Qualifications for Directors of Ontario Companies

Qualifications for Directors of Ontario Companies

A director is an individual who is elected by the shareholders (owners) of the company to assist with the management and supervision of the day to day affairs of the company. Frequently the directors of a company are also the owners of the company.  Not just anyone can be a director of an Ontario company. In order to meet the qualifications for directors of Ontario companies reference must be made to the statute that governs Ontario companies.

How many directors can an Ontario Company Have

Ontario companies must have at least one director for private companies and at least three directors for public companies.  There is no limit on the number of directors an Ontario company may have and if a private company wishes to have many directors it may do so.

Who can Qualify to Act as a Director of an Ontario Company

The Business Corporations Act (Ontario) explains this requirement by outlining what disqualifies someone from being a director of an Ontario company.

The following persons are disqualified from being directors of an Ontario company:

    1. A person who is less than 18 years of age;
  1. A person who has been found under the Substitute Decisions Act, 1992 (Ontario) or under the Mental Health Act (Ontario) to be incapable of managing property or who has been found to be incapable by a court of Canada or elsewhere;
  2. A person who is not an individual; or
  3. A person who has the status of bankrupt.

Director’s Consent to Act as a Director

A person cannot be appointed to be a director of an Ontario company unless that person has agreed to do so.  The Act provides that after an individual is elected as a director they must consent in writing to the appointment within ten days.  This written consent is inserted into the minute book for the Ontario company and maintained there for future reference.

Director Consent Example

Resident Canadian Requirement for Directors of Ontario Companies

There is a requirement for 25% of the directors of an Ontario company to be “resident Canadians”.  For more information about this requirement refer to Resident Canadian Requirements for Directors of Ontario Companies.

Ontario Business Corporations Act

Resident Canadian Requirement for Directors of Ontario Companies

All Ontario companies must have at least one director and this person must be a resident Canadian as defined in the Business Corporations Act (Ontario).  Director(s) are the individuals who manage and supervise the business on behalf of the owners (shareholders).  The directors will also appoint officers to assist.

The Business Corporations Act (Ontario) provides for a residency requirement for directors.  25% of the directors of an Ontario company must be “resident Canadians” as defined by the Act.  This means that if an Ontario company has one to four directors, at least one of them must be a resident Canadian.

Definition of Resident Canadian

A resident Canadian is defined in the Act as an individual who is (a) a Canadian citizen ordinarily resident in Canada, (b) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or (c) a permanent resident within the meaning of the Immigration and Refugee Protection Act (Canada) and ordinarily resident in Canada.

 

Meaning of the Definition of Resident Canadian

In lay terms, to be considered a “resident Canadian” pursuant to the Act, you must be a Canadian citizen living in Canada or a permanent resident living in Canada.  Therefore, if you are a Canadian citizen not living in Canada you would not qualify to be the sole director of a company, however, you could be a director as long as there were other directors elected to the board meeting the 25% resident Canadian requirement.  As well, a non-Canadian may not be the sole director of a company.

On the other hand, not all provinces and territories have the same rules.  In British Columbia the Business Corporations Act (British Columbia) does not provide for a residency requirement. Therefore a non-Canadian or a Canadian citizen not living in Canada may be the sole director of a BC company.  This is good news for those Canadians who wish to conduct business in Canada but also wish to live outside of Canada.  As well, foreign individuals are able to set up BC companies and act as the sole director of those companies since there is no requirement for them to live in Canada. Refer to our blog page for more information about residency requirements for BC companies.

Canadian Director Residency Requirement

Director Residency Requirements – Canadian Federal Companies

Canadian companies registered in the Federal jurisdiction must follow the requirements of the Canada Business Corporations Act with respect to director residency requirements.

What is a Resident Canadian as Defined by the Canada Business Corporations Act

The Canada Business Corporations Act defines “resident Canadian” as an individual who is:

  1. a Canadian citizen ordinarily resident in Canada;
  2. a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or
  3. a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act and ordinarily resident in Canada, except a permanent resident who has been ordinarily resident in Canada for more than one year after the time at which he or she first became eligible to apply for Canadian citizenship.

This means that a resident Canadian is a Canadian citizen or a permanent resident who lives in Canada.

How Many Directors of a Canadian Federal Company must be Resident Canadians

25% of the number of elected directors must be considered to be “resident Canadians”. This means that there must be one resident Canadian when the corporation has from one to four elected directors.  If a director at some point can no longer be considered a resident Canadian because for instance, he or she moves out of the country, then his or her status as a resident Canadian no longer applies.  A new director may need to be appointed to ensure the company is in compliance with the statute requirements.

