The Impact of the Elimination of Canadian Residency Requirements for Ontario Directors (2024)

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  • September 17, 2021

Home | News Article | The Impact of the Elimination of Canadian Residency Requirements for Ontario Directors

The Impact of the Elimination of Canadian Residency Requirements for Ontario Directors (1)

The laws concerning director residency have created obstacles for corporations and investors who did not have Canadian directors. The elimination of Canadian residency requirements for Ontario Directors is explained by Toronto Business and Technology Lawyer Sukhi Hansra.

The Ontario Better for People, Smarter for Business Act 2020 (Bill 213) received Royal Assent in December 2020 to amend the Ontario Business Corporations Act (OBCA), including the elimination of the current Canadian residency requirements for directors of Ontario corporations.

Tentatively planned to go into effect on July 1, 2021, when proclaimed, the new amendments eradicate the current requirement whereby 25% of company directors in Ontario corporations need to be resident Canadians. This will affect both private and publicly held Ontario corporations and is a positive move for companies and foreign investors based outside of Canada, as well immigrant entrepreneurs who want to incorporate into the Province of Ontario.

Let’s review some frequently asked questions about the change in Canadian residency requirements for directors.

Why does altering Canadian residency requirements for directors matter?

The laws around director residency have previously created obstacles for corporations and investors who did not have Canadian directors. These corporations would often forego the opportunity to conduct business in Ontario and set up shop in another jurisdiction, or elect resident Canadians as directors who may only have been chosen to fulfill the residency requirement.

Some foreign corporations would even go as far as employing a Canadian director but institute a unanimous shareholders’ agreement (USA) to ensure power remained with the shareholders and not the director, essentially diminishing the director’s role.

How did the Canadian residency requirement for directors come about?

In the 1970s there were concerns about too much direct foreign investment in Canada. The stringent Canadian residency requirements for directors were developed out of the notion that corporations would be more responsive to Canada’s national interests if there was a Canadian presence on corporate boards.

In addition, it was commonly held that resident Canadian directors faced more significant risks and would have a greater interest and responsibility in seeing that a corporation followed the law. As globalization took hold, these rationales relaxed and are now not as pervasive as they were before.

Today, corporate directors have a duty to act in the corporation’s best interests, whether or not they align with Canada’s best interest. Furthermore, residency requirements do not promote the enforcement of laws as director liability can still be removed by a Unanimous Shareholders Agreement.

What will change with Canadian residency requirements for directors?

Among other changes the amendment will bring, these are the two changes applicable to director residency requirements:

  1. Businesses incorporated in Ontario under the Business Corporations Act will no longer be required to have at least 25% of their board of directors be Canadian residents; and
  2. Businesses incorporated under the Companies Act will no longer be required to have at least 50% of the board of directors be Canadian residents.

What does the elimination of Canadian residency requirements for directors hope to achieve?

The Ontario Better for People, Smarter for Business Act 2020 hopes to speed up government approvals, ease administrative burdens, improve government transparency and remove outdated requirements that stunted economic growth and job creation.

This makes Ontario more attractive to foreign investors and entrepreneurs as it reduces the cost, complication, and bureaucratic delay that comes with finding the right Canadian director. Existing Ontario corporations may revise their board composition, while others may open new offices in the province.

What is an agent for service?

An agent for service acts as a corporation’s “contact” in Ontario and will be served any claims against the corporation relating to business conducted in the province. They are required by law to inform the corporation of any such claims.

Agents for service essentially act as local contacts for government agencies. Corporations often use professionally registered agencies to maintain their crucial documents sent from government departments or other agencies separate from their daily corporate correspondence.

What is the new agent for service requirement for companies in Ontario?

When the new amendments come into play, all companies, including non-profits, will be required to appoint an agent for service who must:

  1. Be 18 or older and resident of Ontario; and
  2. Have an accessible address to the public during normal business hours.

Existing companies have been granted a one-year grace period to find an agent for service. Failure to do so will result in the company’s dissolution – meaning that they will close down your company. Current companies will need to send their notice of appointments to the Registrar.

