Why does a Company Need a Minute Book

Why a Company Needs a Minute Book

You would be surprised at how often a minute book will be requested for review.  Not every organization that wishes to see it has a right to see it but you may not be able to move forward with your company’s work if you cannot show them the proof they demand. Below are some reasons why a company needs a minute book.

Some Reasons Why a Company Needs a Minute Book

  • An investor’s solicitor may wish to review the minute book to assure his client that he is investing in a valid and subsisting company and may wish to ensure the documentation required to bring the investor in is documented
  • A bank may request to see the book to confirm the structure before agreeing to loan money to the company and the bank may wish to see the by-laws in order to determine what authority the directors and officers have to borrow money
  • If you wish to sell the company you will definitely be required to show that you have documented all transactions from the date of incorporation to the point of sale
  • Transferring the business from yourself to your family cannot be done unless the minute book is in order since ownership must be able to be approved by the family member.  If there is no minute book, there is no evidence of ownership
  • Real estate transactions frequently result in ownership needing to be proved and without a complete minute book this cannot be done
  • Government offices such as the Workers Compensation Board may request your minute book to prove the percentage of ownership.  If you cannot provide proof of the percentage of ownership between you and your spouse, then you may pay more tax
  • When the company purchases a vehicle the government office may request to see the minute book before agreeing to put the vehicle in the name of the company
  • If the company is audited by the government it will be requested to present its minute book
  • Cases are coming up where strangers are taking over existing small private well established companies.  The stranger changes the names of the directors and officers on the public record to the new person.  They then gain access to tax records by providing Revenue Canada with the notice of change.  Once they take over the business, they open up an office using your company’s name.  Ownership is evidenced in the minute book by the preparing of resolutions to allot shares, appoint directors and officers.  If you do not have a minute book proving ownership will be more difficult.  Your good name and goodwill could be destroyed during the time you are fighting to get your company back.

Why a Company Needs a Minute Book – Annual Returns, Initial Returns, Notices of Change 

Certain returns and filings have to be done with respect to a new incorporation, on an annual basis and when changes have occurred in addresses, directors and officers.  By law these must be documented and filed with the government. The professional who sets up your company knows what these are, will file them upon incorporation as required and let you know what will need to be done in the future.  If these filings and returns are not maintained properly your company may be dissolved for non-compliance of the laws.

Why a Company Needs a Minute Book – Extra Costs Will be Incurred 

There are many reasons why a minute book may be requested.   As you can also imagine time is usually of the essence when a minute book is requested for review and that again can increase the cost of having one set up and documented.  As well, if the company has been around for many years that can increase the cost of creating a new minute book.

Setting up your minute book and maintaining it as you go along will save you money and aggravation in the long run.

If you wish to understand more about minute books refer to What Goes in a Minute Book

Partners in a Company

If you and a business associate start a company together and down the road there are problems, if there is no minute book set up and if approvals at meetings have not been documented properly, that person may be able to leave the company with more assets than he brought in because you will not be able to prove otherwise.  Shareholders agreements are frequently prepared in addition to the set up of the minute book to ensure all parties are protected.

Lawsuits are in the courts every day over problems that occur amongst shareholders of companies.  To protect yourself you should have a minute book set up which clearly shows ownership and it is prudent to also have a shareholders agreement prepared by a competent solicitor.

Resources for Canadian Business Owners has over 30 years’ experience in setting up, maintaining and rectifying the most complex of corporate minute books.

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.

description of officer positions

Officer Position Descriptions

All companies must have at least one officer.  There are many officer positions and each of those positions comes with a standard set of duties and requirements, although duties can be varied.  Below is a list of the most common officer positions and a description of what duties and requirements come with the position.

If you require information about officers also refer to our articles called Officers Titles and Positions and Appointing Officers.

 

Chairman of the Board

  1. appointed by the board from among its members
  2. must be a director
  3. chairs all meetings of the board and presents all information and resolutions to the board for its review and decision at the meetings

Managing Director

  1. appointed by the board from among its members
  2. head of the directors and given the powers the directors wish him or her to have

President

  1. the top officer of a company
  2. if there is no Chairman he or she will Chair all meetings of the board
  3. all other officers report to the President
  4. reports directly to the board of directors
  5. oversees the entire operation
  6. does not have to be a director unless the By-laws indicate so
  7. if there is only one officer that officer should hold the position of President

Chief Executive Officer

  1. frequently the President is also the Chief Executive Officer
  2. position on par with the President
  3. reports directly to the board of directors
  4. there can only be one Chief Executive Officer (CEO)
  5. the Executive Vice-Presidents and Vice-Presidents report to the CEO and the President
  6. oversees the entire operation

Chief Financial Officer

  1. most senior financial officer that manages the financial records of the compan
  2. reports to the President and Chief Executive Officer
  3. provides the President, Chief Executive Officer and directors with the financial statements for their review and approval
  4. reports on the financial position of the company

Executive Vice-President

  1. reports to the President
  2. the duties are assigned by the President and/or Chief Executive Officer
  3. there can be more than one Executive Vice-President

Vice-President

  1. duties can be a variety including having a number of Vice-Presidents managing specific departments in a company including

Secretary or Corporate Secretary

  1. attends all meetings of directors and shareholders and records the meetings
  2. presents minutes of meetings to the directors, and shareholders for approval
  3. maintains and keeps up-to-date the minute book records for the company
  4. gathers, collates and organizes all documentation being presented to the directors by the other officers of the company for review at directors meetings

 

Treasurer

  1. if there is both a Chief Financial Officer and Treasurer the Treasurer prepares and maintains the accounting records for the company and presents the results to the Chief Financial Officer
  2. if there is no CFO, the Treasurer would prepare and present the financial statements to the directors for review and approval each year
  3. responsible for the safekeeping of securities and the disbursement of funds of the company

 

description of officer positions

Officers Titles and Positions

Officers are appointed by the directors of a corporation.  There are many different officers titles and positions that can be held by individuals.  The scope of this Articles is to explain the different positions and statute requirements relating to them.