 

What do You Need to Know About the Residency Requirement for Directors elected to Federal Companies

Let’s take the example of a permanent resident as defined in the Immigration and Refugee Protection Act (Canada) who is living in Canada.  This individual comes to Canada and is legally classed as a permanent resident.  This person registers a Canadian federal company and becomes the sole director of the company.  Since he is a permanent resident and he also lives in Canada, he is classified as a “resident Canadian” pursuant to the Canada Business Corporations Act and can be the sole director of a federal company.

Down the road this individual becomes eligible to become a Canadian citizen and does not apply to become one within one year after the time in which he was eligible to do so. At that point he is no longer classed as a “resident Canadian” and his company is no longer following the statute requirements to have 25% of the directors be resident Canadians and that company could be dissolved by Corporations Canada.

Let’s also take a look at another example with a different scenario.  A Canadian citizen living in Canada sets up a company with three other directors.  The other three directors do not live in Canada. He is elected a director along with the other three directors and is the “resident Canadian” director.  The federal Canadian company is in compliance with the Canada Business Corporations Act because 25% of the number of elected directors are resident Canadians.  The resident Canadian director decides to permanently move to Cuba.   He is still a Canadian citizen but he no longer lives permanently in Canada and therefore the company is no longer in compliance with the statute and another director will need to be elected to replace him.

 

BC Directors Qualification

Qualifications of Directors of British Columbia Companies

Every BC company must have at least one director.  A director is a person who has been appointed by the owners (shareholders) of the BC company to handle the business and affairs of the company on behalf of those owners.  Very often the directors of a BC company are also the owners, who have appointed themselves to the role of director. In order for a person to act as a director he or she must meet the qualifications of directors of British Columbia companies.

Is there any Limit on the Number of Directors a BC Company May Have

The Business Corporations Act (British Columbia) which governs BC companies provides that every private BC company must have at least one director and every public BC company must have a minimum of three directors, although all BC companies can have as many directors as they wish.

 

Persons Disqualified to Act as Directors of a BC Company

If the individual who wishes to act as a director of a BC company falls under any of the following restrictions that person cannot act as a director of a BC company:

  1. Is under the age of 18 years;
  2. Has been found by a court, in Canada or elsewhere, to be incapable of managing the individual’s own affairs;
  3. Is an undischarged bankrupt; or
  4. Has been convicted in or out of BC of an offence in connection with the promotion, formation or management of a corporation or unincorporated business, or of an offence involving fraud.

Section 124 of the Act does provide for some exemptions with respect to these restrictions for those who may be interested.

 

Resident Canadian Requirement Does not apply to Directors of BC Companies – Directors do not Need to Live in Canada

Many provinces and territories in Canada have a resident Canadian requirement which provides that a certain number of directors of a company must be “resident Canadians”.

The requirement for a director of a BC company to be a resident Canadian does not exist.  This is good news for Canadians who live abroad and wish to maintain a business in Canada.   It is also good news for those individuals who are living outside of Canada and wish to open a business in Canada but would not be able to move to Canada.

 

Does a BC Director Need to be a Shareholder

A BC director can be a shareholder but there is no legal requirement for him to hold shares in the company.

 

BC Directors Must Consent to Act

The BC incorporation statute provides that all directors must consent to act as directors of a BC company.  The directors of a BC company must consent either in advance of or at the same time of their election to the board.

Annual Resolutions

Annual Resolutions

This Article will be specific to the annual corporate approvals (frequently called annuals or annual resolutions) required for companies incorporated pursuant to the Business Corporations Act (Ontario) and the Canada Business Corporations Act.  Most other jurisdictions in Canada would have the same or similar requirements.

In order to document these approvals a series of resolutions are prepared and signed by the directors and shareholders of the company.  Below is a breakdown of each document that is normally prepared and approved.

For more information about the rules of preparing and signing resolutions refer to Preparing Resolutions.[margin_30t]

Annual Resolutions can also be approved a meetings of the directors and shareholders and public companies will hold meetings each year to approve annual resolutions.

Purchase a Word Version Version of Annual Resolutions
Purchase Word Versions of Dividend Approval Resolutions

 

Approval of Financial Statements by Directors

All Canadian companies are required to file a federal tax return each year and as part of that procedure financial statements are prepared by the accountant of the Corporation.