What should you do if you no longer want a Canadian director on your board?

With the elimination of the Canadian residency requirements for directors, you may no longer wish to have a resident Canadian director on your board. To remove them, you will need to conduct a legal review of your corporation’s by-laws to determine whether any by-law amendments are required to reflect the removal of the Canadian director. No changes can legally be made to a corporation’s board before going through these legal proceedings.

Once you have reviewed the by-laws and determined the requirements for removing directors, you will need to either hold a meeting of shareholders to vote the director out or have your lawyer prepare a Shareholders Resolution whereby all of the shareholders can agree in writing to vote the director off the company’s board.

Lastly, you can have your lawyer file a Notice of Change with the Ministry of Consumer Services in Ontario to update your corporate records with the government.

Summary

Eliminating the Canadian residency requirement for Ontario businesses is a big change for foreign investors and immigrant entrepreneurs – and opens the door for more businesses to open in Toronto and create jobs for Canadians.

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The Impact of the Elimination of Canadian Residency Requirements for Ontario Directors (2024)

FAQs

Will Ontario no longer require any resident Canadians on the board of directors when registering a business? ›

Canada: Repeal of director residency requirements, relief for shareholders resolutions (Ontario) Corporations no longer will be required to have a resident Canadian director. Corporations no longer will be required to have a resident Canadian director.

Does Ontario require that 25% of directors must be Canadian in order to incorporate? ›

Corporations no longer need to have a resident Canadian as a director in order to incorporate in Ontario, whereas previously 25% of the directors needed to be resident Canadians, or must have at least had one resident Canadian for corporations with less than four directors.

Does a director have to be a Canadian resident? ›

Canadian residency

Ordinarily, at least 25 percent of the directors of a corporation must be resident Canadians. If a corporation has fewer than four directors, however, at least one of them must be a resident Canadian.

Can a non resident be director of Canadian company? ›

According to the Business Corporations Act of the Province of British Columbia, there is no requirement for a Canadian resident to be appointed as a director. Therefore, non-Canadian residents are able to incorporate a company in British Columbia.

What are the residency requirements in Ontario? ›

To meet the minimum qualifications you must: be physically in Ontario for 153 days in any 12‑month period. be physically in Ontario for at least 153 days of the first 183 days immediately after you began living in the province. make Ontario your primary residence.

Do I have to register my business in Ontario as a temporary resident? ›

So, if you are not a Canadian citizen or a permanent resident and you operate a business in another country, you will have to register this business as an extra-provincial corporation in the Canadian province where you intend to do business.

Is it true that in Ontario there's no need for a business registration if you operate your business under your own name? ›

If you are using your legal person name to operate your business, it is not mandatory to register a business; however, if your company has a business name, registering the Sole Proprietorship is compulsory in the Province of Ontario.

Can a non resident incorporate a company in Ontario? ›

No matter the chosen business form, the non-resident investor must appoint a local agent to complete the company incorporation procedure in Canada. The company can be set up in one province or territory in Canada or it can be registered at a federal level.

Are all corporations incorporated in Canada considered resident in Canada? ›

Section 89 of the ITA defines a Canadian corporation as one that is resident in Canada and was either: incorporated in Canada.

What are the Canadian residency requirements for corporations? ›

A corporation is also a resident in Canada if: it was incorporated in Canada after April 26, 1965; or • it was incorporated in Canada before April 27, 1965, and, during any tax year after April 26, 1965, it: o was resident in Canada under common-law principles; or o carried on business in Canada.

Can a non resident be a director? ›

Non-Citizens as Directors

Companies cannot form with only one non-citizen director because of the resident director requirement. Non-citizen directors need to make sure that there is at least one other resident director on the board before they can be appointed a director.

Can a board director be a foreigner? ›

Answer: There is no requirement under the federal tax laws governing United States 501(c)(3) and other tax-exempt organizations that Board members be U.S. residents or U.S. citizens.