For information about how to appoint, remove or resign an officer refer to appointing officers.

Officer Titles for Private Companies

A private company is a company which does not sell shares to the general public.  It is a company that is owned privately by one or more individuals or corporations.

The following are the customary and standard officer titles used by private companies:

President

Vice-President

Secretary

Treasurer

General Manager

These officers titles are the most popular and are limited to just a few because private companies frequently only have a few principals.  Frequently there will be one person who holds the position of sole director, officer and shareholder (owner).  In this situation he or she will normally hold the positions of President and Secretary.  In other cases there will be two people as principals of the company, one of which will hold the position of President and the other the position of Secretary.

The officers titles given to individuals in private companies do not always denote the functions they will handle. Sometimes these titles are given to individuals so each owner and director will also hold an officer position.  For instance if there are two principals then one will be the President and the other will be the Secretary.  If there are three individuals one may be the President, the other the Secretary and the third may be the Treasurer.  In the case of a fourth individual, this person may be appointed to a Vice-President position.

Officers Titles in Public Companies

In public companies the officers titles can be very different.  Frequently officers for public companies have more functions and duties and they may be supervising a department of a number of people.  Some of the common titles for public companies are:

Chairman or Chairperson of the Board

President

Chief Executive Officer

Chief Financial Officer

Executive Vice-President

Vice-President, Marketing

Vice-President, Technology

Corporate Secretary

Assistant Secretary

Assistant Treasurer

How Many Officers Must a Company Have

All companies in all jurisdictions must have at least one officer.  Normally if there is only one officer, the title that person will hold is President.

Officers Titles Can be Flexible

There is no set rule with respect to any title.  A company can designate officer titles that it wishes, however, it is always good to have a President and a Secretary.

Can a Person Hold More Than One Officers Title

Yes.  An individual can hold more than one officer position.   However, some officer positions can only be held by one person.  For instance, there is never more than one President, Chief Executive Officer, Chief Financial Officer, Secretary or Treasurer.  There may be any number of Vice-Presidents and any number of Executive Vice-Presidents.

Board Appointed Officers versus Non-Board Appointed Officers

The board of directors of a company may appoint only a certain number of officer positions that are being held.  For instance, three individuals may be owners of a company and all three of them have been appointed by the board of directors to hold those positions.  A meeting was held to appoint them or a resolution of all of the directors was signed to appoint them.  These individuals are called board appointed officers because of the manner in which they were appointed.

There may also be a General Manager or a Manager, Technology or a Manager, Office Supplies.  These positions may not be officially appointed by the board yet they are officer positions.  They would be considered non-appointed officer positions.

Public companies also may have non-appointed officers.  The larger companies will have many departments operating different services and functions.  They may appoint Vice-Presidents of those departments.  There could be hundreds of Vice-Presidents appointed.  The board of directors, in this case, would not appoint those Vice-Presidents.

Does an Officer Have to be a Director

In some cases there are certain officer positions which cannot be held by anyone unless that person is a director.  For instance, a Chairman or Chair or Chairperson of the Board and a Managing Director (depending on what the governing statute says) must be a director to hold those positions.

Most governing corporate statutes are vague with respect to officers, however, the best way to determine whether an officer position must be held by a director is to check the statute.  When a statute is silent on the issue there is no restriction.

As well, the by-laws of the corporation must also be reviewed.  Some by-laws are set up to provide that certain officer positions must be held by a director and even though there may not be a statute requirement, if the by-law indicates this then the company must abide by those by-law provisions.

If a by-law provides that an officer position must be held by a director but the statute does not say it is mandatory, then the by-law can be amended.  The statute will provide the method by which a by-law can be amended.  For Ontario companies refer to Ontario By-laws Enactment, Amendment and Repeal.

description of officer positions

Appointing Officers

This article will provide guidance on how to appoint officers of a Corporation and how resignations and removal of officers are documented.

The directors of a corporation manage the affairs of the corporation.  As part of that management the directors are responsible for appointing officers to assist them with their duties.

Directors can appoint officers at a meeting or a resolution can be signed by all of the directors appointing officers.  For more guidance on preparing resolutions refer to directors resolutions.  For guidelines on how directors can go about appointing officers at a meeting refer to directors meetings.

The statute of incorporation and the by-laws of a corporation will govern the manner in which officers can be appointed, removed or resign.

Appointing Officers

The directors initially approve the officers of the Corporation upon incorporation or each year at the annual meeting (see below for more information on annual resolutions/meetings).

An example of a resolution appointing officers is as follows:

2-Appointment-of-Officers

Resignation of Officers

When an officer wishes to discontinue working with a company, that person will resign as an officer from the position he or she is holding.  See an example of a resignation of an officer below:

1-Resignation-of-Officer

Once a resignation has been received by the directors of a corporation, they will need to decide whether they wish to appoint another officer to replace the person resigning.  Depending on the type of position, it may not be necessary to appoint a replacement.  In situations where the directors wish to appoint a replacement officer, they will prepare a resolution in the form below:

3-DR-Resigning-Officer

Remove an Officer

The general operating by-law provides the manner in which an officer may be removed.  The directors of a corporation will approve a resolution to remove the officer and appoint a replacement to that position.  Below is an example of this form of resolution:

4-DR-Removing-an-Officer

Annual Resolutions

Each year a company must approve certain matters.  Officers may be excluded from appointment and new ones brought on at this time without being removed or resigning.  For more information these approvals see annual resolutions.