As part of the annual resolutions, the directors of the Corporation must (a) approve the financial statements, (b) approve the directors executing the financial statements; and (3) approve the financial statements being shown to the shareholders.  Below is a form of resolution that handles all three of these approvals:

Annual Resolutions - Approval of Financial Statements

Statute Reference:

Business Corporations Act (Ontario)

“Section 155.  The financial statements required under this Act shall be prepared as prescribed by regulation and in accordance with generally accepted accounting principles.  R.S.O. 1990, c. B.16, s. 155.”

“Section 159.  (1)  The financial statements shall be approved by the board of directors and the approval shall be evidenced by the signature at the foot of the balance sheet of any director authorized to sign and the auditor’s report, unless the corporation is exempt under section 148, shall be attached to or accompany the financial statements.  R.S.O. 1990, c. B.16, s. 159 (1); 2010, c. 16, Sched. 5, s. 1 (2).”

Note:  An offering corporation is a public corporation.  Financial statements of public corporations must be audited.  The above paragraph is referring to non-offering corporations, which are private corporations, and have an option to be audited or unaudited.

Canada Business Corporations Act

“Section 158 (1) The directors of a corporation shall approve the financial statements referred to in section 155 and the approval shall be evidenced by the manual signature of one or more directors or a facsimile of the signatures reproduced in the statements.”[margin_30t]

Acceptance of Financial Statements by Shareholders

Once the directors have approved the financial statements they are mandated to provide the shareholders with a copy of the financial statements.  Below is an example of a shareholders resolution acknowledging receipt of the financial statements:

Annual Resolutions - Acceptance of Financial Statements

Statute Reference:

Business Corporations Act (Ontario)

“Section 154.  (1)  The directors shall place before each annual meeting of shareholders,….(a)  in the case of a corporation that is not an offering corporation, financial statements for the period that began on the date the corporation came into existence and ended not more than six months before the annual meeting or, if the corporation has completed a financial year, the period that began immediately after the end of the last completed financial year and ended not more than six months before the annual meeting;”

Canada Business Corporations Act

“Section 155 (1) Subject to section 156, the directors of a corporation shall place before the shareholders at every annual meeting (a) comparative financial statements as prescribed relating separately to (i) the period that began on the date the corporation came into existence and ended not more than six months before the annual meeting or, if the corporation has completed a financial year, the period that began immediately after the end of the last completed financial year and ended not more than six months before the annual meeting, and (ii) the immediately preceding financial year;”[margin_30t]

Election of Directors by Shareholders

The shareholders of the Corporation will elect the directors of the Corporation for the next year as part of the annual resolutions.  Even if the directors are not changing a resolution should be prepared to elect the directors.  If this resolution is not approved the current directors would still hold office.

Annual Resolutions - Appointment of Directors

Statute Reference:

Business Corporations Act (Ontario)

“Section 119 (4)  Subject to clause 120 (a), shareholders of a corporation shall elect, at the first meeting of shareholders and at each succeeding annual meeting at which an election of directors is required, directors to hold office for a term expiring not later than the close of the third annual meeting of shareholders following the election.  R.S.O. 1990, c. B.16, s. 119 (4).”

Canada Business Corporations Act

“Section 106(3) Subject to paragraph 107(b), shareholders of a corporation shall, by ordinary resolution at the first meeting of shareholders and at each succeeding annual meeting at which an election of directors is required, elect directors to hold office for a term expiring not later than the close of the third annual meeting of shareholders following the election.”[margin_30t]

Consent to Act as a Director

Every director who is elected or appointed must consent to act as a director of the Corporation and agree in writing to act.  A consent to act is only required to be provided once during the term of appointment, however, customarily these consents are included in the annual resolutions package.

25% of the directors must be resident Canadians and the consent confirms the residency.

The statute also provides that directors can hold meetings by electronic means provided the directors consent to such meetings.

Not just anyone can be a director of a corporation.  Refer to Qualifications of Directors of Federal Companies and Qualifications of Directors of Ontario Companies for more information.[margin_15t]

Annual Resolutions - Consent to Act

Statute Reference:

Business Corporations Act (Ontario)

“Section 1(1) “resident Canadian” means an individual who is,

    (a)   a Canadian citizen ordinarily resident in Canada,

    (b)   a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or

    (c)   a permanent resident within the meaning of the Immigration Act (Canada) and ordinarily resident in Canada;”

“Section 118(3)  At least 25 per cent of the directors of a corporation other than a non-resident corporation shall be resident Canadians, but where a corporation has less than four directors, at least one director shall be a resident Canadian.  2006, c. 34, Sched. B, s. 19 (2).”