Can a non US resident be a director of a US company? ›

You can be a director, as well as a shareholder, of a US corporation is allowed without any kind of visa, but being an officer and performing your duties within the US is generally not allowed. Working for your corporation or LLC within the US without a valid work visa is not allowed.

Can a non-resident be a director of a Ontario corporation? ›

What are the benefits of incorporating a company in Ontario? The Ontario Business Corporations Act (OBCA) no longer lists any restrictions on the residency of the directors. This means that as a non-resident you may register a company solely on your own in Ontario.

What are directors liable for in Canada? ›

Duty of Care and Duty of Loyalty

The duty of care imposed by CBCA requires that each director and officer of a corporation, in exercising their powers and discharging their duties, must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Can I open a company in Canada without PR? ›

Can I start a business in Canada without PR? You do not have to be a Canadian permanent resident or citizen to register your company in Canada. However, you are not allowed to work in your business without having a valid work permit.

How long can an Ontario resident be out of the country? ›

Ontario allows you to be out of the country for 212 days (seven months) and Newfoundland for eight months without risking loss of your medical care benefits. If you stay out of your province longer than that, you risk losing your residency and health care benefits.

How do I maintain residency in Ontario? ›

To keep your permanent resident status, you must have been in Canada for at least 730 days during the last five years. These 730 days don't need to be continuous. Some of your time abroad may count towards the 730 days.

How many years of residency does Ontario have? ›

In Canada, this takes 6 years, though there are opportunities for additional subspecialty fellowships and certifications.

Can a US LLC do business in Canada? ›

A Limited Liability Company (LLC) is a type of business entity that is created by a state statute in the US. This type of structure does not exist in Canada. You cannot create a Limited Liability Company in Canada, however, you can still use a US LLC to conduct business in Canada.

Can an American start a business in Canada? ›

US Resident Individuals can do business in Canada

You only need a visa if you plan to work in Canada. If you can conduct the business from the US, for example, as an internet-based business, you don't require a visa if you don't plan to travel to Canada.

What happens if you don't register your business in Ontario? ›

There may be numerous fines and other consequences if you don't register your business when you're supposed to. For example, under the Ontario Business Names Act, a sole proprietor or partnership may see fines of up to $2,000 for using an unregistered name. This fine shoots up to $25,000 for corporations.

Can you use an inactive business name in Ontario? ›

Using an inactive trade name is considered an offence under the Ontario Business Names Actand an act of misconduct under subsection 15.1 (6) of Regulation 991 made under the Registered Insurance Brokers Act.

Do I need a business license in Ontario Canada? ›

Do I need a Business License? Per the Ontario Municipal Code, no person shall engage in business in the city without first having obtained a license. This applies to both commercial and home-based businesses.

What is the difference between business registration and business license in Canada? ›

The license authorizes you to open and operate your business. Registering your new business puts your company's information – your business name or your tax data, for instance – in the government's files.

How do I incorporate a business in Canada as a non resident? ›

The non-resident investor must appoint a local agent to complete the company incorporation procedure in Canada. You must have a Canadian address to enjoy the tax benefits of having a Canadian controlled private corporation (CCPC). In Canada, you may incorporate federally or provincially.

Should I incorporate my business in Ontario or Canada? ›

Overall, here are the main points: Federal incorporation allows you to conduct business across Canada. Federal incorporation protects your business name across Canada. Federal incorporation is more expensive and time consuming than provincial incorporation.

Do I have to incorporate my business in Ontario? ›

Your business will not have the same benefits across Canada unless you incorporate federally. Ontario incorporation is regulated under the Ontario Business Corporations Act (OBCA) and requires Articles of Incorporation to be filed.

Can a non Canadian incorporate in Canada? ›

As a new or non-resident to Canada, you can incorporate as the sole director and owner.

Is it better to incorporate in US or Canada? ›

Lower costs. Another potential advantage to incorporating in Canada is lower legal and accounting costs. In many respects, US-incorporated companies operating primarily in Canada must comply with a dual regulatory regime that requires guidance from both US and Canadian advisers.

