Do Shareholders Have to Approve Selling All of a Corporation's Assets in Ontario?

Your corporation has an offer for its business, and the buyer wants the assets rather than the shares. As a director or majority owner, you may wonder whether the board can simply sign. As a minority shareholder, you may wonder whether you have any say at all.

In Ontario, a sale of the whole business is not an everyday decision. The Business Corporations Act (Ontario) sets out a shareholder vote for it and gives some shareholders a way out. This article explains the vote, the dissent right, and a few related points to check before closing.

When shareholder approval is required

Under section 184(3) of the Business Corporations Act (Ontario), a sale, lease or exchange of all or substantially all of a corporation's property, outside the ordinary course of business, requires shareholder approval under subsections (4) to (8). Directors cannot approve it alone.

Two phrases matter here. "Substantially all" is not defined by a simple percentage in this article, so whether a particular sale crosses the line depends on the facts. The same is true of "outside the ordinary course of business": how it applies to your sale depends on your situation. If you are unsure whether your deal qualifies, a lawyer can confirm before you sign anything.

What a special resolution means

Approval is effective when the shareholders approve the sale by special resolution of the holders of each class or series entitled to vote on it. A special resolution is one passed by at least two-thirds of the votes cast at the meeting, or one signed by all the voting shareholders.

• Two-thirds is measured against votes cast at the meeting, not against all shares issued.
• Each class or series entitled to vote on the sale must approve it.
• A written resolution only works if every voting shareholder signs it.
• Check your articles and any shareholder agreement, since they may add their own requirements.

The right to dissent

When a corporation resolves to sell, lease or exchange all or substantially all of its property under section 184(3), a holder of shares of any class or series entitled to vote on the resolution may dissent and seek to be paid fair value. This protects minority shareholders who do not want to stay invested in a corporation that is selling its business.

Dissenting follows a set process with its own steps and timing, so a shareholder who is thinking about it should get advice early. How fair value is worked out is a separate topic and is not covered here.

Other points to check in an asset sale

Other matters, such as land transfer tax on real property, employees and any seller financing, depend on the deal and are worth raising with your lawyer and accountant.

What to do next

• Confirm whether the sale covers all or substantially all of the corporation's property.
• Read the articles, by-laws and any shareholder agreement for extra voting rules.
• Count the classes of shares and see which are entitled to vote.
• Decide whether to hold a meeting or seek a signed resolution from every voting shareholder.
• If you are a minority shareholder and oppose the sale, ask about dissent before the vote.
• Talk to an accountant about tax, including the GST/HST election and the effect on shareholders.
• Diarize the Form 1 filing if directors or officers will change.

Because the vote can decide whether the deal closes, a lawyer should review the process and the paperwork before the meeting is called.

Frequently asked questions