“Section 119(9)  Subject to subsection (10), the election or appointment of a director under this Act is not effective unless the person elected or appointed consents in writing before or within 10 days after the date of the election or appointment.  1999, c. 12, Sched. F, s. 8.”

“Section 119(10)  If the person elected or appointed consents in writing after the time period mentioned in subsection (9), the election or appointment is valid.  1999, c. 12, Sched. F, s. 8.”

“Section 119(11)  Subsection (9) does not apply to a director who is re-elected or re-appointed where there is no break in the director’s term of office.  1999, c. 12, Sched. F, s. 8.”

“Section 126(13)  Unless the by-laws otherwise provide, if all the directors of a corporation present at or participating in the meeting consent, a meeting of directors or of a committee of directors may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and a director participating in such a meeting by such means is deemed for the purposes of this Act to be present at that meeting.  R.S.O. 1990, c. B.16, s. 126 (13).”

Canada Business Corporations Act

“Section 2(1) resident Canadian means an individual who is (a) a Canadian citizen ordinarily resident in Canada, (b) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or (c) a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act and ordinarily resident in Canada, except a permanent resident who has been ordinarily resident in Canada for more than one year after the time at which he or she first became eligible to apply for Canadian citizenship;”

“Section 106(9) An individual who is elected or appointed to hold office as a director is not a director and is deemed not to have been elected or appointed to hold office as a director unless (a) he or she was present at the meeting when the election or appointment took place and he or she did not refuse to hold office as a director; or (b) he or she was not present at the meeting when the election or appointment took place and (i) he or she consented to hold office as a director in writing before the election or appointment or within ten days after it, or (ii) he or she has acted as a director pursuant to the election or appointment.”

“Section 114(9) Subject to the by-laws, a director may, in accordance with the regulations, if any, and if all the directors of the corporation consent, participate in a meeting of directors or of a committee of directors by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting. A director participating in such a meeting by such means is deemed for the purposes of this Act to be present at that meeting.”[margin_30t]

Appointment of Officers by Directors

The directors elected at the annual meeting or by annual resolutions will then appoint the officers they wish to assist them for the next year.  It can be the same officers as in the previous year.  The form of approval is as follows:

Annual Resolutions - Appointment of Officers

Statute Reference:

Business Corporations Act (Ontario

“Section 133. Subject to the articles, the by-laws or any unanimous shareholder agreement, (a) the directors may designate the offices of the corporation, appoint officers, specify their duties and delegate to them powers to manage the business and affairs of the corporation, except, subject to section 184, powers to do anything referred to in subsection 127 (3); (b) a director may be appointed to any office of the corporation; and (c)  two or more offices of the corporation may be held by the same person.”

Canada Business Corporations Act

“Section 121 Subject to the articles, the by-laws or any unanimous shareholder agreement, (a) the directors may designate the offices of the corporation, appoint as officers persons of full capacity, specify their duties and delegate to them powers to manage the business and affairs of the corporation, except powers to do anything referred to in subsection 115(3); (b) a director may be appointed to any office of the corporation; and (c) two or more offices of the corporation may be held by the same person.”[margin_30t]

Appointment of Accountant or Auditor

The shareholders of a Corporation will either appoint an accountant or appoint an auditor for the ensuing year.  Below is the form of resolution that can be modified for either situation.

Annual Resolutions - Appointment of Accountants

Statute Reference:

Business Corporations Act (Ontario)

“Section 149(2)  The shareholders shall at each annual meeting appoint one or more auditors to hold office until the close of the next annual meeting and, if an appointment is not so made, the auditor in office continues in office until a successor is appointed.  R.S.O. 1990, c. B.16, s. 149 (2).”

“Section 149(7)  The remuneration of an auditor appointed by the shareholders shall be fixed by the shareholders, or by the directors if they are authorized so to do by the shareholders, and the remuneration of an auditor appointed by the directors shall be fixed by the directors.  R.S.O. 1990, c. B.16, s. 149 (7).”

Canada Business Corporations Act

“Section 162 (1) Subject to section 163, shareholders of a corporation shall, by ordinary resolution, at the first annual meeting of shareholders and at each succeeding annual meeting, appoint an auditor to hold office until the close of the next annual meeting.”

