Audited financial statements can be expensive, and for this reason, private companies often do not obtain them. However, all companies have a statutory obligation to provide them, unless the shareholders pass a resolution to exempt the company of this requirement.
What happens when a corporation fails to provide audited financial statements year after year, without a shareholder resolution exempting the company from the requirement? Can a shareholder demand historical statements indefinitely, or does Ontario’s Limitations Act, 2002 impose a time bar?
In the recent decision of Lagana v. 2324965 Ontario Inc., 2025 ONCA 607, the Ontario Court of Appeal answered this question, confirming that limitation periods do apply to such requests under the Business Corporations Act (Ontario) (OBCA). This ruling highlights the importance of timely action for shareholders seeking corporate transparency and serves as a reminder that ongoing statutory obligations do not create perpetual claims.
The Court dismissed the appeal of minority shareholder Carmelo Lagana, upholding the Divisional Court’s finding that requests for audited financial statements more than two years old were statute-barred. The decision clarifies the interplay between shareholder rights under the OBCA and the basic limitation period under s. 4 of the Limitations Act, 2002. For corporations and shareholders alike, the case shows that while shareholder rights are important, they need to be exercised in a timely way in the courts.
The dispute in Lagana v. 2324965 Ontario Inc.
The case arose from a real estate development corporation, 2324965 Ontario Inc., incorporated in 2012 by the respondent David Power and Lagana’s father. Following the father’s death later that year, Lagana acquired his father’s shares. The respondents included the corporation and its majority shareholder, David Power, who became the sole director and controlled the board.
Under s. 154 of the OBCA, non-offering corporations must furnish shareholders with financial statements (including audited financial statements where required) not less than 10 days before each annual meeting (or before written resolutions in lieu). However, the corporation never appointed an auditor, and never provided audited statements. Lagana claimed he repeatedly requested them informally but received only unaudited statements, or none at all.
In 2021, Lagana requested financial records and received unaudited statements. He then brought an application under ss. 149(8) and 253(1) of the OBCA to appoint an auditor and compel production of audited statements for fiscal years from 2013 onward. The respondents argued that the claim was partially time-barred under the Limitations Act, 2002, limiting relief to statements within the two-year period preceding the application.
The application judge granted the relief sought, finding that the Limitations Act, 2002 did not apply because the request was not a “claim” under the statute. The respondents appealed to the Divisional Court, which allowed the appeal and held that the limitation period applied. Lagana was entitled to audited statements only for the two most recent fiscal years prior to the application date, as earlier claims were discoverable and thus barred. Lagana appealed, arguing that the statutory duties under the OBCA do not correspond to shareholder rights and thus do not give rise to “claims” under the Limitations Act, 2002, rendering the limitation period inapplicable.
The Court of Appeal’s reasoning
The Court of Appeal, in a unanimous decision, dismissed the appeal and affirmed the Divisional Court’s ruling. The key issue was whether the obligation to provide audited financial statements under the OBCA is subject to the Limitations Act, 2002.
The Limitations Act, 2002 applies to these compliance claims
The Court agreed with the Divisional Court that a shareholder’s application under OBCA s. 253(1) to compel audited financial statements asserts a “claim” for a remedial order and is therefore subject to the two‑year basic limitation period in s. 4 of the Limitations Act, 2002.
The duty correlates to a shareholder right
Rejecting the appellant’s position that the OBCA imposes a free‑standing statutory duty, the Court explained that the obligation to provide audited financial statements correlates to a shareholder’s right. Put simply: (i) a rights‑holder (the shareholder), (ii) a duty‑bearer (the corporation), and (iii) the act to be done (provide audited statements). Because the duty corresponds to a private right, a claim arises—and the Limitations Act, 2002 applies.
Scope and caution
The Court cautioned against broad generalizations: the applicability of limitation periods to compliance orders depends on statutory interpretation in the specific scheme at issue. Where obligations correspond to private rights (as under the OBCA), limitation periods apply; where obligations serve public purposes only, the analysis may differ.
As a result, the appeal was dismissed and the Divisional Court’s order decision confining relief to the two fiscal years within the limitation period relative to the application date, was upheld.
Implications for shareholders and corporations
This decision is a cautionary tale for minority shareholders in closely held corporations. Rights to financial transparency are not indefinite; delays in formal enforcement can forfeit access to historical records. Shareholders should document requests and consider timely applications if informal efforts fail. For those without shareholders’ agreements mandating audits, incorporating such provisions at the outset can prevent disputes.
For corporations, the decision bolsters the use of limitation defences in governance litigation, particularly where historical compliance lapses are alleged. However, it does not absolve ongoing duties – corporations must still adhere to OBCA requirements or risk fresh claims each year.
The case is also relevant for the purchaser of shares of a private company. If historical audited financial statements have not been provided beyond the last two years, the purchaser should not be expecting to obtain them by way of a court order. The only remedy in a sale transaction would be to negotiate an obligation by the company to provide the historical audited financial statements.
In an era of increasing shareholder activism, Lagana reinforces the balance between transparency and procedural fairness. Clients navigating corporate disputes should review their governance documents and act promptly on potential breaches to preserve remedies.