Can any person in Canada incorporate a company? ›

Anyone aged 18 or older who is not an undischarged bankrupt and is of sound mind can form a corporation under the CBCA (Canada Business Corporations Act) or the OBCA (Ontario Business Corporations Act).

What is the Canadian corporate tax for non residents? ›

Canadian financial institutions and other payers have to withhold non-resident tax at a rate of 25% on certain types of Canadian-source income they pay or credit to you as a non-resident of Canada. The most common types of income that could be subject to non-resident withholding tax include: interest. dividends.

What is the tax rate for non resident corporations in Canada? ›

Any payment received for services provided in Canada is subject to a 15% tax withholding, which must be remitted to the CRA by the person making the payment. This withholding is a payment on account of the corporation's potential tax liability to Canada.

Are corporations considered citizens under Canadian law? ›

The Nature of a Corporation

A corporation has separate legal personality in the sense that it is a legal person separate and distinct from its shareholders, directors and officers. A corporation may enter into contracts and own property in the same manner as a natural person.

Who is not eligible to become a director? ›

A non-natural person can't be a director of a company. A person who the board members of the company do not accept. A person prevented from becoming a director under the Limited Partnerships Acts 2008.

Who is not eligible to act as a director? ›

Subject to any provision in the company's articles, any person can be a director unless they have been disqualified from so acting under the Company Directors Disqualification Act 1986 or by being an undischarged bankrupt.

Who Cannot be a director? ›

Under the Company Directors Disqualification Act 1986, company directors can be disqualified from acting as a director if they are found guilty of 'unfit conduct', for example, if they: committed fraud. continued to trade when the company was insolvent - or they failed to assist the appointed Insolvency Practitioner.

Can anybody be a director? ›

A company director can be a person or a corporate entity, such as a group, partnership, organisation, charity, firm, another limited company, and any other form of corporate body. However, a company must always have a minimum of one natural director at all times.

Is there any restriction for a foreigner to be appointed as a director of a company in Malaysia? ›

Can a foreigner be a director in Malaysia? Yes, the foreigner can be appointed as a director provided that the company has already appointed a local resident director.

Can relatives be on a board of directors? ›

IRS guidelines

In most cases, there are no legal restrictions or Internal Revenue Service prohibitions for related family members to serve together on a nonprofit board.

Can I incorporate in the US even if I am a non US resident? ›

Generally, there are no restrictions on foreign ownership of a company formed in the United States. The procedure for a foreign citizen to form a company in the US is the same as for a US resident. It is not necessary to be a US citizen or to have a green card to own a corporation or LLC.

What is the US equivalent of director? ›

Anywhere else, except in Hollywood, the title director is a middle-management title, roughly equivalent to a vice president but lower than a senior vice president.

Can I open a business in US without being a resident? ›

Can a foreign national start a business in the U.S. without being a resident? “Yes, You Can!” Every day, foreign nationals are setting up US businesses, from major enterprises to small shops. Accessing the US marketplace is the key to success for many businesses around the world.

Does Ontario require a resident director? ›

Corporations incorporating (or continuing) in Ontario no longer need to have a resident Canadian acting as a director, whereas under the prior rules, at least 25% of the directors of an Ontario corporation must be resident Canadians, or must be at least one Canadian resident director for corporations with less than ...

Is a director personally liable for company debt in Canada? ›

The Canada Business Corporations Act (CBCA) imposes statutory liabilities on directors of corporations. In addition to these liabilities, directors can be liable to the corporation for breach of their fiduciary duties.

What can directors be personally liable for? ›

A director can be found to be personally liable for a company offence if they consented or connived in an illegal activity, or caused it through neglect of their duties.

Is a director liable for income tax Canada? ›

To Establish Director Liability

The director liability assessment must be issued within 2 years of the director's resignation; The CRA must demonstrate that the director did not exercise the degree of care, diligence, and skill (“due diligence”) required to prevent the failure to deduct, withhold, remit, or pay.