“Section 162(4) The remuneration of an auditor may be fixed by ordinary resolution of the shareholders or, if not so fixed, may be fixed by the directors. 1974-75-76, c. 33, s. 156; 1978-79, c. 9, ss. 1(F), 4″[margin_30t]

Consent to Non-Appointment of An Auditor

Most companies do not have their financial statements audited by an auditor.  Instead they have financial statements prepared by an accountant.   In those cases, the shareholders of the Corporation must approve the non-appointment of an auditor.  This approval requires the consent of all of the voting and non-voting shareholders as follows:[margin_15t]

Annual Resolutions - Exemption to Non-Appointment of Auditor

Statute Reference:

Business Corporations Act (Ontario)

Section 148. In respect of a financial year of a corporation, the corporation is exempt from the requirements of this Part regarding the appointment and duties of an auditor if, (a) the corporation is not an offering corporation; and (b) all of the shareholders consent in writing to the exemption in respect of that year. 1998, c. 18, Sched. E, s. 23.

Canada Business Corporations Act

Section 163 (1) The shareholders of a corporation that is not a distributing corporation may resolve not to appoint an auditor. 163 (2) A resolution under subsection (1) is valid only until the next succeeding annual meeting of shareholders. (3) A resolution under subsection (1) is not valid unless it is consented to by all the shareholders, including shareholders not otherwise entitled to vote.

Note:  Reference to distributing corporation is another way of saying public corporation.

Appointment of Auditor

In the case where an auditor is being appointed for an upcoming financial year of the Corporation, the auditor should receive notice of its appointment as follows:[margin_20t]

Annual Resolutions - Notice of Appointment of Auditor

Statute Reference:

Business Corporations Act (Ontario)

Section 149 (9)  The corporation shall give notice in writing to an auditor of the auditor’s appointment forthwith after the appointment is made.  R.S.O. 1990, c. B.16, s. 149 (9).

Canada Business Corporations Act

Silent

When Should Annual Resolutions Be Approved

The financial statements of a Corporation must be finalized and incorporated into the corporate tax return for the company within six months of the end of the financial year.  Therefore, the annual resolutions cannot be dated prior to the financial statements being prepared and no later than six months after the financial year end.

Declaration of Dividends

As part of the preparation and approval of annual resolutions frequently dividends will be declared.  For more information about how to approve a dividend refer to Declaring a Dividend.

Stock Dividends

Stock Dividend

Subject to the Articles, the directors of a corporation may declare and a corporation may pay a stock dividend by issuing fully paid shares of the corporation or options or rights to acquire fully paid shares of the corporation.

All shareholders of a corporation own shares.  When a dividend is declared upon a class of shares of a corporation all shareholders that hold shares of that class are entitled to receive the dividend equally in proportion to the number of shares they own.

To understand how these dividends are declared, consider the following scenario.  The directors of the Corporation approve a stock dividend on the issued common shares of a company on the basis of 10 common shares for every issued and outstanding share owned.  The corporation has the following shareholders:

John Doe (holding 10 common shares)

Jim Holding Company Limited (holding 20 common shares)

If a stock dividend is declared on the issued shares of a corporation providing for ten:one ratio, after the stock dividend is issued the additional number of shares each shareholder will own is:

John Doe (10 x 10) – 100 common shares

Jim Holding Company Limited  (20 x 10) = 200 common shares

The total number of shares owned by each shareholder including the original number of shares held and the additional shares allotted pursuant to the stock dividend are:

John Doe – 110 common shares

Jim Holding Company Limited  – 220 common shares

Subsequent to the approval of a stock dividend each of the shareholders having a right to the stock dividend shall receive a share certificate for the additional shares they received.

Below is an example of a directors resolution approving a stock dividend:

Stock Dividend

 

Buy Dividend Resolutions

If you wish to make things easy refer to this link for a number of templates that can be purchased relating to Approving Dividends Templates.

 

For more information about dividends refer to:

Declaring a Dividend

Capital Dividend

Capital Dividend Upon Redemption

 

Capital Dividend Upon Redemption

Capital Dividend Upon Redemption

Under certain circumstances, and provided the Articles of the Corporation provide, the directors of a Corporation may approve a deemed capital dividend upon redemption of a class of shares.

Redemption of Shares Resulting in a Capital Dividend upon Redemption

When shares are redeemed they are cancelled and, in some cases, returned to Treasury.  The Articles of a corporation set out the basis pursuant to which a class of shares can be redeemed and the amount of money those shares can be redeemed for.  If the Articles do not contain any provisions for redemption, the shares cannot be redeemed.

Statute Governing Capital Dividends Upon Redemption

Section 83 of the Income Tax Act (Canada) governs the basis upon which a capital dividend can be declared .  Refer to Section 83 of the Income Tax Act for more information on the legal requirements to be followed when declaring a capital dividend upon redemption.