For more information about officers titles refer to Officers Titles.

Notice of Change

Most jurisdictions will provide in the governing statute that a notice of change must be filed to update the government’s database with respect to changes in officers and directors.  In many cases this can be done online using a company that has access to the databases or a paper filing can be done.  Paper filings are not as reliable but in most cases they are free to file.

Statute Reference:

Business Corporations Act (Ontario)

“1(1) “officer” means an officer designated under section 133 and includes the chair of the board of directors, a vice-chair of the board of directors, the president, a vice-president, the secretary, an assistant secretary, the treasurer, an assistant treasurer and the general manager of a corporation, and any other individual designated an officer of a corporation by by-law or by resolution of the directors or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any such office;

“senior officer” means,

(a)   the chair of the board of directors, a vice-chair of the board of directors, the president, a vice-president, the secretary, the treasurer or the general manager of a corporation or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any such office, and

(b)   each of the five highest paid employees of a corporation, including any individual referred to in clause (a);”

“117.  (1)  After incorporation, a meeting of the directors of a corporation shall be held at which the directors may,… (d) appoint officers;”

“127.  (1)  Subject to the articles or by-laws, directors of a corporation may appoint from their number a managing director or a committee of directors and delegate to such managing director or committee any of the powers of the directors.  2006, c. 34, Sched. B, s. 21 (1).”

Canada Business Corporations Act

“2(1) “officer” means an individual appointed as an officer under section 121, the chairperson of the board of directors, the president, a vice-president, the secretary, the treasurer, the comptroller, the general counsel, the general manager, a managing director, of a corporation, or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any of those offices;”

104 (1) After issue of the certificate of incorporation, a meeting of the directors of the corporation shall be held at which the directors may…..(d) appoint officers;”

Business Corporations Act (Alberta)

“121. Subject to the articles, the bylaws or any unanimous shareholder agreement, (a) the directors may designate the offices of the corporation, appoint as officers individuals 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 section 115(3), (b) a director may be appointed to any office of the corporation, and (c) 2 or more offices of the corporation may be held by the same person.”

Business Corporations Act (British Columbia)

“141 (1) Subject to subsection (3) and to the memorandum and articles of a company, the directors may appoint officers and may specify their duties.

(2) Unless the memorandum or articles provide otherwise,

(a) any individual, including a director, may be appointed to any office of the company, and

(b) 2 or more offices of the company may be held by the same individual.

(3) An individual who is not qualified under section 124 to become or act as a director of a company is not qualified to become or act as an officer of the company.

(4) Unless the memorandum or articles provide otherwise, the directors may remove any officer.

(5) The removal of an officer is without prejudice to the officer’s contractual rights or rights under law, but the appointment of an officer does not of itself create any contractual rights.”

The Business Corporations Act (Saskatchwan)

“116 Subject to the articles, the bylaws 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 (3) of section 110; (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.”

The Corporations Act (Manitoba)

“99(1).  After the issue of the certificate of incorporation, a meeting of the directors of the corporation shall be held at which the directors may…..(d) appoint officers;”

By-law Provisions Regarding Officers

An example of a clause in a general operating by-law which governs how officers are appointed is as follows:

Appointment – The board may from time to time designate the offices of the Corporation, appoint officers (and assistants to officers), specify their duties and, subject to the Act or the provisions of any unanimous shareholder agreement, delegate to such officers powers to manage the business and affairs of the Corporation.  A director may be appointed to any office of the Corporation.  Except for the chairman of the board and the managing director, an officer may but need not be a director.  Two or more offices may be held by the same person.”

An example of a clause in a by-law which provides for the removal or resignation of an officer is as follows:

“ Term of Office (Removal) – In the absence of a written agreement to the contrary, the board may remove, whether for cause or without cause, any officer of the Corporation.  Unless so removed, an officer shall hold office until his successor is appointed or until his resignation, whichever shall first occur.”

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.

Director and Shareholder Resolutions

Resolutions for Ontario Companies – Directors Resolutions | Shareholders Resolutions

Resolutions for Ontario companies are governed pursuant to the Ontario Business Corporations Act.

 

What is a Resolution

A resolution is a form of approval.  It can be to approve any matter that the corporation wishes. Some examples are approval of the change of registered office address of a company, approval to amend the articles of a company, approval to enact by-laws of a company, etc.

 

Resolutions are Approved by Directors or Shareholders

In some cases, certain matters must be approved by the directors and in other cases it may be that shareholder approval is required.  For instance if the company wishes to change its name from one alpha name to another alpha name the shareholders must approve this change before it can be implemented.  If a company wishes to enter into an agreement, the directors would approve the matter.  In some cases, both directors and shareholders may need to approve a resolution.

 

How Are Directors Resolutions and Shareholders Resolutions Approved

Resolutions can be approved at meetings of the directors or shareholders, pursuant to which every director/shareholder has been given notice of the meeting, and for which at least a quorum of those directors/shareholders showed up for the meeting. (i.e. the minimum number of directors/shareholders that can form a quorum is outlined in the company’s by-law and frequently is a majority).

Resolutions can also be approved without holding a meeting as long as all of the directors or shareholders, as the case may be, sign and approve a written resolution.

