Do Ontario corporations still need Canadian resident directors? No. Since July 5, 2021, Ontario corporations have not been required to have any resident Canadian directors.
This article explains Ontario's former rule, what the 2021 change did, what Ontario corporations still need to report about their directors, and how Ontario compares to federal incorporation. It also explains when moving a federal corporation to Ontario may make sense.
Key Takeaways
- Ontario corporations do not need any resident Canadian directors.
- Before July 5, 2021, at least 25 percent of an Ontario corporation's directors had to be resident Canadians.
- The requirement was repealed by the Better for People, Smarter for Business Act, 2020.
- The change applies to all Ontario corporations, including those incorporated before 2021.
- Ontario corporations still report their directors' residency status in their filings, even though no minimum applies.
- Federal corporations under the CBCA still generally need at least 25 percent resident Canadian directors.
- A federal corporation that wants to remove the requirement may be able to continue into Ontario.
Do Ontario Corporations Need a Canadian Resident Director?
No. A corporation governed by Ontario's Business Corporations Act (OBCA) can have a board made up entirely of directors who live outside Canada.
An Ontario corporation still needs at least one director, and its directors still have the same duties and potential personal liabilities as any other director. But there is no longer any requirement that a director be a resident Canadian.
Director Residency Requirements in Ontario Before 2021
Before July 5, 2021, section 118(3) of the OBCA required at least 25 percent of an Ontario corporation's directors to be resident Canadians. If a corporation had fewer than four directors, at least one had to be a resident Canadian.
The rule was generally understood as a way to ensure Canadian participation in corporate governance. In practice, it created a real hurdle for foreign-owned businesses.
A founder or parent company without Canadian contacts had to find someone willing to serve as a director, with all the duties and potential personal liability that involves.
Some businesses paid for nominee director services simply to meet the rule. That added cost and complexity, with little connection to how the business was actually run.
The 2021 Change: Repeal of Section 118(3)
Effective July 5, 2021, the Better for People, Smarter for Business Act, 2020 (Bill 213) repealed section 118(3) of the OBCA, removing the director residency requirement.
The change applies to all Ontario corporations, not just those incorporated after July 2021. An existing Ontario corporation can now appoint non-resident directors without needing to keep any resident Canadians on its board, subject to its own articles, by-laws, and any shareholder agreement.
Before changing its board, an existing corporation should check whether its by-laws or shareholder agreement still refer to the old residency rule, and update them if needed.
Other Changes Made at the Same Time
The same amendments also made it easier for private (non-offering) Ontario corporations to pass ordinary resolutions in writing.
Instead of requiring every shareholder to sign, a written ordinary resolution can now generally be passed by shareholders holding a majority of the votes, with notice to the other shareholders.
This is useful for corporations with shareholders spread across different locations.
What Ontario Corporations Still Report About Their Directors
Removing the requirement did not remove the reporting.
Ontario corporations still disclose whether each director is a resident Canadian in their articles of incorporation and in their filings through the Ontario Business Registry.
The definition of "resident Canadian" remains in the OBCA for this purpose, even though no minimum now applies.
When directors change, the corporation should update its records and file any required notice of change, including the new directors' residency status.
Ontario vs Federal Director Residency Requirements
The 2021 change created a clear difference between Ontario and federal corporations.
Under the federal Canada Business Corporations Act (CBCA), at least 25 percent of directors generally still need to be resident Canadians, or at least one if the board has fewer than four directors. Ontario has no such requirement.
For a foreign-owned business without a Canadian director available, this often makes Ontario incorporation the more practical choice. Our article on director residency requirements in Canada covers the federal rule and other provinces, and our comparison of an Ontario corporation vs federal corporation covers the other differences between the two routes.
Moving a Federal Corporation to Ontario
Some businesses are already incorporated federally and find the resident director requirement a burden, for example after a Canadian director resigns or the business becomes foreign-owned.
In some cases, a federal corporation can move to Ontario through a process called continuance. Once continued, it is governed by the OBCA and no longer subject to the federal residency requirement.
Continuance requires shareholder approval and filings in both jurisdictions, and it can affect other aspects of the corporation, such as Canada-wide name protection. It should be considered carefully with legal advice.
Governance With a Non-Resident Board
Having no residency requirement does not mean governance can be informal.
A board made up of non-residents should still document its decisions properly, usually by signed written resolutions or minutes of electronic meetings, and keep them in the corporation's minute book.
Directors should also understand their personal liabilities under Canadian law, such as for certain unpaid wages and remittances, regardless of where they live.
Where a Canadian corporation is part of a foreign group, the location of board decision-making may also be relevant for tax purposes, and should be reviewed with tax advisors. Our overview of setting up a subsidiary in Canada explains how these points fit into a foreign business's wider setup.
When to Involve a Lawyer
The best time to involve a lawyer is before you incorporate, so the jurisdiction, board composition, and governance arrangements are chosen together.
It is also worth getting advice if you are changing your board to non-resident directors, if your by-laws or shareholder agreement still refer to the old residency rule, or if you are considering continuing a federal corporation into Ontario.
The Bottom Line on Director Residency Requirements in Ontario
Ontario corporations have not been required to have resident Canadian directors since July 5, 2021. The change applies to existing and new corporations, although directors' residency status is still reported in Ontario filings.
Federal corporations generally still need at least 25 percent resident Canadian directors, which makes Ontario incorporation, or continuance into Ontario, attractive for many foreign-owned businesses.
If you are incorporating in Ontario or reorganizing your board, our team at Levine Law can help. We can set up your corporation and governance for directors inside or outside Canada, and advise whether continuing into Ontario makes sense for you.
Frequently Asked Questions
Do Ontario corporations need a Canadian resident director?
No. Since July 5, 2021, Ontario corporations have not been required to have any resident Canadian directors. An Ontario corporation can have a board made up entirely of directors who live outside Canada. It still needs at least one director, and its directors have the same duties and potential personal liabilities as any other director, wherever they live.
What did Ontario's old director residency rule require?
Before July 5, 2021, section 118(3) of Ontario's Business Corporations Act required at least 25 percent of a corporation's directors to be resident Canadians. If the corporation had fewer than four directors, at least one had to be a resident Canadian. The rule was repealed by the Better for People, Smarter for Business Act, 2020.
Does the change apply to corporations incorporated before 2021?
Yes. The repeal applies to all Ontario corporations, so existing corporations no longer need resident Canadian directors either. Before changing the board, however, an existing corporation should check whether its by-laws or shareholder agreement still refer to the old residency rule, since those documents may need updating even though the statute no longer requires it.
Does a federal corporation still need resident Canadian directors?
Generally, yes. Under the Canada Business Corporations Act, at least 25 percent of a federal corporation's directors generally need to be resident Canadians, or at least one if there are fewer than four directors. Our article on director residency requirements in Canada explains the federal rule and other provinces.
Can a federal corporation move to Ontario to avoid the residency requirement?
In some cases, yes. A federal corporation can apply to continue into Ontario, after which it is governed by the OBCA and no longer subject to the federal residency requirement. Continuance requires shareholder approval and filings in both jurisdictions, and it can affect other matters, such as Canada-wide name protection. It should be reviewed with legal advice before proceeding.
Are there other Canadian provinces without a director residency requirement?
Yes. British Columbia and Alberta removed similar requirements before Ontario did, and other provinces have none either. Our guide to director residency requirements in Canada covers the position province by province.