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Corporations operate on a system of majority rule and this necessitates the codification of minority shareholder rights to ensure that the interests of the minority are protected and not overlooked by the majority. A shareholder holding a substantial amount of shares within a corporation has tremendous power to orchestrate corporate activity, potentially at the expense of minority shareholders.

Pursuant to the Canada Business Corporations Act ("CBCA") and the Ontario Business Corporations Act ("OBCA") minority shareholders have certain rights that protect them from the actions and decisions of majority shareholders within the corporation. This means that if you control a majority of shares in a corporation you will be required to consider the interests of not only the corporation, but the interests of minority shareholders before making certain fundamental corporate decisions. This article will identify some of the rights from which minority shareholders benefit.

Votes by Special Resolution

A special resolution is defined under the CBCA as a resolution passed by a majority of not less than two-thirds of the votes cast by the shareholders who voted in respect of that resolution or signed by all the shareholders entitled to vote. It is an effective way for minority shareholders to have a profound impact on corporate decision-making.

A common example of when a special resolution is required is when a corporation wishes to make certain amendments to its articles of incorporation, which are the primary rules governing the management of the corporation. Such amendments which require a special resolution include, but are not limited to:

  • Changing the name of the corporation;
  • Changing the province in which its registered office is located;
  • Changing the maximum and minimum number of shares the corporation may issue;
  • Changing the designation of all or any of its shares; and
  • Increasing or decreasing the number of directors

The articles of incorporation represent the foundational document of a corporation and as such, any change to the articles of incorporation can have a substantial impact on those who hold a financial interest in the corporation. It is therefore necessary to consider the interests of minority shareholders when making such changes. Their votes may impact whether the resolution is ultimately passed.

The rights of minority shareholders are also protected under the CBCA and OBCA in cases where a corporation intends to sell, lease or exchange all or substantially all of its property outside of the ordinary course of business. In this type of a situation a special resolution must be obtained in order to carry out such a sale, lease or exchange. Furthermore, each shareholder of the corporation has the right to cast a vote in respect of the proposed transaction regardless of whether the shares of each shareholder normally carry the right to vote.

Oppression Remedy

The oppression remedy is available under the CBCA and the OBCA and it is one of the most powerful tools that minority shareholders have to protect their rights. The remedy allows a shareholder to commence a claim against the corporation in cases where the actions or omissions of the corporation or its management are oppressive, unfairly prejudicial or unfairly disregard the interests of the shareholder.

The oppression remedy, which is broad in scope, has gained traction in the past decade. Corporations therefore need to consider carefully the impact of its decisions and activities with respect to the rights of minority shareholders.

When faced with an oppression remedy claim the court has wide discretion in choosing appropriate remedies, some of which include:

  • An order restraining the conduct complained of;
  • An order directing the corporation to purchase the shares of a shareholder;
  • An order compensating an aggrieved person;
  • An order liquidating and dissolving the corporation

These orders can have a significant impact on a corporation and are an incentive for corporate owners and directors to act appropriately when making decisions which materially affect the corporation and its shareholders.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2021 Nelligan O’Brien Payne LLP.

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