Do I need shareholder approval to sell all of my company’s assets?

If your corporation is selling its business assets, the board’s decision is not the end of it. The federal Canada Business Corporations Act (CBCA) and Ontario’s Business Corporations Act (OBCA) both say that a sale, lease or exchange of all or substantially all the property of the corporation, other than in the ordinary course of its business, requires the approval of the shareholders. This page follows the CBCA and notes where the OBCA differs; check which statute governs your corporation.

The meeting and the vote

Under CBCA s.189(4), the notice of the shareholders’ meeting goes to each shareholder with a copy or summary of the sale agreement, and must state that a dissenting shareholder is entitled to be paid fair value, though leaving that statement out does not invalidate the sale. At the meeting, the shareholders may authorize the sale and may fix, or authorize the directors to fix, its terms. OBCA s.184(4) and (5) are to the same effect.

What counts as a special resolution

The CBCA’s s.2 definition is a resolution passed by a majority of not less than two-thirds of the votes cast by the shareholders who voted on it, or signed by all the shareholders entitled to vote on it. The OBCA’s is a resolution passed by at least two-thirds of the votes cast at a special meeting called for the purpose, or consented to in writing by each shareholder entitled to vote at such a meeting or the shareholder’s attorney authorized in writing.

Who votes, and the class vote

Under CBCA s.189(6), each share carries a vote on this sale, even a share that does not otherwise vote. Under s.189(7), a class or series votes separately only if the sale affects it in a manner different from the shares of another class or series, and s.189(8) makes the sale adopted when each class or series entitled to vote has approved it by special resolution. OBCA s.184(7) is in similar terms to CBCA s.189(8), and s.184 has no subsection like CBCA s.189(6). Instead, OBCA s.184(6) gives a class or series that the sale would affect differently from another class or series entitled to vote on it a separate vote, whether or not its holders are otherwise entitled to vote. CBCA s.189(9) lets the directors abandon the sale without a further vote if the approving shareholders authorized that, subject to the rights of third parties; OBCA s.184(8) says the same.

What “substantially all” means

Neither Act states a percentage or fixed test for “all or substantially all”, so whether your sale falls inside the rule is a question for your corporate lawyer. Dissent rights are a separate topic, covered in dissent rights on an asset sale.