 

What Types of Resolutions are There

There are three types of resolutions:

Directors Resolution – This is a resolution that is either (a) passed by a quorum of directors at a meeting held to approve it, or (b) a resolution in writing signed by all of the directors.

Shareholders Resolution – This is a resolution that is either (a) passed by a quorum of shareholders at a meeting held to approve it, or (b) a resolution in writing signed by all of the shareholders entitled to vote.

Special Resolution – A special resolution means a resolution that is (a) submitted to a special meeting of the shareholders of a company duly called for the purpose of considering the resolution and passed by at least 2/3rds of the votes cast at the meeting, or (b) consented to in writing by each shareholder of the company entitled to vote.

What Does a Resolution Look Like

We have included an example of a resolution on this page.  There is always a heading on the resolution and a footer which shows the signatures.

The Heading should say either (a) Resolution of the Directors, or (b) Resolution of the Shareholders, or (c) Special Resolution as the case may be.

The footer should reference that all of the directors or shareholders are signing and the name of the statute that they are relying upon.

 

How do You Know Whether the Directors or Shareholders Must Approve a Particular Matter

The Ontario Business Corporations Act is online and can be searched to find out what type of approval you need for a matter.  For instance, let us say that you are changing the directors of a company by increasing the number.  If you search “number of directors” you will find section 125(3) which indicates that the number of directors is determined by special resolution.

director resolution

 

dividend resolution

Declaring a Dividend on Shares of a Company

Dividends are payments declared by the directors of a company which are paid to the shareholders (owners) of a private or public company out of the profits of that company.  When declaring a dividend the dividend must be declared equally to all shareholders of a class of shares and are paid out to each shareholder in proportion to the number of shares held.

When declaring a dividend, dividends can be paid as money, shares, warrants or property.

The directors of a company will pass a resolution at a meeting of the directors or by a resolution signed by all of the directors declaring a dividend to the shareholders of a specific class of shares.

Example of a Dividend Calculation

Below is an example of how a dividend is calculated and declared:

  • Declaring a Dividend in the aggregate amount of $10,000
  • The company has 2 shareholders with 100 issued and outstanding shares.
  • Shareholder #1 owns 40 shares.  Shareholder #2 owns 60 shares.
  • Shareholder #1 will receive $4,000 in dividend profits
  • Shareholder #2 will receive $6,000 in dividend profits
  • The dividend per share is equal to $100

Relevant Dates When Declaring a Dividend

  • The date the dividend is being declared payable.  Dividends cannot be declared payable in the past and this date must be either the same date of the resolution approving the dividend or for a future date.
  • The date upon which the shareholders of record is determined.  This provision comes into play more for public companies since shares for those companies regularly trade and the number of shareholders changes from day to day however even private companies must follow the same rules.  A record date must be determined when declaring a dividend and the only shareholders who would receive the dividend would be those who were shareholders of record on that particular date.  This prevents a shareholder who held shares in the company prior to the declaration of the dividend having a right to a dividend declared after he or she is no longer a shareholder.
  • The date of the directors resolution approving the dividend.  Frequently resolutions are left undated but it is very important when declaring a dividend to include the actual date the resolution was approved so that it is very clear that the dividend is being declared for a current or future date.

Which Classes of Shares are Eligible for Dividends

Common shares have the automatic right to receive dividends, however, preference or special classes of shares are only entitled to receive dividends if the Articles of the Corporation provide for it.   As well, there may be certain terms outlined in the Articles to be considered when declaring a dividend on special or preference shares.

 

Statutes Governing the Declaration of Dividends in Canada

Income Tax Act (Canada) deals with dividends in several different sections and it is a good idea to discuss dividends with your accountant before declaring them since there are tax consequences upon declaration of a dividend.

 

Approval for declaring a dividend is governed by the companies act or corporations act in each individual province or territory of Canada.  The various corporation statutes across Canada will provide either some or all of the following provisions:

A corporation shall not declare or pay a dividend if there are reasonable grounds for believing that (a) the corporation is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities and stated capital of all classes.

A corporation may pay a dividend by issuing fully paid shares of the corporation and a corporation may pay a dividend in money or property.

If shares of a corporation are issued in payment of a dividend, the declared amount of the dividend stated as an amount of money shall be added to the stated capital account maintained or to be maintained for the shares of the class or series issued in payment of the dividend.

Solvency Test When Declaring a Dividend

Most statutes will have a solvency test that must be met before any dividend is issued.    The company must not be insolvent and a dividend must not be declared if it would render the company insolvent thereafter.

Resolutions to Approve a Dividend

Example of a Resolution to Approve a Regular Dividend for Money:

“BE IT RESOLVED THAT a dividend in the aggregate amount of $** payable to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation is declared payable on [declaration date] to the shareholders of record of the Corporation as of [record date].

Any director and/or officer of the Corporation be and is hereby authorized and directed from time to time to execute and deliver all documents, agreements or other writings, whether under the corporate seal of the Corporation or otherwise, as may be necessary or advisable, and to sign for and in the name on behalf of the Corporation all such documents and writings and to take all such steps as in his or her opinion may be necessary or advisable for the purpose of giving effect to the foregoing.”

Certificates of Status for Canadian Companies

Example of a Resolution to Approve a Dividend for Property:

“BE IT RESOLVED THAT a dividend in the form of [described property] now registered in the name of the Corporation (the “Property”) is declared payable to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation.

Payment of the dividend shall be effected by transferring the Property now registered in the name of the Corporation to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation on [declaration date] to the shareholders of record of the Corporation as of [record date].

