A small family company in Brampton wants to bring a son onto the board as his mother steps back. A pair of business partners has stopped speaking, and one wants the other out. A shareholder discovers that the company’s public record still lists a director who moved overseas six years ago. These are very different situations, but each comes down to the same question: who has legal authority to sit on the board, and has that been properly recorded?
Directors are the people who manage or supervise the management of a corporation. Their appointment affects who can sign, who can bind the company and who may face personal exposure for its unpaid wages and taxes. Getting the steps right protects the corporation. It also protects individuals who assume they have joined or left a board when, legally, they may not have.
What follows is general information on Ontario and federal corporate law, not legal advice for your company. Your articles, by-laws and any shareholder agreement can change the answer, so read them first.
Start With Four Documents
Before anyone signs a resolution, pull together:
- The articles of incorporation, which fix the number of directors or a minimum and maximum, and may contain special rights to elect or remove them
- The by-laws, which set meeting procedure, notice and quorum details
- Any shareholder agreement, especially one that gives a particular shareholder the right to nominate a director or requires unanimous approval to change the board
- The minute book, showing who was actually elected and when
Many disputes begin because somebody acted from memory. A provision in a shareholder agreement saying “each of the two families will nominate one director” can defeat what looks like a straightforward majority vote. If the agreement is a unanimous shareholder agreement, it may also shift powers from directors to shareholders, so the people you are trying to remove may matter less, or more, than their title suggests.
Who Can Be a Director
Under Ontario’s Business Corporations Act (OBCA), a director must be an individual, at least 18 years old, not found incapable by a court or under the relevant mental-health legislation, and without the status of bankrupt. A corporation cannot sit on the board. Directors do not need to own shares unless the articles require it.
The OBCA no longer has a Canadian residency requirement for directors. That requirement was repealed effective July 5, 2021, which surprises business owners who remember the old rule. For a corporation under the Canada Business Corporations Act (CBCA), the position is different: the federal statute as it currently reads still calls for at least 25 per cent of directors to be resident Canadians, and at least one where there are fewer than four directors, subject to an exception for specific Canadian ownership sectors. So a federal company with a sole director living abroad needs a closer look.
The public record still calls for each director’s details, so supply them accurately even where residency is not a qualification.
An OBCA corporation that does not offer securities to the public must have at least one director. Beyond that minimum, the number follows the articles.
Getting Someone Onto the Board
There are three common ways in.
Election by shareholders. Directors are normally elected by ordinary resolution, meaning more than half the votes cast, at an annual meeting or by a written resolution in lieu of a meeting. Their term ends at the close of the annual meeting where their successors take office, unless the term runs differently under the OBCA’s limits. A director whose term lapses without an election generally stays in office until a successor is elected.
Appointment by the board to fill a vacancy. Under the OBCA, a quorum of directors can generally fill a vacancy, with exceptions. For example, it cannot use this power to fill a vacancy that results from increasing the number of directors or from a failure to elect the number required, unless the articles allow it in certain cases. The articles may also require a shareholder vote.
Increasing the number of seats. If the articles fix the number at two and you want three, a shareholder resolution or articles of amendment may be needed. If the articles set a range, such as a minimum of one and a maximum of ten, a special resolution can fix the number or empower directors to do so within that range. Check whether this has been done before; many small companies have a blanket special resolution sitting in the minute book.
A hypothetical shows why this order matters. A corporation with articles allowing exactly one director passes a resolution “appointing” the founder’s spouse as a second director. Nobody amends the articles. For years the couple treat themselves as co-directors. When the marriage ends, the spouse’s authority and the validity of past board decisions become contested, all because of a step that would have taken an afternoon.
Consent, Records and the 15-Day Rule
Being elected is not always enough on its own. Under the OBCA, a person elected or appointed generally is not a director unless they consent. Someone present at the meeting consents by not refusing, while someone absent generally has to consent in writing within a short period, about ten days. It is good practice to get signed consent in every case and keep it in the minute book.
After the change, update the following:
- The directors’ register in the minute book
- The Ontario Business Registry, by filing a notice of change within 15 days for an Ontario corporation
- Corporations Canada, using its change-of-directors form, for a federal corporation
- The register of individuals with significant control, if the person’s control position has also changed
- Bank signing authorities, which are separate from the board and do not update themselves
Do not skip the bank step. A removed director who remains a signatory can still move money, whatever the minute book says.
