CANADA Law and Practice Contributed by: Sarah Gingrich, Sean Stevens, Tracy Hooey and Marie-Josée Neveu, Fasken
Generally speaking, shareholders in a Canadian com - pany do not owe any fiduciary duties or other duties to the company. Nor do shareholders in Canadian companies owe any fiduciary duties or other duties to other shareholders of the company. A possible exception is where the company’s shareholders have entered a unanimous shareholders’ agreement (USA) in which case, to the extent the USA limits or other - wise restricts the authority of the directors to manage the company, the related duties and liabilities of the directors will be transferred from the directors to the shareholders. Caution should also be exercised where a shareholder nominates a director to the company’s board, as the nominee director will owe duties to the company without regard to any duties they may owe to the nominating shareholder in any other capacity. Canadian corporations statutes generally provide that shareholders who dissent regarding shareholder votes on specified fundamental matters can compel the company to acquire their shares at fair value, a process referred to as “dissent and appraisal rights”. A prominent example is where the shareholder dis - sents in relation to a squeeze-out transaction (ie, fol - lowing an unsolicited/hostile bid for the company). It is also typical for shareholders to be granted dissent and appraisal rights in connection with a proposed plan of arrangement effecting any negotiated (ie, “friendly”) acquisition of the company. Lastly, the principle of separate corporate personal - ity is a fundamental rule of Canadian law. As such, a shareholder will only be liable for the company’s actions should a court rule it appropriate to “pierce the corporate veil”. Due to the very high standard gener - ally imposed in such claims – eg, where the company is used to perpetrate a fraud, this occurs relatively infrequently in Canada. 4.2 Role of Shareholders The principal role of shareholders in the management of the company is their right to elect the company’s directors (see 3.4 Appointment and Removal of Directors/Officers ). The approval of shareholders is also required to effect various fundamental changes. These generally include: • amendments to the company’s articles or by-laws;
• transactions involving substantially all of the com - pany’s assets or property; • a merger (referred to as an “amalgamation” in Canada) of the company with another company; • a migration or “continuation” of the company under another governing corporations statute; and • dissolution of the company. Beyond the foregoing, shareholders of Canadian com - panies may also be entitled to (i) make a shareholder proposal; and (ii) requisition a shareholder meeting. Regarding shareholder proposals, these can generally be made by a shareholder owning a minimum 1% interest, and require that the company include the pro - posal in a management proxy circular being distrib - uted by the company. The proposal and its support - ing statement cannot exceed 500 words. Shareholder proposals in Canada are typically made in connection with a company’s AGM. Note, however, that where the shareholder proposal relates to the election of one or more directors, a minimum 5% interest is generally needed. Regarding requisitioning a shareholder meeting, this can be done by one or more shareholders owning a minimum 5% interest. This is most commonly done by shareholder activists as part of a proxy campaign to elect a dissident slate of directors. Requisitioning a shareholder meeting requires strategic planning and careful compliance with various technical require - ments. Also, even where a shareholder meeting has been requisitioned, it is not uncommon for Canadian courts to allow the subject matter of the requisitioned meeting to be deferred to the next scheduled share - holder meeting (ie, the company’s AGM). While shareholders in Canadian companies do not benefit from approval rights regarding the vast major - ity of the company’s business decisions, practically speaking, a dialogue often occurs between public companies and their largest investors. In Canada, this is particularly so regarding public companies and their institutional shareholders (eg, pension funds). This reflects the fact that Canadian institutional investors often own (either individually or in groups) large blocks of shares in Canadian public companies. This can give the institutional investor(s) outsized influence on the
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