Substantially all the corporation's property changed hands without the shareholder vote the statute required. The buyer's title survived. The founder's did not.
At a glance
A federally incorporated industrial coatings applicator agreed to sell substantially all of its property — plant, equipment, contracts, customer list and goodwill — for $3.35 million to an unrelated regional competitor. The founder held 62% of the common shares and was the sole director. His brother held 23%. A former plant manager, bought in years earlier as a retention measure, held 15% in a class of non-voting Class B shares. The founder signed a directors' resolution approving the sale and closed.
Six months later the Class B holder learned of the sale from a supplier. He had received no notice, no meeting and no offer, and the corporation by then held cash rather than a business. His first instruction to counsel was to have the sale set aside. That is the instinct this mechanic defeats, and defeating it is the useful part of the file: the defect was in the seller's own internal authority, not in the buyer's title, and Canadian corporate statutes are built to keep those two questions apart.
Two-thirds of the votes cast is the threshold for a special resolution. Because s.189(6) puts every share into the vote, the voting base was the full 100% of the issued shares, and the founder's 62% falls short of 66.67%. He needed either his brother or the Class B holder. He had asked neither.
The Class B holder's 15% of a $3.35 million enterprise, before any minority discount, is $502,500. The oppression application settled at $412,000 plus $88,000 in costs, funded by the founder personally from his share of the proceeds — $500,000 against a stake he had valued at nothing because it carried no vote.
The requirement is short and unqualified. Section 189(3) of the Canada Business Corporations Act: “A sale, lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business of the corporation requires the approval of the shareholders in accordance with subsections (4) to (8).” Subsection (8) makes the sale adopted only “when the holders of each class or series entitled to vote thereon have approved of the sale, lease or exchange by a special resolution”, and subsection (6) supplies the sting: “Each share of the corporation carries the right to vote in respect of a sale, lease or exchange referred to in subsection (3) whether or not it otherwise carries the right to vote.” Non-voting shares vote on this one thing. Section 190(1)(e) then gives “a holder of shares of any class of a corporation” a right to dissent where the corporation resolves to “sell, lease or exchange all or substantially all its property under subsection 189(3)”. See the dissent and appraisal right.
None of that reaches the buyer. Section 16(3) provides that “No act of a corporation, including any transfer of property to or by a corporation, is invalid by reason only that the act or transfer is contrary to its articles or this Act.” Section 18(1) then bars the corporation from asserting against a person dealing with it, or against a person who acquired rights from it, that — paragraph (f) — “a sale, lease or exchange of property referred to in subsection 189(3) was not authorized”. The one exception is s.18(2): the protection does not apply to a person who “has, or ought to have, knowledge of a situation described in that subsection by virtue of their relationship to the corporation”. The qualifier is relationship to the corporation, not merely a well-organised closing book. A management buyer, a related party or a purchaser with a board seat loses the protection; an arm's-length competitor who took an officer's certificate does not.
So the exposure runs inside. Section 247 lets a complainant or creditor apply for an order directing compliance, and s.241 supplies the oppression remedy on which the Class B holder actually recovered. The s.190 appraisal machinery was unavailable to him for the circular reason that makes this mechanic bite: no resolution was ever put, so there was nothing to dissent from.
Ontario answers differently on the same facts. OBCA s.184(3) is word-for-word identical to CBCA s.189(3), and its marginal note is “Sale, etc., requires approval of shareholders”. But the Business Corporations Act (Ontario) has no equivalent of CBCA s.189(6). Under OBCA s.184(6) a class votes separately only where the sale would affect it “in a manner different from the shares of another class or series of the corporation entitled to vote”, and OBCA s.185(1) confines the dissent right to “a holder of shares of any class or series entitled to vote on the resolution”. On an Ontario corporation the Class B shares would have had neither a vote nor a dissent right, the voting base would have been 85 shares, and the founder's 62 of them — 72.9% — would have carried the special resolution alone. Same facts, same clause, opposite result, decided by where the company was incorporated. Ontario's indoor-management rule in s.19(f) protects the buyer in the same terms as the federal one.
The buyer kept the assets and was never a party. The founder paid $500,000 out of proceeds he had already treated as his. The fix, had anyone looked, was one page: CBCA s.142(1)(a) provides that “a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders”. On a three-shareholder company with an aligned brother and a 15% holder who would have been glad of the cheque, that signature was available for the asking.
If the buyer had been the founder's own holding company, or a management team he sat with, s.18(2) would have removed the protection and the Class B holder's application to unwind would have had somewhere to go. The buyer's arm's-length character was worth the whole $3.35 million and nobody in the room identified it as a term of the deal. That is the asymmetry to price: on a related-party or management purchase, the shareholder approval is not a formality, it is the buyer's title insurance.
The tell is a closing book whose authority section contains a directors' resolution and no shareholders' resolution, on a transaction that empties the company. Any sale that leaves the vendor corporation holding cash instead of a business should prompt the s.189(3) question before the funds move — and the second question, which is which classes vote, because the federal answer is every share and the Ontario answer is not.
curl User-Agent only.A 30-minute call is enough to tell you whether AI pays for itself here.
Canadian small-business transaction data is not published anywhere, so most valuations in this country quote an American benchmark. The Deavo–Treadstone Acquisition Index is a daily record of Canadian listings built to replace that: asking-price distributions by province and city are published now, and days on market, departure rates and asking-to-sale spreads follow as the series lengthens. Leave an email and we will tell you as each measure lands.
No pitch, no listings. One email when the first report lands.