Lagana v. 2324965 Ontario Inc., 2025

Ontario Court Confirms Limits on Shareholder Demands for Financial Records

Date: October 27, 2025

Shareholders in Ontario closely held corporations who discover that audited financial statements have not been prepared cannot simply demand historical compliance at any time. On September 4, 2025, the Court of Appeal for Ontario confirmed in Lagana v. 2324965 Ontario Inc., 2025 ONCA 607 that applications to compel compliance with audit obligations under section 253(1) of the Ontario Business Corporations Act are subject to the two-year limitation period under the Limitations Act, 2002.

The decision runs in two directions. For shareholders in closely held corporations who have been denied access to audited financial information, it is a firm reminder that prompt action is essential: the two-year clock starts running from discovery and waiting is not without cost. For directors and corporations, it provides meaningful certainty that historical non-compliance is not indefinitely actionable, while confirming that the underlying statutory obligation to appoint auditors and prepare annual audited statements remains and cannot simply be ignored.

Case
Lagana v. 2324965 Ontario Inc.
Citation
2025 ONCA 607
Court
Court of Appeal for Ontario
Date
September 4, 2025
Key statutes
OBCA, s. 253(1); Limitations Act, 2002
Outcome
Two-year limitation period applies to s. 253(1) compliance applications; shareholder's demand for statements back to 2013 limited

Background: a family company, inherited shares, and missing audits

In 2012, a real estate development company was incorporated by two partners. After one partner passed away, his son, Carmelo Lagana, inherited his shares. From 2013 to 2020, the company operated without appointing auditors or preparing audited financial statements, despite the clear requirements of the Ontario Business Corporations Act.

In 2021, Lagana requested access to audited financial records. The sole director, David Power, provided only unaudited statements. Lagana applied to court under section 253(1) of the OBCA seeking the appointment of an auditor and the production of audited financial statements going all the way back to 2013.

The decisions below and on appeal

Initial ruling: limitation period does not apply

The application judge initially granted Lagana's request, holding that a section 253(1) application did not constitute a "claim" as defined by the Limitations Act, 2002 and was therefore not subject to the two-year period. On this view, Lagana was entitled to audited statements stretching back to 2013.

Divisional Court: limitation period applies

A three-member panel of the Divisional Court overturned the initial ruling. The Divisional Court held that the application judge had erred: section 253(1) applications do constitute a "claim" under the Limitations Act, 2002 and are subject to the two-year period. The order was varied accordingly.

Court of Appeal: Divisional Court upheld

The Court of Appeal confirmed the Divisional Court's analysis. A section 253(1) compliance application accrues to the benefit of the applying shareholder and therefore constitutes a "claim to remedy an injury, loss, or damage" within the meaning of the Limitations Act, 2002. The two-year limitation period applies. Lagana could not demand audited statements going back to 2013: his claim was limited by when he discovered, or ought to have discovered, the non-compliance.

The rule in plain terms
A shareholder who discovers that audited financial statements have not been prepared as required by the OBCA has two years from the date of discovery to apply under section 253(1) for a compliance order. Waiting beyond two years from discovery bars the claim for the periods outside the limitation window.

The Court confirmed that the underlying corporate obligation to appoint auditors and prepare annual audited statements remains in place regardless of the limitation period. Directors who have not complied with section 253(1) cannot rely on the limitation period as protection against future compliance obligations: it limits the historical reach of a shareholder's demand, not the obligation going forward.

What the decision means in practice

Shareholders must act promptly on discovering non-compliance

The two-year clock runs from the date the shareholder discovered, or ought reasonably to have discovered, that audited statements had not been prepared. A shareholder who inherits shares, receives annual unaudited statements, and does nothing for years may find that the limitation period has run for the earlier years by the time they apply. Prompt action on discovering non-compliance is essential to preserving the full scope of the remedy.

Directors cannot treat historical non-compliance as permanent protection

While the limitation period limits how far back a shareholder can demand compliance, it does not absolve directors of their ongoing obligations under the OBCA. The obligation to appoint auditors and prepare annual audited financial statements, unless unanimously waived by shareholders each year under section 148(2) of the OBCA, continues. Non-compliance going forward remains actionable within the two-year window as it accumulates.

