Shareholders often wonder about their rights in a corporation. In Ontario, shareholders can vote on big decisions, access corporate records, and receive dividends if declared. This guide explains “What Are The Rights Of Shareholders In Ontario?” in clear terms to help you understand them better.
Key Takeaways
- Shareholders in Ontario can vote on major decisions, receive dividends if declared, and claim remaining assets during liquidation.
- Voting rights depend on share types; common shares often include one vote per share, while preferred shares may lack voting rights.
- Shareholder agreements set clear rules for management, share transfers, and roles to avoid disputes and protect minority shareholders.
- Meetings allow discussions and votes on key issues; ordinary resolutions need over 50% approval, while special resolutions require at least two-thirds approval.
- Rights of first refusal or other restrictions may apply when transferring shares to maintain fairness within the corporation.
What Are The Rights Of Shareholders In Ontario?
Shareholders in Ontario have certain legal rights linked to their ownership. These rights protect their interests and allow them to influence the corporation’s decisions.
The Right to Vote
Voting rights let shareholders influence decisions. Those with voting shares can vote on major issues like electing directors, approving asset sales, dissolving the corporation, or amending articles and bylaws.
Each share usually equals one vote unless stated differently in agreements. Non-voting shareholders might get voting rights if changes affect their share privileges directly.
The Right to Dividends
Dividends are the profits shared with shareholders. The corporate directors decide if dividends will be paid. At least one class of shares must allow for dividend payments.
Shareholders receive dividends based on how many shares they own. Preference shares may get priority over common shares for these payments. This ensures fair profit distribution under corporate governance rules.
The Right to the Remaining Assets
Shareholders can claim remaining assets if a corporation dissolves. This happens only after creditors get paid fully.
The share each person gets depends on how many shares they own. Good corporate governance makes asset distribution smooth and fair.
Becoming a Shareholder
Becoming a shareholder means owning part of a corporation. Your rights depend on the type and class of shares you hold.
Share Structure of Your Corporation
Share structure is set in the corporation’s articles. It lists all classes of shares and limits on how many can be issued.
Ontario corporations can issue unlimited authorized shares under the OBCA. This provides flexibility to distribute equity ownership through various share types, like Class A or preferred shares.
Classes of Shares
Common shares often offer voting rights, usually one vote per share. They also provide access to dividends and remaining assets during liquidation.
Preferred shares give priority in fixed dividends and asset claims but rarely include voting rights. Convertible preferred shares can turn into common shares and still keep their dividend and liquidation perks.
Shareholder Responsibilities
Shareholders play a role in running the corporation. They must attend meetings and follow rules about their shares.
Management of the Corporation
Directors handle most business decisions. They follow rules in Ontario’s corporate law. Shareholders can shift some director powers to themselves through unanimous shareholder agreements (USAs). This gives them more control over management tasks and decisions.
Corporate governance relies on a clear structure. USAs help define shareholder roles, ensuring smooth operations. Without such agreements, directors maintain full power over the corporation’s day-to-day activities.
Participation in Shareholder Meetings
Shareholders can require a meeting if directors do not call one. Section 143 of the CBCA allows this with at least 5% of issued voting shares. Meetings must be held at least once every 15 months.
Voting shareholders should get a notice about meetings at least 21 days in advance. These meetings let shareholders discuss corporate governance and use their voting rights on key issues.
Transfer of Shares
Transferring shares must follow the rules of the corporation. Directors may need to approve any share sales. Shareholders can sell their shares, giving up their rights and ownership in the corporation.
A right of first refusal might apply. This means a shareholder must offer their shares to current shareholders before selling them outside. If a corporation dissolves, all shareholder rights end as well.
Shareholder Agreements
Shareholder agreements protect rights, set rules, and prevent disputes—learn why they matter.
Importance of Shareholder Agreements
A shareholder agreement sets clear rules for running a business. It explains how decisions are made, who has authority, and what happens if someone leaves or their situation changes.
This helps avoid fights and confusion among shareholders.
It also protects minority shareholders by detailing their rights in big decisions. Agreements often cover voting rights, ownership structure, exit plans, and conflict resolution steps.
They can include buy-sell agreements to manage share transfers smoothly. Clear terms keep everyone treated fairly and the business stable over time.
Restrictions on Share Transfers
Shareholder agreements often include rules for transferring shares. These limit how and when shares can change hands to protect the company. Common restrictions are rights of first refusal, drag-along rights, tag-along rights, preemptive rights, and shotgun clauses.
Rights of first refusal let existing shareholders buy shares before outsiders do. Drag-along and tag-along provisions apply in sales; they ensure fairness for minority shareholders or require them to sell along with majority owners.
Preemptive rights let current shareholders purchase new shares to keep their ownership percentage. Shotgun clauses resolve disputes by forcing a buyout under set terms.
Special Agreements
Special Agreements often address unique shareholder needs. Unanimous Shareholder Agreements (USAs) let all shareholders take on board responsibilities but need full consent from everyone involved.
These agreements can change how decisions are made in the corporation.
Standard Shareholder Agreements (SAs) focus on specific rules like share restrictions or voting terms. Unlike USAs, they do not need unanimous approval and keep basic governance unchanged.
Both types ensure clarity in corporate decision-making while protecting shareholder rights.
Resolutions and Meetings
Shareholders make decisions through resolutions. Meetings allow discussion and voting on important matters.
Ordinary Resolutions
Ordinary resolutions need a simple majority. This means more than 50% of the votes must agree, not counting abstentions or non-voting shares. These are used for regular decisions in shareholder meetings.
They cover tasks like approving financial statements or appointing directors. Votes happen through show of hands or ballots at meetings. A clear process ensures smooth company decisions.
Special Resolutions
Special resolutions handle big changes in a corporation. They cover critical amendments like changing the company name, altering share structures, or approving mergers. At least two-thirds of shareholder votes must approve these decisions.
The corporation must inform non-signing shareholders of the resolution within 10 business days. These steps ensure fairness and transparency for all parties involved.
Unanimous Resolutions
Unanimous resolutions need full agreement from all shareholders or directors. Everyone must sign the resolution for it to pass without a meeting.
If even one person disagrees, a meeting becomes necessary. At the meeting, the group addresses and votes on the matter. This ensures fairness in company decisions while simplifying corporate governance when there is total unity.
Conclusion
Shareholders have important rights in Ontario. These include voting, receiving dividends, and accessing corporate records. Understanding these rights ensures better decisions and protections.
Shareholder agreements can make roles and rules clear. Book a free consultation with Hadri Law to discuss your shareholder needs. Call us today at 437-974-2374 or email: contact@hadrilaw.com to get started.