What are by-laws?
By-laws are the rules pursuant to which a corporation conducts business. Many of those rules will be the same as outlined in the statute governing the company. However, in some cases the statute may provide that the by-laws can override certain standard statute provisions. Ontario operating by-laws are the main rules for the corporation.
Ontario Operating By-law
The Ontario operating by-law is the first by-law to be enacted by a company upon incorporation and every company must have an operating by-law. The rules outlined in the operating by-law are with respect to the number of directors, directors’ duties and meeting requirements, the appointment of officers and the rules relating to shareholders including meeting requirements, how many shareholders must be in attendance for it to be a valid meeting, etc. These are just a few of the provisions outlined in a standard Ontario operating by-law.
Section 116 of the Business Corporations Act (Ontario) provides the following statute requirements respecting Ontario by-laws for corporations:
“(1) Unless the articles, the by-laws or a unanimous shareholders agreement otherwise provide, the directors may, by resolution, make, amend or repeal any by-laws that regulate the business or affairs of a corporation.
(2) Where the directors make, amend or repeal a by-law under subsection (1), they shall submit the by-law amendment or repeal to the shareholders at the next meeting of shareholders, and the shareholders may confirm, reject or amend the by-law, amendment or repeal.
(3) Where a by-law is made, amended or repealed under subsection (1), the by-law, amendment or repeal is effective from the date of the resolution of the directors until it is confirmed, confirmed as amended or rejected by the shareholders under subsection (2) or until it ceases to be effective under subsection (4) and, where the by-law is confirmed or confirmed as amended, it continues in effect in the form in which it was so confirmed.
(4) If a by-law or an amendment or repeal of a by-law is rejected by the shareholders, or if the directors do not submit the by-law, amendment or repeal to the shareholders as required under subsection (2), the by-law, amendment or repeal ceases to be effective on the date of such rejection or on the date of the meeting of shareholders at which it should have been submitted, as the case may be, and no subsequent resolution of the directors to make, amend or repeal a by-law having substantially the same purpose or effect is effective until it is confirmed or confirmed as amended by the shareholders.”
Amending or Repealing a By-Law
If the officers of an Ontario company wish to amend an Ontario operating by-law or another by-law, which has been approved by the directors and shareholders, the manner in which to approve the amendment to the by-law is to create a new by-law providing for the amendment. For instance the officers will create a new by-law no. 2 which repeals all or certain sections of operating by-law no. 1, and includes the new replacement sections to be approved. The officers would present by-law no. 2, being an amendment to by-law no. 1, to the directors for approval. If the directors approve the by-law then the directors shall present the by-law to the shareholders for approval at the very next meeting of the shareholders.
Approving a By-law
When the directors approve a by-law it is said that the by-law has been “enacted by the directors” and the shareholders of the company are said to have “confirmed the by-law”. All directors and shareholders of a corporation must have an opportunity to review the by-law and approve it for the by-law, amendment or repeal to be considered to be properly approved in accordance with the requirements under the Business Corporations Act (Ontario).