Fundamental Changes and Minority Protection


The policy of the Companies Act is that majority shareholders, providing their conduct is not unfair or oppressive, have the right to determine how the affairs of a company are to be conducted. This includes a decision to make fundamental changes even if these are opposed by minority shareholders.

However, the Act provides a new form of protection to minority shareholders who disagree with a particular fundamental change. This takes the form of a right to dissent from such change and to have the company purchase their shares at their fair value. The impact of the new right to dissent is potentially significant. A company faced with paying the fair value to a large number of dissenting shareholders could face liquidity problems. In practical terms, therefore, the existence of the right to dissent may in some circumstances inhibit the majority from making fundamental changes which they might otherwise have pursued.


The dissent right is available to shareholders if the company resolves:

  • To amend its articles to add, change or remove any provisions restricting or constraining the issue or transfer of shares;
  • To add, change or remove any restriction upon the business that the company can carry on;
  • To amalgamate with another company (other than a short-form amalgamation between companies which are closely related);
  • To sell lease or exchange all or substantially all of its property.

In addition a shareholder has a right of dissent where this is permitted by the court on an application by a company to effect certain arrangements.


The company is required to make an offer to a dissenting shareholder of an amount which its directors consider to be the fair value of the shares. If this is rejected by the shareholder, either party may apply to the court to determine the fair value. In determining fair value, a dissenter is not entitled to receive any advantage from the fundamental change. In Canadian jurisprudence there are four approved approaches to the valuation of shares:

  • The stock market approach – the quoted stock market price of the shares;
  • The assets approach – the valuation of the assets of the company at fair market value;
  • The earnings or investment value approach – the capitalization of maintainable earnings; and
  • Some combination of these three approaches.

The Canadian courts have established that no single approach to determining fair value is appropriate for all circumstances. Rather they have indicated that the question is one of judgment, fairness and equity to be decided on all the circumstances of each case. Even with publicly traded shares, the courts have held that the stock market price was not appropriate where the shares are thinly traded or a substantial block of shares is held by a small group of dominant shareholders.


A company is forbidden to make a payment to a dissenting shareholder if there are reasonable grounds for believing that the company is, or would after payment, be unable to meet its liabilities after they become due or the realisable value of the company’s assets would then be less than the aggregate of its liabilities. If the company is unable to pay, a dissenter has two choices:
  • He may withdraw the notice of dissent, in which case the company is deemed to consent to withdrawal and the shareholder is reinstated to his full status of shareholder; or
  • He may retain the status of claimant against the company to be paid as soon as the company is lawfully able to do so. If a liquidation follows, his claim would rank subordinate to all other creditors but in priority to other shareholders.


The right of dissent is vested in the registered shareholder and therefore a dissent by an unregistered beneficial owner is a nullity. Additionally, the dissent must be exercised in respect of all of the shares or all of a class of shares in the name of the registered shareholder.

This poses a very serious practical problem in the case of shares which are registered in the names of trustees, depository agencies, brokerage firms or other nominees if some but not all of the beneficial shareholders wish to exercise their dissent rights. The framers of the Canadian Act obviously believed that the advantage of certainty outweighs the practical difficulties which will be faced by nominees holding shares on behalf of beneficial owners who have varying interests.