Anonymised, illustrative composite. Same foreign buyer, same intention to seat its own people on the board. Under the federal Act, a quarter of the board had to be resident Canadians. Under Ontario’s own corporations statute, none of it did — because Ontario repealed the requirement four years before this deal closed.
At a glance
A private equity fund based outside Canada agreed to buy all of the shares of an Ontario freight and logistics company. The fund intended to replace the seller’s board entirely with its own nominees on closing — three fund principals and two industry advisors, none of them Canadian residents. The target was incorporated under the Ontario Business Corporations Act, not the CBCA.
The fund’s Canadian counsel had run this exact playbook eighteen months earlier on a different acquisition — a CBCA-incorporated target — and that file had needed real work. See a board the foreign buyer could not legally fill: the CBCA requires “at least twenty-five per cent of the directors of a corporation” to be resident Canadians, and the fund had spent six weeks recruiting two qualifying independent directors before it could seat the board it actually wanted.
The closing checklist for this deal carried the same line item forward, because nobody had asked whether the target’s own statute said the same thing. It does not.
The fund wanted a five-person board: three principals and two advisors, all resident outside Canada. Under the CBCA precedent, that structure needed at least two resident Canadian directors recruited, vetted and seated before the fund’s own board could function — a cost the earlier file put at roughly $40,000 in search and advisory fees and six weeks of calendar time before closing could be treated as operationally complete. On this file, budgeted at the same $40,000 and six weeks, the actual cost was zero and the actual time was zero: the board the fund wanted was the board it seated on day one.
The OBCA has its own qualifications-of-directors section, and it is not silent on residency — it once said the same thing the CBCA still says. Ontario’s Business Corporations Act, s.118, headed “Qualifications of directors,” sets out disqualifications at subsection (1) — minors, persons found incapable of managing property, non-individuals, undischarged bankrupts — and at subsection (2) confirms a director need not hold shares. Subsection (3) is where the residency requirement used to live. The current consolidated text records it in three words: “Repealed: 2020, c. 34, Sched. 1, s. 5.” The amendment came into force July 5, 2021.
Compare the CBCA, which still reads the way it read before Ontario’s repeal. Section 105(3) provides that “Subject to subsection (3.1), at least twenty-five per cent of the directors of a corporation must be resident Canadians” — and adds, for a corporation with fewer than four directors, that “at least one director must be a resident Canadian.” That is the rule the fund’s earlier CBCA deal ran into, correctly, and it is a real and current federal requirement.
Read the unit. The two statutes governed the identical fact pattern — a private acquirer seating its own board on a Canadian target — and produced opposite answers, not because the facts differed but because one legislature repealed a rule the other kept. Nothing about the target’s OBCA incorporation was unusual or offshore-flavoured; Ontario simply stopped requiring resident directors for OBCA corporations generally, for every deal closing after July 5, 2021, without exception for foreign ownership.
The link to continuance under the CBCA runs the other way from what most deal teams expect. A target moving voluntarily from the OBCA to the CBCA does not just change its home statute — on these facts it would walk directly into a residency requirement it did not have the day before. Continuance is not a one-directional simplification; which way a target continues can create the very constraint this file describes, or remove it, depending on which two statutes are involved.
The fund’s counsel confirmed the repeal against the current consolidated OBCA text before the closing checklist went out, struck the resident-director line item entirely, and seated its five-person board — three principals, two advisors, zero Canadian residents — on the closing date with no interim solution and no recruiting process. The six weeks the earlier file had spent on this exact issue were not available to reclaim; they simply did not apply here.
Had the checklist gone unchallenged, the fund would have spent real time and real money — the $40,000 and six weeks from its own prior file — solving a problem the target’s own governing statute did not create. The board composition the fund actually wanted was already lawful. The cost of the earlier CBCA deal was not wasted there; it was simply not a cost this deal needed to repeat, and the checklist did not know the difference.
The tell was a checklist item copied from the wrong statute. “We hit this on the last deal” is a fact about the last deal’s governing Act, not about this one’s, and a target’s incorporating statute is a one-line fact that changes which rulebook applies to everything from here on — board residency included.
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