Resigning From a Board
A director can resign at any time. Under the OBCA, a written resignation takes effect when the corporation receives it or at a later time it specifies. It does not need anyone’s acceptance. Keep proof that it was delivered, and do not rely on a verbal comment at the end of a tense meeting.
If you are the one leaving, ask the corporation to file the notice of change, and verify later that it was done. If the company does not act, raise the concern promptly in writing and get advice on your options rather than letting the record sit. Resigning does not wipe out liability for what happened during your tenure. Director exposure for items like unpaid wages and source deductions can be tied to the period you served, and limits on how long after leaving you can be pursued depend on the statute. Our corporate law page describes the governance work we do for businesses.
A sole director cannot simply walk away without thought for what comes next. Without a replacement, a corporation may have nobody able to act, leaving shareholders to step in. Plan the succession first.
Removing a Director Who Does Not Want to Go
The shareholders generally hold this power, not the other directors. Under OBCA section 122, shareholders may remove a director by ordinary resolution at an annual or special meeting, subject to the articles. Under CBCA section 109, removal is also by ordinary resolution, at a special meeting. A board usually cannot vote one of its own members out unless the constating documents or a valid agreement provide a mechanism, or a person becomes disqualified.
There are important limits:
- Class rights. If a class or series of shares has an exclusive right to elect a director, generally only that class can remove them.
- Cumulative voting. If the articles provide for it, special rules protect a director from removal by a bare majority.
- Agreements. A shareholder agreement may restrict how votes are cast or preserve a nominee’s seat, and breaching it could lead to a court order.
Procedure matters too. The director facing removal has a statutory right to receive notice of the meeting and to be heard or to submit a written statement. Under the OBCA, a director who resigns or receives a notice or otherwise learns of a meeting called to remove them may submit a written statement giving reasons for resigning or for opposing the removal, and the corporation has to circulate that statement. Because of those rights, an uncontested written resolution is not always appropriate in a contested removal, and holding a properly called meeting is often the safer course.
Calling that meeting can be a fight in itself. If the director you want to remove is the one who controls meeting notices, shareholders holding the required percentage can requisition a meeting, or in some circumstances ask a court to order one. In a company with two equal shareholders, however, neither can pass an ordinary resolution alone. A 50/50 split means no removal by vote at all, leaving negotiation, the terms of a shareholder agreement or a court application.
Removal Does Not End Everything Else
Losing a board seat leaves a person’s other roles untouched. A removed director may still be:
- A shareholder, with votes, information rights and any dividend entitlement
- An officer, such as president, whose appointment the board deals with separately
- An employee, with rights under the Employment Standards Act, 2000, the employment contract and the common law, including potential claims for wrongful dismissal
- A guarantor on the company’s loans or lease, and possibly still liable until the lender releases them
Removal that looks like a squeeze-out can also invite an oppression application. Under the OBCA and CBCA, a shareholder, director or other proper complainant can ask a court for a remedy if corporate conduct unfairly disregards their interests. In a small company where a person expected a continuing role, being pushed off the board while also losing a salary may be the very thing they complain about. A lawyer should look at the consequences before you act, not after, and any court application would likely be heard in the Superior Court of Justice, which sits in Brampton at 7755 Hurontario St. Our page on business litigation explains the kinds of disputes that end up there.
A Clean Sequence to Follow
Suppose the change is friendly and a company wants to swap one director for another. Here is a typical order:
- Confirm the number of directors allowed and who holds votes.
- Get the outgoing director’s signed resignation, with a date.
- Get the incoming director’s signed consent.
- Have the shareholders pass a resolution electing the new director, or have the remaining directors fill the vacancy where permitted.
- Update the registers and minute book.
- File the notice of change within 15 days.
- Update bank mandates, insurance records, and any lender or franchise notices that require you to report a change.
- Consider whether directors’ and officers’ insurance should cover the incoming person.
A careful incoming director will also want to ask a few questions before saying yes. Are source deductions and HST current? Are wages paid up? Is there any existing litigation? Is there insurance? Agreeing to help out a relative or a friend is a generous instinct, but a directorship carries real legal duties and is not a courtesy title.
When the Board Is Already Broken
If directors cannot meet, quorum cannot be reached, or two factions each claim to be in charge, stop signing competing resolutions. A record of duelling documents is hard to untangle, and third parties such as banks may freeze accounts when they see it. Instead, collect the governing documents and advice on what each side can properly do. Many of these situations settle once each side sees where the votes actually sit. If you need help working out who holds authority in your company, you can reach our office with your articles and shareholder agreement in hand.