Shareholder Approval to Sell \"All or Substantially All\" Assets in Ontario

If you're selling your Ontario corporation's business through an asset sale rather than a share sale, there's a corporate-governance step that's easy to overlook amid the commercial negotiations: shareholder approval. Ontario's Business Corporations Act ("OBCA") does not leave the decision to sell a corporation's entire business solely in the hands of its directors — in the right circumstances, the shareholders get a formal vote.

This article explains when that approval requirement applies, what it involves, and what happens if it's skipped.

The Statutory Rule

Under the OBCA, a sale, lease, or exchange of all or substantially all of a corporation's property, outside the ordinary course of its business, generally requires approval by special resolution of the corporation's shareholders. This rule sits in OBCA section 184(3), with the approval becoming effective once each class or series of shares entitled to vote has approved it by special resolution, per section 184(7). The federal Canada Business Corporations Act has a broadly parallel requirement for federally incorporated corporations.

The logic behind the rule is straightforward: selling the entire business is one of the most fundamental decisions a corporation can make, and the law treats it as significant enough that directors alone shouldn't be able to authorize it — the owners of the company need to weigh in.

What "All or Substantially All" Actually Means

This is a qualitative, fact-specific test, not a fixed numerical threshold. Whether a particular sale counts as "all or substantially all" of the corporation's property depends on the specific assets involved and how central they are to the corporation's business — not simply on a percentage of book value. Because there is no fixed bright-line cutoff, a sale that removes most (but not literally all) of a corporation's operating assets can still trigger the requirement, while a sale of a smaller but still commercially significant division might not, depending on the facts.

Practical takeaway: don't assume you're safely under or over any particular percentage. If a proposed asset sale would leave the corporation without its core operating business, treat shareholder approval as likely required and confirm with a lawyer before proceeding — the analysis has to be done on the actual facts of the deal.

Why a Share Sale Doesn't Trigger This

This requirement is specific to a corporation selling its own assets. It does not apply to a share sale, because in a share sale, the corporation itself isn't selling anything — its shareholders are selling their own shares to a buyer. The corporation's assets never change hands; only its ownership does. This is one of several reasons the choice between an asset sale and a share sale matters well beyond tax treatment.

The Approval Process, Step by Step

1. Directors approve the proposed sale and authorize it to be put to shareholders for a vote.
2. Notice of a shareholders' meeting is sent to shareholders entitled to vote, including the special resolution to be considered.
3. Shareholders vote at the meeting (or by way of a signed resolution in lieu of a meeting, where the corporation's governing documents and the OBCA permit it).
4. Each class or series of shares entitled to vote on the matter must separately approve the special resolution — approval isn't just a single combined vote across all shareholders if multiple classes exist with voting rights on the matter.
5. The sale can proceed and become effective once the required approvals are obtained.

Shareholders who oppose the sale, even after it's approved by the required majority, may have a separate statutory right to dissent and demand fair value for their shares instead of remaining shareholders of a corporation that no longer holds its core business — a topic covered in our companion article on dissenting shareholder rights.

What Happens If a Corporation Skips This Step

Proceeding with a sale of all or substantially all of a corporation's assets without the required shareholder approval creates real legal risk — for the directors who authorized it, for the corporation, and potentially for the transaction itself. A buyer's own diligence should specifically confirm that this approval either has been obtained or isn't required for the deal at hand; sellers should treat it as a mandatory closing condition, not a formality to clean up after the fact.

Checklist: Confirming Whether You Need Shareholder Approval

• [ ] Identify exactly what assets are being sold and what remains with the corporation afterward
• [ ] Assess, with legal advice, whether the remaining corporation still holds a genuine, ongoing operating business
• [ ] Review the corporation's articles and any unanimous shareholder agreement for provisions that go beyond the statutory minimum
• [ ] If approval is required, identify every class or series of shares entitled to vote on the resolution
• [ ] Build the shareholder approval process into the closing timeline and conditions, rather than treating it as an afterthought
• [ ] Confirm how any known or anticipated dissenting shareholders will be handled

Frequently asked questions