The amount of the dividend shall be equal to the fair market value of the Property, which is [$500,000].

Any director or officer of the Corporation is authorized and directed to do all things and executed all instruments and documents necessary or desirable to carry out the foregoing.”

Example of a Resolution to Approve a Dividend for Shares:

“BE IT RESOLVED THAT a dividend in the aggregate amount of $1,000 is hereby payable to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation on [declaration date] to the shareholders of record of the Corporation as of [record date],  such dividend to be paid and satisfied in full by the issuance to such holder(s) of the aggregate amount of [500] fully paid and non-assessable common shares.

The directors of the Corporation hereby determine that there shall be added to the stated capital account maintained for the [common] shares of the Corporation the amount of $1,000 in respect of the [500 common] shares of the Corporation issued in payment of the dividend declared.

Any one of the directors or officers is authorized and directed to do all things and execute any agreements or documents in order to effect the foregoing including the issuance of a certificate or certificates representing the [500 common] shares to the holders(s) of [common] shares of the Corporation.’

Declaring a Dividend[margin_25t]

Capital Dividends

These dividends are a different type of dividend and the rules are different.  This article is with respect to regular dividends only.  For more information about these dividends refer to Capital 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:

Capital Dividend

Capital Dividend Upon Redemption

Stock Dividend

Company Directors

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

 

When is a Certificate of Status Issued

A certificate of status can be obtained for any registered company. These certificates are not issued for sole proprietorships or partnerships or business names. Sometimes a certificate of status is called a certificate of good standing or a certificate of compliance but they are all the same type of document.

In most cases the information inserted onto a certificate of status will be the same for every jurisdiction and in Canada this is the case.

It will include the most current name of the company, the date of incorporation and confirmation that the company is in good standing.  If the person or company that has requested a certificate of good standing from you wants additional information on the certificate it may be necessary to obtain a legal opinion instead.

certificate of status

How do you Confirm  a Partnership or Sole Proprietorship is in Good Standing

The only way to do this is to order a partnership or sole proprietorship search. The search will show the buisness is active. Since there is no requirement for these types of registrations to do annual reports the only thing that needs to be in good standing is the registration itself. Some of these registrations will only last 3 years or 5 years and therefore if you have not renewed your registration you will not be able to obtain a clear search showing the registration is current.

What does in Good Standing Mean

In each jurisdiction in Canada and elsewhere it can actual mean something different. In some cases such as the federal jurisdiction and the BC jurisdiction all corporate annual returns or reports must be filed with the government in order to obtain a clear report.

These reports are required in many provinces and are to be filed annually. They are filed with the Companies Branches and they do not have anything to do with Revenue Canada filings.

A certificate of status in Canada does not confirm that federal tax returns are up-to-date, however, if the company has been dissolved by the Companies Branch for non-filing of tax returns, which normally takes 3 or four years of default filings to happen, then a clear certificate of status will not be able to be obtained.

Therefore if a few tax returns are outstanding you will still be able to obtain a certificate of status for your company as long as any corporate annual reports or returns have been filed.

 

What Goes in a Minute Book

What Goes in a Minute Book

 

Below is an detailed explanation of what goes in a minute book.  When a new company is incorporated there is a three step process:  (1) obtaining a Certificate of Incorporation, (2) setting up a minute book and, in some cases, (3) filing an Initial Return.

Many new business owners do not want to pay to set up a minute book for their company.  Since they are able to open up a bank account without showing a minute book they will forego having a book prepared.  This can be problematic in the future. For more information refer to Why a Company Needs a Minute Book.

 

Minute BookSetting Up Your Minute Book

The very first documents that are included in the minute book are called the “organizational documents of the company”.  The documents that will be prepared and inserted in the minute book will be:

General Operating By-law – A by-law is a list of rules.  Some of the things that you will find in a by-law are:

  1. How many people must attend at directors and shareholders meetings for the meeting to be validly called
  2. What the procedure is for calling directors and shareholders meetings to ensure it is a valid legal meeting
  3. How many votes are required to approve an item of business at a directors or shareholders meeting
  4. Which directors and officers can sign agreements on behalf of the company and obligate and bind the company under those agreements
  5. What is the procedure for removing a director or officer of a company
  6. How is an officer or director replaced or new officers and directors appointed
  7. Who can borrow money upon the credit of the company

A general operating by-law in most cases sets out the provisions of the statute governing the company but some of those provisions can be varied for the particular circumstances.

All companies must have a general operating by-law which is enacted by the directors and confirmed by the shareholders.   If you obtain a general operating by-law for your company you will be able to determine how to conduct business properly.

If meetings are held that violate the legal requirements for a meeting you could have issues with this in the future and in particular, in the case where a director or shareholder is objecting to an approval that was put through.  If the approval at a meeting was not documented or documented incorrectly it could invalidate that approval and you may be forced to set aside that resolution.

In some provinces the general operating by-law provisions are included as part of the Articles of the company in a document called a Memorandum of Association.

 

Borrowing By-law – This by-law provides who has authority to borrow on behalf of the company and normally provides for the directors and officers to have this right.  Banks frequently wish to see this by-law if the company wishes to borrow money.

Need a By-law?  Purchase a Microsoft Word Version of By-law.

First Directors Resolutions – The individuals who agreed to be the first directors on the articles of incorporation have a legal obligation to approve certain things right after incorporation including:

  1. Appointing the officers
  2. Allotting shares and confirming the amount paid for those shares
  3. Enacting the general operating by-law

Once the first director has approved these matters he can then resign if he wishes or he can continue as a director of the company.

