minutes and vote tally in the minute book.