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Articles vs. By-laws vs. Policies vs. Shareholder Agreements

• Author: Jasmine Salamon
• Date: September 9, 2026

Ontario corporations are typically governed by up to four key instruments: articles, by-laws, policies, and unanimous shareholder agreements (USAs). While often discussed together, each serves a distinct legal function, carries a different level of authority, and is subject to different approval and amendment requirements.

This article provides a practical overview of how these instruments operate under the Ontario Business Corporations Act (“OBCA”) and in comparable not-for-profit legislation.

 

The Big Picture

Document	Legal Role	Authority Level	Who Approves	Flexibility
Articles	Provides core structure	Highest (after statute)	Shareholders/ Members (special resolution)	Low
Unanimous Shareholder Agreements	Allocates control & shareholder rights	Can override director authority	All shareholders (unanimous)	High
By-Laws	Sets Governance rules	Subordinate to Articles	Board and shareholder/ member confirmation or special resolution	Moderate
Policies	Guides day-to-day operations	Subordinate to both Articles and By-Laws	Board	High

 

1. Articles: The Foundation

Articles (such as Articles of Incorporation, Articles of Amendment, Articles of Amendment, Letters Patent, or Supplementary Letters Patent) (the “Articles”) are the foundational constitutional documents filed with the applicable Ministry which establish or amend the corporation.

Articles set out the corporation’s core structural elements, including:

• Name and assigned corporation number
• Number of directors (fixed or range)
• Share or membership structure (classes, rights, restrictions)
• Restrictions on business activities (if any)

Articles carry the highest internal authority within the corporation’s governance hierarchy, subject only to governing legislation. Amendments require shareholder or member approval (typically by special resolution) and must be filed with the Ministry to take effect

 

2. By-laws: The Rulebook

By-laws set up the corporation’s internal governance framework. Unlike Articles, they are generally not filed publicly.

By-laws typically address matters including:

• Meeting procedures
• Quorum and voting rules
• Officer roles and authority
• Banking and signing authority

By-laws are subordinate to the Articles, governing legislation, and some provisions of shareholder agreements, but take precedence over policies. They are adopted by the directors and require shareholder or member confirmation, with certain amendments requiring a special resolution.

 

3. Policies: The Playbook

Policies are informal or semi-formal rules that guide day-to-day operational processes. They are not required to be filed publicly, and many corporations operate with few or no formal written policies.

Common policies include:

• Codes of conduct
• Conflict of interest policies
• Privacy or data protection policies
• Workplace harassment policies
• Whistleblower policies

Policies do not have the same legal force as Articles or by-laws. However, they can create enforceable internal expectations, support regulatory compliance, and be relevant in litigation (particularly in employment or governance disputes).

Policies are the most flexible governance tool. They are typically approved by the board of directors and do not require shareholder or member involvement, but must remain consistent with the Articles and by-laws.

 

4. Unanimous Shareholder Agreements: Allocating Control and Risk

A unanimous shareholder agreement (“USA”) is a contract among all shareholders of a corporation that can fundamentally alter how a corporation is governed. While by-laws govern how decisions are made, the USA governs who makes those decisions and on what terms. Importantly, where director powers are transferred to shareholders under a USA, those shareholders assume the corresponding liability of a director.

USAs are commonly used to:

• Restrict or transfer powers of the directors to shareholders
• Create binding rights and obligations among shareholders
• Establish buy-sell mechanisms, transfer restrictions, and exit rights
• Provide minority protections, including veto rights or board representation

To be valid and binding, a USA must be agreed to by all shareholders of the corporation at the time it is entered into or amended.

Note that not-for-profits incorporated pursuant to the Canada Not-for-profit Corporations Act may have a unanimous member agreement, which can include similar clauses to that of a USA. However, the Not-for-Profit Corporations Act, 2010 (Ontario) does not include the ability to implement a unanimous members agreement for provincially incorporated not-for-profits.

 

How They Work Together

A useful way to understand the governance the hierarchy is as follows:

1. Statute*
2. Articles
3. By-laws
4. Unanimous Shareholder Agreement (if any)*
5. Policies (if any)

Each layer must be consistent with the one above it, with one key exception: a valid USA can override or restrict the powers of directors that would otherwise be exercised under the Articles or by-laws.

 *Notes on the hierarchy:

• In limited circumstances, the OBCA permits corporations to modify or “contract out of” default statutory rules through their Articles or by-laws. However, this may only occur where expressly authorized by statute.
• The placement of USAs below by-laws in the numbered list reflects the general drafting convention, but the relationship is not strictly linear. A USA does not subordinate by-laws entirely; rather, it operates in parallel and can displace specific director authorities and processes set out in the by-laws.

 

Common Drafting and Advisory Pitfalls

Common issues which arise in governing documents include:

• Failing to align a USA with the corporation’s other governance documents
• Overloading the Articles with provisions better suited for by-laws, or by-laws with provisions better suited for policies
• Maintaining outdated by-laws or policies that no longer reflect current practices
• Adopting policies that conflict with the Articles or by-laws
• Failing to identify provisions in by-laws or policies that conflict with statutory requirements
• Overlooking the liability implications when shareholders assume director powers under a USA
• Failing to adopt written policies in regulated areas such as privacy and workplace conduct

 

Practical Takeaways

As a general rule:

• Use articles for structure and fundamental rights
• Use by-laws for broad governance mechanics
• Use policies for day-to-day operational details and evolving best practices
• Use a USA where governance is negotiated, control-sensitive, or requires shareholder-level rights and protections

Maintaining clear separation between the governing documents helps ensure legal compliance, governance efficiency, risk management, and flexibility where needed.

 

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Preparing, reviewing, and updating governing documents can be a daunting task. If you need help or would like more information about your corporation’s governing documents, get in touch with our experienced team of business lawyers at CARREL+Partners LLP today.

 

Disclaimer:

This publication is for general information purposes and is not to be taken as legal advice. The information within is current only to the date of publishing. If you have any questions regarding article content, please contact the author(s) directly.