First Shareholders Meetings – There cannot be a first shareholders meeting until the shares have been allotted.  As indicated above the first directors allot the shares to the shareholders.  A shareholder (owner of a company) does not have to be a director and a director does not have to be a shareholder, however, frequently the owners of a company also wish to manage the company so they will be both a shareholder and a director.  Some of the items approved at the first shareholders meeting are:

  1. Determine how many directors there will be
  2. Appoint the Auditor or the Accountant
  3. Accept any resignations of the first directors and confirms the appointment of all directors

Consent to Act of directors – Directors need to consent to act as directors and this consent must be signed and inserted into the minute book of the company.  This ensures that a director is not elected to the board of directors and his name is not put on the public record without his or her consent.

Exemption from Appointment of an Auditor – Most private companies are not required to have audited books.  However, in many cases the statute governing the Canadian company will require that the shareholders approve an audit not being performed.

Registers – All statutes have a requirement that registers be prepared for a company.  The registers you will find in a minute book are:

  1. Directors Register – lists the dates of appointment and resignation of each of the directors and their addresses
  2. Officer Register – lists the dates of appointment and resignation of each of the officers, the positions they hold in the company (i.e. President, Secretary, Vice-President) and their addresses
  3. Shareholder Register – lists all of the individuals or companies that hold shares in the company, the number of shares they own and the date they received those shares.  It also records when shares are returned to the company or transferred to other individuals or companies
  4. Shareholder Ledgers – Each shareholder will have a ledger showing the date upon which he or it received shares, how many shares were allotted and the reason why those shares were allotted.  It will also show when those shares are transferred to others, if applicable.

Forms – All companies must file returns with the particular Canadian government under which they are incorporated.  When changes to directors and officers occur the government will expect you to provide them with an amended form showing all current addresses.  This section of the minute book contains a record of all filings made to the government.  It does not typically contain tax returns but you can store any documents you wish in a minute book.

Example of Share Certificate
Example of Share Certificate

Share Certificates – Every shareholder has a right to a share certificate.  This certificate evidences ownership.  If you have not set up a minute book for your company you will not have any proof of ownership.

 

Maintaining a Minute Book for a Company

After the initial “organization of the company” there may be circumstances where there may have to be changes to the structure.  Some of the circumstances where changes may occur are:

  1. A new by-law may need to be enacted such as a by-law to vary the borrowing rights of the company
  2. New investors may be needed to move the company forward and those investors may wish to hold shares in the company
  3. A director may resign and a replacement may need to be elected or new directors may be brought on because a new shareholder wants to be a director as well
  4. The company may wish to enter into a major transaction and the directors may need to approve the form of agreement respecting same
  5. A shareholder may wish to leave the company and will want to transfer his shares back to treasury or transfer the shares to the other shareholders on a prorated basis
  6. The company may wish to conduct business in other jurisdictions in Canada or countries outside of Canada and those governments may request the directors to approve the registration

 

For information on directors meetings refer to How to Conduct a Proper and Legal Directors Meeting.

 Buyer Beware – Blank Minute Book

We all like bargains.   There are services on the market which claim to provide you with a completed minute book for a reduced price.  What you are given is a book with a number of blank resolutions, blank registers and blank share certificates.

In some cases you will be provided with the resolutions and the by-law but they will not be filled out and you will be left with trying to figure out how to complete them properly.  In many cases there will be no instructions for this.

When you purchase a minute book be sure to ask what you are getting.  The organization and set up of a company does cost a bit of money because it takes a number of hours to put together.  The questions you should ask are:

  1. Will there be a by-law?
  2. Are there resolutions in the package which will show the actual names of the directors or officers or do the resolutions have blanks in them for insertion of the names?
  3. Are you provided with a questionnaire which asks (1) who will the officers be, (2) who will the shareholders be and how many shares will be held which would indicate the company is setting up the company properly?
  4. Will the registers be filled in with the proper individuals’ names?
  5. If the resolutions will have blanks for names and numbers of shares will there be an instruction sheet included?

Depending on what you feel confident about doing, price shopping should be considered to ensure that the product you are receiving warrants the price paid in comparison to the different types of packages you can buy. i.e. the price of a blank minute book should be much lower than the price of a personally completed minute book.

 

If you are provided with no by-law and no resolution templates then you will need to understand how to complete the documents from scratch.

If you are provided with a by-law and resolutions with blank spaces for names, then you will need to be confident enough to fill in those blanks.

In the long run it is easier to have someone skilled at completing the documents for you.

 

If

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.

share-capital

Share Capital

 

There are two methods of describing share capital.  There is Authorized Share Capital and there is Issued Share Capital.

What is Authorized Share Capital

A definition of authorized share capital would be the number and class of shares for which an incorporated company is authorized to issue.  When a company is incorporated it must set out in its Articles of Incorporation what shares the company will be authorized to issue.  A company cannot issue shares of a specific class unless its Articles indicate so.

Examples of Authorized Share Capital as Outlined in Articles

Examples of the wording in the Articles relating to authorized capital would be “an unlimited number of common shares”.  This means that there is no limit as to how many common shares can be issued.

Another example of authorized share capital would be 1,000 Class A preference shares.  If a company’s Articles indicate 1,000 Class A preference shares as part of the authorized capital, this means that the company can only issue 1,000 shares of that class.

Where a corporation has share capital consisting of one class of shares those shares are normally called common shares.

