Directors Resolution to Approve an Agreement

Directors Resolution to Approve an Agreement

The directors of a corporation are elected by the shareholders to manage the affairs of the corporation.  The duties of the directors are outlined in the statute of incorporation, in the by-laws and as the shareholders may direct from time to time.  The directors appoint officers to assist them with the day to day matters.  For small operations there may be one shareholder, one director and one officer and this may be the same person.  For larger operations, there may be numerous directors and officers.

One of the duties of the directors of a corporation is to approve agreements, contracts, leases and other documents that the corporation is or has entered into with other parties.  The officers will present these documents to the directors for their approval before entering into the particular agreement or contract.

There are two ways in which a directors resolution to approve an agreement can be documented: (1) directors approval BEFORE the agreement has been signed, and (2) directors approval AFTER the agreement has been signed.  Technically all agreements, leases, promissory notes, contracts, etc. should be shown to the directors before they are executed by the corporation’s officers, however, in some cases this does not happen, and the agreement has to be approved after the fact.

Legalities Around Preparing a Directors Resolution to Approve an Agreement

The statute of incorporation provides clear instructions as to how directors approve matters. Most statutes will provide for the manner in which a meeting can be held in order that a directors resolution to approve an agreement can be passed.  Many statutes also provide for directors to approve matters without holding a meeting.  In this case, ALL of the directors must sign a resolution.  An example of a clause in a statute providing for directors to sign without holding a meeting is shown below:

“Resolutions in writing

129 A resolution in writing, signed by all the directors entitled to vote on that resolution at a meeting of directors or a committee of directors, is as valid as if it had been passed at a meeting of directors or a committee of directors.”

 

The Characteristics of a Directors Resolution to Approve an Agreement

A Directors Resolution to approve an agreement has a standard layout that provides for the following:

  • Recitals (these explain what the agreement or matter is about and what the directors hope to achieve by the approval)
  • Approval of the Terms and Conditions of the Agreement
  • Approval of the form of Agreement
  • Approval of the authorized signing authorities who can sign the agreement on behalf of the corporation
  • Approval of the delivery of the agreement by the authorized signing authorities
  • A catchall phrase

Frequently, as well, parties outlined in a directors resolution will have their names defined.  An example of this would be 222553 Ontario Inc. (hereinafter referred to as “222553”).  If the name of the company has been defined in this manner, then every time the name of  222553 Ontario Inc. shows up in the resolution after it is defined it will be shown as 222553.  You will find examples of resolutions on this page that show how this is done.

 

How to prepare a Directors Resolution to Approve an Agreement BEFORE it is signed

The following will outline the different paragraphs that should be in the directors resolution in order for it to cover all requirements for proper approval..

Recitals

The first step is to describe the agreement being signed in the recitals.  Below are some examples:

EXAMPLE 1:  “WHEREAS the Corporation wishes to enter into an agreement of purchase and sale (the “Agreement”) among the Corporation, 4211323 Ontario Inc. (“4211323”) and John Doe dated the 10th day of July, 2015, pursuant to which the Corporation shall purchase from 4211323 all of the assets of a business known as The Green Tree;”

EXAMPLE 2: “WHEREAS the Corporation wishes to enter into an employment agreement (the “Agreement”) between the Corporation and John Doe dated the 10th day of July, 2015 which sets out the terms of employment of John Doe;”

EXAMPLE 3: “WHEREAS the Corporation wishes to enter into a lease agreement (the “Lease”) between the Corporation and John Doe Realty Inc. (“John Doe”) dated the 10th day of July, 2015 pursuant to which John Doe will rent to the Corporation the premises located at 1145 Midland Avenue, Scarborough, Ontario under the terms and conditions more particularly described in the Lease;”

Approval of Agreement

Below are some examples of the language used in resolutions to approve an agreement:

EXAMPLE 1:

“NOW THEREFORE BE IT RESOLVED THAT:

  1. The entering into of the Agreement by the Corporation, pursuant to the terms and conditions thereof, is hereby approved.
  2. The form of Agreement, as presented to the directors of the Corporation, is hereby approved.”

EXAMPLE 2:

“NOW THEREFORE BE IT RESOLVED THAT:

  1. The entering into by the Corporation of the Lease, pursuant to the terms and conditions therein, is hereby approved.
  2. The form of Lease, annexed hereto as Schedule “A”, is hereby approved.”

 

Authorized Signing Authority for a Directors Resolution to Approve an Agreement

The next step in the directors resolution is to determine who the signing officers will be that have authority to execute the agreement on behalf of the corporation and to determine who can deliver the agreement.  The by-laws of a corporation determine who can sign agreements on behalf of a corporation.  A standard clause in a by-law will be as follows:

“Execution of Instruments – Deeds, transfers, assignments, contracts, obligations, certificates and other instruments may be signed on behalf of the Corporation by any officer or director of the Corporation.  In addition, the board may from time to time direct the manner in which and the person or persons by whom any particular instrument or class of instruments may or shall be signed.  Any signing officer may affix the corporate seal to any instrument requiring the same.”

This is a standard clause that can be found in a by-law.  This clause provides that any one officer or director can sign agreements on behalf of the Corporation.  This clause also provides that the Board may from time to time determine any other person to have authority to execute agreements.  The second clause is very important because it allows for a broader form of approval.  The paragraph above provides that the directors may approve something other than any officer or director approving an agreement.  For instance, they could have an employee sign the agreement on behalf of the Corporation if they wished.  This approval would be acceptable as long as the directors approved this change from the provisions located in the by-law.

If there is no clause in the by-law that provides for the directors to determine from time to time who can sign, then the directors must abide by the execution of instruments clause that is there.   See below for an example.

“Execution of Instruments – Deeds, transfers, assignments, contracts, obligations, certificates and other instruments may be signed on behalf of the Corporation by any two officers or directors of the Corporation.”

In the above case, if the by-law provides for the following, then two officers and directors must sign any agreement, contract, etc. on behalf of the Corporation and this clause cannot be varied unless the directors and shareholders approve an amendment to the by-law.

Below are examples of approval resolutions which determine who can sign and deliver an agreement on behalf of a company.

EXAMPLE 1: “Any officer or director of the Corporation is hereby authorized to execute and deliver the Agreement on behalf of the Corporation.”

EXAMPLE 2: “John Doe is hereby authorized to execute and deliver the Agreement on behalf of the Corporation.”

Catchall Phrase in a Directors Resolution to Approve an Agreement

The final clause in a directors resolution to approve an agreement is the catchall phrase.  This gives the authorized signing authority the right to execute all other ancillary documents that may be required to implement the transaction contemplated by the Agreement.  Below is a catchall phrase:

“Any officer or director of the Corporation be and is hereby authorized and directed to do all acts and things and to execute or cause to be executed all such instruments, agreements and documents as in his opinion may be necessary or desirable to complete the transactions contemplated herein.”

Below is an example of a resolution providing for approval of an agreement that has not yet been signed.  Note that the paragraph at the bottom below the resolution refers to a statute.  This statute reference should be changed to show the statute refer for the particular company you are preparing the resolution for.

Directors Resolution Approving an Agreement BEFORE it has been Executed

How to prepare a Directors Resolution to Approve an Agreement AFTER it is signed

Below is an example of a resolution providing for approval of an agreement that has already been signed. Resolutions that are approved after they are signed are “approved, ratified and confirmed“.

Directors Resolution Approving an Agreement AFTER it has been Executed

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