When are Non-Voting Shareholders Entitled to Vote?

When are Non-Voting Shareholders Entitled to Vote? 

The Ontario Business Corporations Act (“OBCA”) allows corporations to be formed with multiple classes of shares. For a variety of reasons, incorporators sometimes find it desirable to create classes of shares whose stockholders are not entitled to vote on company resolutions (“non-voting shares”). By foregoing their right to vote, the owners of non-voting shares will sometimes be compensated through increased priority with respect to dividends and/or preferred status during liquidation.   

Despite what the name implies, non-voting shareholders can become enfranchised if certain conditions are met. Pursuant to Subsections 170(1) and (3) of the OBCA, non-voting shareholders are entitled to cast votes on a resolution to amend the corporation’s articles if the amendment proposes to do any of the following: 

• Change the maximum number of authorized shares of the non-voting class;
• Increase the maximum number of authorized shares of a class having rights or privileges equal or superior to the shares of the non-voting class;
• Exchange, reclassify or cancel the shares of the non-voting class;
• Change the rights, privileges, restrictions or conditions attached to the shares of the non-voting class;
• Change the rights or privileges of any class of shares having rights or privileges equal or superior to the shares of the non-voting class
• Create a new class of shares equal or superior to the shares of the non-voting class;
• Change an inferior class of shares making them equal or superior to the shares of the non-voting class;
• Allow for a particular class of shares to be exchanged for shares of the non-voting class; or
• Change restrictions related to the issue, transfer or ownership of the shares of the non-voting class. 

Non-voting shareholders retain their right to vote even if the changes noted above are effected through less direct means. For example, non-voting shareholders are entitled to vote if a proposed amalgamation will affect their class in any of the ways listed above (OBCA, s. 176(3)). This rule ensures that non-voting shareholders will not see their privileges reduced without their participation in the process.

For additional information, consult Part XIV of the Ontario Business Corporations Act, RSO 1990, c B.16.