Director Approval of a Capital Dividend Upon Redemption

The directors of a Corporation must approve a capital dividend upon redemption and a certified copy of such resolution must be filed with Revenue Canada Agency along with the election form.

Once issued shares of a corporation are redeemed, the share certificate evidencing those shares will be marked cancelled and the share register for those shares will be reduced by the number of shares redeemed.

Example of Directors Resolution Approving Capital Dividend Upon Redemption

Below is an example of a directors resolution approving a deemed capital dividend upon redemption:

 

Capital Dividend upon Redemption of Shares

Certified copy of Resolution of the Directors Approving a Capital Dividend upon the Redemption of Shares:

Capital Dividend upon Redemption of Shares

Many statutes will have a legal requirement which provides that a company cannot declare a dividend unless there are reasonable grounds it will be able to pay its liabilities.  Below is a form of confirmation of Solvency by the President of a company upon a redemption.

Solvency Certificate

Buy Dividend Resolutions

If you wish to make things easy refer to this link for a number of templates that can be purchased relating to Approving Dividends Templates.

 

For more information about dividends refer to:

Declaring a Dividend

Capital Dividend

Stock Dividend

 

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

Directors Meetings – How to Conduct a Proper and Legal Directors Meeting

 

This Article will provide you with the basics of how to conduct a properly constituted meeting of the directors.

Understanding Statute Requirements for Conducting a Directors Meeting

When conducting meetings of the directors the reference for the rules and laws respecting holding meetings will be found in the statute of incorporation and the by-laws. You can determine the statute of incorporation by referring to the articles of the corporation.

Most governments now put statutes online. Once you know the name, doing a search of that statute will pull it up quickly.

The by-laws of a company usually mirror the statute requirements but in some cases statute requirements can be varied and in cases such as this the by-law may be modified to suit the specific purposes of the company. Therefore, it is important to first determine the statute requirement and second review your articles and by-laws to determine if any variations to the requirements of the statute have been implemented.

An example of a clause in a statute that can be varied is:

“Quorum
(3) Subject to the articles or by-laws and subsection (4), a majority of the number of directors or minimum number of directors required by the articles constitutes a quorum at any meeting of directors, but in no case shall a quorum be less than two-fifths of the number of directors or minimum number of directors, as the case may be. R.S.O. 1990, c. B.16, s. 126 (3).”

The above clause provides the legal requirements for determining a quorum for conducting directors meetings. The first line of the statute indicates “Subject to the articles or by-laws”. This means that this section of the statute can be varied and changed if the articles or by-laws of the corporation indicate so.  If the section had been worded as follows:

“(3) A majority of the number of directors or minimum number of directors required by the articles constitutes a quorum at any meeting of directors, but in no case shall a quorum be less than two-fifths of the number of directors or minimum number of directors, as the case may be.”

This would mean that this section of the statute cannot be varied and in order to conduct a meeting of the directors a quorum for conducting a meeting could not be less than two-fifths of the number of directors.

 

Notice of a Directors Meeting

The first step to holding a meeting is to provide the directors with notice of the meeting.

In order to call a directors meeting proper notice of the meeting must be sent to all of the directors of the corporation. It is not possible to hold a legal validly called meeting of the directors unless every director has been invited to attend. If all of the directors have not been given proper notice of the meeting then the matters approved at the meeting would be null and void.

The proper manner in which notice is given to the directors is defined in the statute of the corporation. In most statutes, the following will need to be included in the notice of meeting:

Date and Time of the Directors Meeting (including the date and time of the meeting).

Place of Directors Meeting (which in most cases, and subject to the statute and by-laws) is frequently the registered office address of the corporation. Some statutes will require that a certain number of meetings be held in the jurisdiction of incorporation (i.e. province, state, country, as the case may be). As well, there may be restrictions in conducting meetings outside of the jurisdiction in that director approval may be required before meetings can be held. The statute of incorporation will clearly outline these requirements but you should also refer to the operating by-law of the corporation.

Matters to be Discussed at the Directors Meeting – Describing the matters to be discussed at a directors meeting is not in most cases necessary in accordance with the statute requirements, however, it is a good idea to have a clear outline of the proceedings to be conducted so that matters are proceeded with timely and in the proper order.  Any resolutions that are going to be submitted to the directors should be prepared for them to review.

No special form is required with respect to preparing a notice. As long as you include the above-noted criteria then the notice will be legally valid.