Can a US citizen get permanent residency in Canada? ›

Applying for Permanent Residence in Canada for American Citizens. Canada offers the “Express Entry” system, processing applications as quickly as six months. Through this process American citizens can apply for Permanent Residence (PR) status based on a Comprehensive Ranking System (CRS).

Can I start business in Ontario without PR? ›

It is possible to open a company in Canada without being a Canadian citizen or a landed immigrant (permanent resident). In this case, you are entitled to set up a partnership or a corporation with one or more permanent residents or landed immigrants.

How long can you be out of Ontario without losing healthcare? ›

An insured person leaving Ontario to travel or work temporarily within Canada can continue to receive OHIP coverage for up to 12 months.

How long can a Canadian resident be out of Canada? ›

How long are you welcome to visit another country? A Canadian can stay for up to 182 days per calendar year (without paying U.S. income tax).

How do I keep my Canadian residency while living abroad? ›

To keep your permanent resident status, you must have been in Canada for at least 730 days during the last five years. These 730 days don't need to be continuous. Some of your time abroad may count towards the 730 days.

How long can you stay outside of Canada without losing benefits? ›

Your provincial or territorial health plan will cover only part, if any, of medical expenses outside Canada and will not pay up front. Furthermore, it will become invalid if you live elsewhere beyond a certain length of time – generally six to eight months, depending on your province or territory.

How long do you have to live in Canada to become a permanent resident? ›

regardless of your age, you have been physically present in Canada for at least 1,095 days during the five years right before the date you sign your application and meet all other conditions.

Who qualifies as Ontario resident? ›

Residency Requirements

You are considered an Ontario resident if as of the first day of their study period, Ontario is the most recent province in which you have resided for 12 consecutive months, not including any time as a full-time postsecondary student.

Can a non-resident register a business in Ontario? ›

You will have to complete the Non-Resident Business Number and Account Registration Web Form. For more information, go to How to register for a business number or Canada Revenue Agency program accounts.

Can a non-resident register a business in Canada? ›

Yes, non-residents are eligible to start businesses in Canada. Any foreign entrepreneur that wants to start a business in Canada will have to go through the business immigration process if the entrepreneur wants to run the business while being in Canada.

Do you need PR to register a business in Ontario? ›

You are not required to be a Canadian citizen or Permanent Resident, however it is important that the business has a physical address in Ontario.

Do you need to be a permanent resident to start a business in Canada? ›

Can I start a business in Canada without PR? You do not have to be a Canadian permanent resident or citizen to register your company in Canada. However, you are not allowed to work in your business without having a valid work permit.

Do US companies have to register in Canada? ›

You can establish a distinct legal entity in Canada, which may be wholly or partially owned by a foreign company. The corporation is required to register in each province and territory in which it conducts business regardless of the jurisdiction of incorporation.

Can an American open a business in Canada? ›

US Resident Individuals can do business in Canada

You only need a visa if you plan to work in Canada. If you can conduct the business from the US, for example, as an internet-based business, you don't require a visa if you don't plan to travel to Canada.

Can you move to Canada if you own business there? ›

Permanent Residence under the Business Immigration Program

Canada welcomes successful business people who are seeking new opportunities and challenges. The Business Immigration Program is designed to encourage and facilitate the admission of these individuals.

Do US citizens pay sales tax in Canada? ›

Exempted Goods and Services

Foreign purchasers of Canadian products do not have to pay the HST provided that the goods or services will be solely used outside of the country. However, nonresidents visiting Canada, such as tourists, are required to pay the HST.

What are the benefits of registering a business in Ontario? ›

Canada5 Advantages of Registering a Small Business in Canada
  • Sole Proprietor.
  • Partnership.
  • Corporations.
  • Reduced Tax Rates.
  • Deferrals of Taxation.
  • Lifetime Capital Gains Exemption (LCGE)
  • Income Splitting.
Jan 14, 2022

How long do you have to register a business in Ontario? ›

Register a Business

In Ontario, you are required to register your business name within 60 days of opening your business. You are exempt from this requirement if you use your own name for the business.

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