What is Issued Share Capital

Ownership of a company is divided into shares which is sometimes called stock.  The issued share capital of a Corporation is the total of the corporation’s shares that are held by shareholders.  Shares can only be issued up to the full amount of the authorized share capital.  When a shareholder wishes to buy shares in a company, it is said to be subscribing for shares.

An example would be a 50/50 ownership where one person is allotted 50 common shares for $1.00 per share and the other person is allotted 50 common shares for $1.00 per share, creating an equal ownership in the company. The issued share capital would be 100 common shares.

Another example would be:

John Doe                      51 voting common shares

Susan Doe                    49 voting common shares

John Doe would be said to be the majority shareholder because he holds more than 51% of the issued and outstanding common shares and the issued share capital consists of 100 common shares.

How are Shares Issued

Shares can be issued for cash, in exchange for property or in exchange for services, however, the consideration for the allotment of shares must be paid at the time the shares are issued.  Shares cannot be issued for a promise to pay.

Different Names for Authorized Share Capital

Below is a more detailed list of some of the different types of shares that can form the authorized share capital:

Common

Special

Preference

In the case where a class of shares has multiple subclasses of the same class of shares you may see the following types of shares included in the authorized share capital:

Class A common, Class B common, Class C common

Class A special, Class B special, Class C special

Class A preference, Class B preference, Class C preference

There is no set rule for naming different classes of shares.  Above are some of the standard names that are used.

 

Need a Template for Share Capital?

We have a variety of templates to choose from:  Purchase Share Capital

 

What are the Share Attributes

Different classes of shares can be created for many reasons. Each class of shares has its own share attributes.  Those attributes are created to provide that when a person/business subscribes for a specific class of shares of a company, those shares will have certain rights and conditions attached to them that the corporation is obligated by law to honour.

The authorized capital of a corporation and the attributes for the authorized shares can be amended upon occasion by filing articles of amendment.

The attributes of a class of shares are the rights, privileges, restrictions and conditions attaching to a class of shares.

For instance, one class of shares may have the right to one vote per share, while another class of shares may have the right to vote where the shareholder would have 100 votes per share, and still another might have a restriction on voting and have may have no voting rights at all.

Depending on what the person/business’s relationship will be with the company will govern what type of shares will be issued to that person.

 

Standard Share Attributes

If a corporation has only one class of shares those shares are normally designated as common shares.  In this case, those common shares automatically have the following three rights:

The right to vote – The standard voting provisions, unless varied in the Articles, is one vote per share.  Therefore, if one person holds 100 common shares and another shareholder holds 50 common shares, the person that holds 100 common shares has more voting power.

The right to the remaining assets upon dissolution –  This means that if a company is going to wind up and dissolve, when it disburses the remaining assets of the Corporation, the common shareholders will receive this property, if any, in proportion to the number of shares owned in the Corporation.

The right to discretionary dividends – If a company wishes to declare a dividend, the common shareholders shall have a right to receive such monetary dividend equally with all other common shareholders in proportion to the number of shares held.

In the case of one class of shares and depending on the legislation of the particular jurisdiction (i.e. province, country, state, etc.), the Articles do not actually have to outline those three rights because they are “understood” rights.  If a corporation were to outline the standard common share rights in the Articles, the language would be as follows:

Dividends – Common Shares  – The holders of the common shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the board of directors of the Corporation out of the moneys of the Corporation properly applicable to the payment of dividends, such non‑cumulative dividends as the directors may from time to time determine.

Participation in Assets on Dissolution- Common Shares  – The holders of the common shares shall be entitled to receive the remaining property of the Corporation upon dissolution of the Corporation.

Voting Rights – Common Shares  – The common shares shall entitle the holders thereof to one (1) vote in respect of each common share held at all meetings of the shareholders of the Corporation.

When a Company has more than One Class of Shares

If a corporation has more than one class of shares then these rights can be varied and additional rights can be added since special or preference shares frequently have additional rights in addition to the three rights given to common shareholders.  In the case of a corporation that has more than one class of shares those attributes and rights must be clearly set out in the Articles of Incorporation and/or Articles of Amendment for the corporation.  There are many attributes and conditions that can be attached to shares.  As well, different priority rights can be given to one class of shares over another.  However, below is a summary of some of the common share attributes given to special or preference shares.

Right to Redemption by the Corporation – Redeemable shares are shares that can be repurchased by the Corporation from the shareholder who owns the shares. Usually redeemable share attributes will specify the amount per share which the shareholder will be paid when the shares are redeemed and the method pursuant to which the corporation may request the shares be redeemed.  The corporation has the right to take these shares back regardless of whether the shareholder wishes to have its shares redeemed.  Common shares are not redeemable.  Once those shares are redeemed by the corporation, that shareholder no longer has any rights to those shares.

Right to Retraction by Shareholder – In a case where a shareholder holds special or preference shares, if the shares have the right to be retracted, the shareholder will have the right to request the corporation to redeem (or buy back) his or her shares and to pay that shareholder the amount each share is worth as outlined in the Articles.  The corporation cannot refuse to buy back the shares if it is requested to do so.  Common shares are never retractable.

Rights to Voting and Non-Voting – Shares can be either voting or non-voting.  Non-voting shares limit the manner in which a class of shares can be involved in a company’s day to day business.  In certain cases a person/business may not wish to have voting rights or the current owners of a company may not wish the person/business investing in the company to have voting rights.

Purchase for Cancellation – Redemption and retraction provisions in Articles give a company or the person who owns the shares the right to trigger a purchase or sale of the shares at a share price that is specifically outlined in the Articles.  Sometimes a company may wish to repurchase shares owned by a shareholder at a price that is different from the redeemable or retractable price.  The corporation has the right by legislation to purchase issued shares for cancellation.