 

Timing of Calling a Directors Meeting and Delivery of the Notice of Directors Meeting

There are two aspects to providing the directors with proper notice of a directors meeting. First, you need to know how many days’ notice the directors need to receive. Secondly, you need to know how the notice should be delivered.  An example of a clause in a by-law that sets out how much notice a director must be given before a directors’ meeting is called is as follows:

“Notice of Meeting – Notice of the time and place for the holding of a meeting of the board shall be given to every director of the Corporation not less than two clear days (excluding Sundays and holidays as defined by the Interpretation Act) before the date of the meeting. Notwithstanding the foregoing, notice of a meeting shall not be necessary if all of the directors are present, and none objects to the holding of the meeting, or if those absent have waived notice of or have otherwise signified their consent to the holding of such meeting. Notice of an adjourned meeting is not required if the time and place of the adjourned meeting is announced at the original meeting.”

An example of a clause in a by-law that sets out the method for mailing notices for a directors meeting is as follows:

“Method of Giving Notices – Any notice, communication or other document required to be given by the Corporation to a shareholder, director, officer, member of a committee of the board or auditor of the Corporation pursuant to the Act, the regulations, the articles or by-laws or otherwise shall be sufficiently given to such person if:
a) delivered personally to him, in which case it shall be deemed to have been given when so delivered;
b) delivered to his recorded address, in which case it shall be deemed to have been given when so delivered;
c) mailed to him at his recorded address by prepaid ordinary mail, in which case it shall be deemed to have been given on the fifth day after it is deposited in a post office or public letter box; or
d) sent to him at his recorded address by any means of prepaid transmitted or recorded communication, in which case it shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch.

If a notice or document is sent to a shareholder by prepaid mail in accordance with this paragraph and the notice or document is returned on three consecutive occasions because the shareholder cannot be found, it shall not be necessary to send any further notices or documents to the shareholder until he informs the Corporation in writing of his new address.”

 

In order to determine the notice requirements for YOUR company, you must review the general operating by-law AND the statute requirements to ensure you are following the proper procedure. It is possible to have provisions in a by-law that are contrary to law. If this is the case, then the statute will override.

Waiver of Notice of Meetings

If some of the directors of a meeting did not receive a notice of that meeting but they attended the meeting, then by virtue of their attendance at the meeting they would be deemed to have been given notice.

In some cases, where a director has not been given proper notice and does not attend the meeting, he can provide a form of waiver. By providing this waiver of notice, the matters approved at the meeting will be legally approved.   An example of a form of waiver of notice is as follows:

Directors Meeting Waiver of Notice

Directors Meetings Held by Telephone or Other Electronic Means

Meetings of directors can be held by electronic means such as telephone, etc., however, it is important that the statute and by-laws of the company be reviewed to determine under what basis these types of meetings can be held. Frequently, all the directors of a company must approve any meetings being held electronically and therefore if a meeting is held without proper approval it means that ALL matters approved at that meeting are null and void.

The statute will govern the manner in which meetings by telephone or other communications can be conducted. The by-law may contain a summary of these provisions. Normally, all directors must consent to the holding of telephone meetings. An example of the consent that can be agreed to by the directors is:

However, it is cautioned to review the corporate statute governing the corporation and the by-laws in place to ensure the wording of the consent to be signed by the directors is in accordance with the statute requirements.

 

Who Calls a Directors Meeting

The general operating by-law and the statute will govern who can call a directors meeting. Normally a quorum of directors may call a directors meeting.

Residency Requirements of Directors in Attendance at a Directors Meeting

Residency requirements of directors relates to the statute requirements for having a certain number of directors be living in the jurisdiction where the company was formed. In some cases there are no residency requirements. It is important to check the by-law and statutes just to ensure that there is no legal requirement for a certain number of directors resident in that jurisdiction to be in attendance for a properly formed meeting to commence.

Further, there could be a requirement that certain members of the board of directors must be in attendance at the meeting as well although this is rare to see and if there such requirements, they would be contained in the by-law or in a shareholders agreement.

Quorum Requirements for Directors Meetings

Not only do all directors need to be provided with notice of any directors meeting, there must also be a quorum in attendance before the meeting can be validly called. A quorum is the number of directors that must be in attendance in accordance with the by-laws, or if the by-laws are silent, the statute under which the company acts. The statute requirement is normally a majority of the number of directors but you may be able to vary that requirement, if your statute provides for this, you may be able to have less than a majority or more than a majority. Therefore, if there are five directors and a quorum to conduct business is a majority, then all fie must receive notice and three must be in attendance at the meeting.

