Can an Ontario corporation buy back its own shares, and what are the rules?

Yes, an Ontario corporation can acquire its own shares — either through a redemption (where the articles give the corporation the right to buy the shares back) or through a retraction (where the articles give the shareholder the right to require the corporation to buy them back). The corporation can also simply purchase shares in the open market or by private agreement, subject to the articles and any shareholder agreement.

The Ontario Business Corporations Act imposes important solvency conditions on share repurchases. A corporation cannot redeem or purchase its shares if doing so would leave it unable to pay its liabilities as they come due, or if its realizable assets would be less than its liabilities after the transaction. These solvency tests exist to protect creditors — the corporation cannot pay out capital to shareholders at the expense of people it owes money to.

Practically, a buyback requires board approval and careful documentation. If the buyback is of a shareholder's entire stake upon their departure, it is often structured under the exit provisions of a shareholder agreement and may need to comply with the agreement's valuation mechanism. The tax treatment of a share repurchase for the selling shareholder also requires attention — it is not automatically treated the same as a regular sale. A corporate lawyer and a tax advisor should both be involved.