Closely held corporations need proper governance regardless of size

The company in Lagana was a two-partner real estate development corporation that operated for years without meeting its audit obligations. This pattern is common in closely held corporations where the formalities are treated as optional. The decision confirms that those formalities are not optional and that the consequences of ignoring them include shareholder litigation, even where the company is small and privately held.

The limitation period provides certainty for corporate planning

For directors and shareholders managing Ontario corporations, the decision provides a defined boundary: demands for historical financial compliance are subject to a two-year cutoff from discovery. This gives corporations some certainty about their exposure to retrospective compliance demands while reinforcing the importance of maintaining proper records and governance practices going forward to avoid creating new claims.

Section 148(2) of the Ontario Business Corporations Act allows shareholders of a non-offering corporation to waive the audit requirement, but only if all shareholders consent each year. A corporation that simply stops appointing auditors without obtaining unanimous annual waivers is not protected by this provision and remains in breach of its statutory obligations under section 253(1).

Shareholder in an Ontario corporation that has not produced audited financial statements?

The two-year limitation period is already running from the date you discovered or ought to have discovered the non-compliance. Waiting reduces the historical period you can recover and may bar earlier years entirely. Get advice on your position now.

Call: 1-800-771-7882 Find Out What You Are Still Entitled To

Implications for shareholders and directors in Ontario

The decision in Lagana sits at the intersection of shareholder rights, corporate governance obligations, and limitation periods. Its implications run in both directions across the shareholder and director divide.

For minority shareholders in closely held Ontario corporations, the case is a practical reminder that corporate governance failures need to be addressed as soon as they are discovered, not deferred. A shareholder who receives only unaudited statements year after year has a claim that is accruing and expiring simultaneously: accruing as each new year passes without proper audited statements, and expiring for earlier years as the two-year window closes. The shareholder who acts immediately on discovery preserves the most complete remedy. The one who waits loses historical years and may find the most significant periods of potential misconduct are beyond reach by the time they apply.

For directors of Ontario corporations, the case reinforces that the OBCA's audit requirements are genuine statutory obligations with genuine consequences. The limitation period provides some protection against historical demands, but it does not justify non-compliance going forward. A director who continues to fail to appoint auditors or prepare annual statements is creating new claims each year within the two-year window, while a shareholder who discovers the historical pattern has a two-year window to address it. For closely held corporations where the shareholders and directors are the same people, the audit waiver procedure under section 148(2) of the OBCA provides a proper mechanism to manage this obligation: it requires unanimous annual consent, but it provides a clean compliance pathway where all shareholders agree. See our guide to shareholder agreements in Ontario for how governance provisions in a well-drafted agreement can address these obligations in advance.

Involved in a shareholder dispute over financial records or corporate governance in Ontario?

Whether you are a shareholder seeking access to financial information you have been denied, or a director responding to a compliance demand, get advice on your position before the limitation period narrows your options further.

Get Advice on Your Shareholder Dispute Or call us: 1-800-771-7882

Practical takeaways

Applications under section 253(1) of the OBCA to compel audited financial statements are subject to the two-year limitation period under the Limitations Act, 2002. The clock runs from the date the shareholder discovered or ought to have discovered the non-compliance.
Shareholders who discover that audited statements have not been prepared must act promptly. Waiting erodes the historical period recoverable and may bar earlier years entirely once two years have passed from discovery.
The limitation period limits the historical reach of a shareholder's demand but does not relieve directors of their ongoing obligation to appoint auditors and prepare annual audited statements under the OBCA.
The audit requirement can be waived under section 148(2) of the OBCA, but only with unanimous shareholder consent obtained each year. A corporation that simply stops appointing auditors without proper annual waivers remains in breach.
For directors, the limitation period provides certainty about historical exposure but does not justify ongoing non-compliance. Each year without proper audited statements creates a new claim accruing within the two-year window.
Closely held corporations are not exempt from the OBCA's governance requirements. The fact that a corporation is small, privately held, or family-run does not reduce the statutory obligations on its directors or the rights available to its shareholders.

Shareholder dispute over financial records or corporate governance in Ontario? Tell us what's happening.

Whether you are a shareholder who has been denied access to audited financial information, a director facing a compliance demand under the OBCA, or a closely held corporation that needs to review its governance practices, Achkar Law advises on shareholder disputes and corporate governance matters across Ontario. We will assess your position and advise on the steps that protect your interests before the limitation period narrows your options.

Call us at 1-800-771-7882 or fill out the form below and we will be in touch.