 

Conflicts of Interest of Directors and Officers

If a matter is being brought before the directors at a meeting and one of the directors is an officer or director of another company involved in the same transaction then this might create a conflict of interest and that director has an obligation to let the other directors know of his involved.

More simply said, if ABC Company is holding a directors meeting to approve a contract between ABC Company and DEF Company, and one of the directors of ABC Company is also a director of DEF Company then he might have an interest in having the contract approved. Therefore the other directors have to be forewarned of his interest so they can make an unbiased decision on whether to approve ABC Company entering into the contract.

Chairman and Secretary of the Directors Meeting

There must be a Chairman for the meeting and in most cases there will also be a Secretary. The Chairman of the meeting is frequently the President and the Secretaryof the meeting is frequently the Secretary of the Corporation.

The Chairman of the meeting should not be confused with an appointed Chairman of the Board of Directors. The directors of a company can appoint a Chairman, Chairperson, Chair or Chairman of the Board from amongst themselves. If so appointed the Chairman would also act as Chairman of all meetings of the board. In the case where there is no appointed Chairman of the Board, then the President or Chief Executive Officer normally acts as Chairman of the directors meetings.

The Chairman of the meeting will present facts, information and documentation to the board for their review and approval. The Secretary of the meeting will record everything that happens at the meeting and document same in the form of Minutes of the Meeting.

The Chairman and the Secretary can be the same person. The minutes must reflect who acted as Chairman and who acted as Secretary.

It is a good idea to refer to the general operating by-law to determine what it says about who has authority to act as Chairman of the meeting. This can be found in the description of the officer positions of the Corporation.

How to Approve Resolutions at a Directors Meeting

The Chairman of the meeting should be prepared prior to the meeting to explain the purpose of the approval. He or she should also prepare the form of resolution that needs to be approved.

For example, if the directors are approving a change of the registered office address then a resolution can be prepared in the following form:

“BE IT RESOLVED THAT the registered office address of the Corporation should be changed to….”

The Chairman would explain to the directors that a resolution needed to be approved to reflect the change of address and provide them with a copy of the proposed resolution to review.

After the resolution has been reviewed by the directors, one director will move to approve the resolution, a second director will second the motion and the resolution will be carried. The wording will be as follows:

“It was moved by John Doe, seconded by Rick James and carried that the following resolution was approved:

BE IT RESOLVED THAT the registered office address of the Corporation should be changed to…..”

Ratifying Matters that Should have Been Approved in the Past

Sometimes it comes to the attention of the directors that a certain matter should have been approved previously and they need to ratify the approval. In this cases, the directors would use the language:

“BE IT RESOLVED THAT the entering into of the agreement between the Corporation and John Doe, dated the 15th day of January, 2015, is hereby approved, ratified and confirmed.”

How Many Directors at a Directors Meeting are Needed for an Approval

The by-law of the Corporation determines what percentage of the number of directors must approve a resolution. In most cases it will be a majority. However, a review of the by-law should be done to determine this to be true. As well, the by-law can provide for the Chairman to have what is called a casting vote. If the Chairman has this right it means that in the case where there is a tie on the issue in question, the Chairman has the right to add an additional casting vote to make the final determination.

How to Terminate a Directors Meeting

When all matters have been presented to the directors, the meeting can be terminated. A director will move for the termination, another director will second the motion and the Chairman will confirm the approval to terminate the meeting has been carried.

Who Signs the Minutes

Both the Chairman and Secretary should sign the minutes or, in the case where the Chairman and Secretary of the meeting are the same person, the Chairman should sign.

Preparing Minutes

Subsequent to the meeting, minutes must be prepared to document the proceedings and all approvals that took place at the meeting. The minutes should document the proceedings as follows:

  • Date, time and location of Meeting
  • Confirmation of the Chairman and Secretary of Meeting
  • Confirmation of Notice having been sent to all the directors and approving all waivers of notice to be annexed to the meeting
  • Confirmation of a Quorum being in attendance
  • Approve the moving, seconding and carrying of all resolutions approved at the meeting including the complete text of all resolutions being included in the minutes.

Termination of the meeting

The Secretary of the Corporation normally prepares the minutes.

Distributing Minutes of the Directors Meeting to the Directors for their Approval

All of the directors of the Corporation should be provided with an opportunity to approve the form of minutes. Once approved, the minutes should be executed inserted into the minute book along with all attachments.