Right to Convert Shares of One Class into Another Class of Shares – Sometimes there may be a provision in the Articles that provides for a specific class of shares to be able to convert their shares into another class of shares under certain circumstances.

These are only a few of the share attributes that can be given to a class of shares.

 

What Evidence Does a Person have when He or She Buys Shares of a Company

When a person/business is issued shares in a company, the company will issue that person a share certificate.  It is not always mandatory that a share certificate be issued.  Sometimes shares are issued electronically.  However, if a person/business wishes to have a share certificate issued then the shareholder has a right to receive a share certificate except in the case where a public company has electronic shares.

share certificate evidencing issued share capital
Example of Share Certificate

Who Has the Right to Own Shares in a Corporation

Shares of a corporation can be issued to a person, to another corporation, to a trust, to a partnership, etc.

 

Need a Template for Share Capital?  

We have a variety of templates to choose from:  Purchase Share Capital

continuance

Continuance – Moving Your Company to Another Jurisdiction

A company is said to have continued when it has moved from one jurisdiction to another.  For instance, if a company moves from the province of Ontario to the province of Alberta, this would be considered to be a continuance.  Alternatively, if a company moves from Bermuda to the province of British Columbia this would also be a continuance.

A continuance can be described as the procedure by which a company governed by the corporate laws of a certain jurisdiction ceases to be governed by those laws and becomes governed by the laws of another jurisdiction or by the laws of a different statute in the same jurisdiction.

it is not enough for a company to change its address to the new location.  It must obtain permission from the Companies Branch in its current jurisdiction to leave and then obtain permission from the Companies Branch in the new jurisdiction to come into that location.  There will be numerous requirements from both jurisdictions in order to do this.

 

Definition of the Jurisdiction of a Company

The jurisdiction of a company is the place in which it was incorporated, amalgamated or continued.  The jurisdiction of a company can be a province, a State, or a country.

In Canada companies can be incorporated, amalgamated or continued in any province or territory of Canada and, as well, in the federal jurisdiction.

In the United States of America, companies can be incorporated, amalgamated or continued in any of the States.

In other countries such as Bermuda, Barbados, etc. companies are incorporated in those countries.

 

Can a Company Move to Any Jurisdiction

In most cases, a company can move anywhere it wishes.  It can move from a province or territory to another province or territory within Canada.  It can also move from a province or territory in Canada to a State in the United States.  It can as well move from a province or territory in Canada to another country.  In some cases, the laws of the jurisdiction will not allow for a continuance to occur.

 

Exporting and Importing a Business from One Jurisdiction to Another

When a company wishes to leave its current jurisdiction it is said to be “exporting” from its current jurisdiction and when it enters the new jurisdiction it is said to be “importing” into the new jurisdiction.  If for instance a company was moving from Bermuda to the province of Ontario, it would be said that it was exporting from Bermuda and importing to Ontario.

Exporting-a-Company-from-Ontario-to-Barbados-Continuance
Exporting a Company from Ontario, Canada to Barbados – Continuance

Continuance
Importing a Company from Illinois, USA to Ontario, Canada

Statute Requirements to Continue into Another Jurisdiction

It is important to understand that when a company is exporting from a jurisdiction there are certain requirements for this to be approved and when it imports into another jurisdiction there are requirements for importing as well.

When considering exporting from a jurisdiction, the governing statute of the company in its current jurisdiction must be reviewed to determine what the requirements are for exporting to another jurisdiction and, as well, the statute requirements of the importing jurisdiction must also be reviewed.  It is a two-step process.

It will depend on where the company is leaving from and where the company is going to as to what those requirements are.

 

Tax Considerations

One of the main statute requirements for exporting a company is to ensure all taxes have been paid and that the company is in good standing with its corporate filings.  For instance, all tax returns must be filed, assessed and any outstanding taxes must be paid. Further, all corporate annual return filings which may be required by the Companies Branch must be up-to-date.  Each jurisdiction will request verification of these matters in its own format.

Confirmation from those departments may be required in the form of a consent letter from the tax department and/or a Certificate of Status (Certificate of Good Standing) from the Companies Branch in that jurisdiction.

 

Amendments to Articles Upon Continuance

It is possible with the right approvals to make changes to a company’s charter upon continuance.  In some cases, the Articles will need certain modifications to abide by the the laws of the importing jurisdiction.

 

What Happens Upon Continuance – Organizing the Company in Its New Jurisdiction

Once a company has been continued into the new jurisdiction, it must inform the old jurisdiction that it has moved.  The reason for this is that although the old jurisdiction has consented to the continuance, there is no way for the old jurisdiction to know when that continuance occurred so it is usually mandated by law that the company provide the old jurisdiction with a copy of the Articles of Continuance.

 

Organizational Resolutions.

Another requirement would be for the company to pass organizational resolutions to re-state the directors, officers and shareholdings of the company as of the date of continuance.

Operating By-laws

New general operating by-laws and possibly borrowing by-laws will need to be enacted by the directors and confirmed by the shareholders upon continuance since the current by-laws of the company would have been passed pursuant to the laws of the exporting jurisdiction.  The laws of every jurisdiction require by-laws to be put into place pursuant to the laws of that jurisdiction.

Continuing from an Province or Territory in Canada to the Federal Jurisdiction

Sometimes companies wish to continue into another jurisdiction for other reasons besides an address change.  A provincial or territorial company in Canada may wish to change to the federal jurisdiction in order to conduct business right across Canada.

There is a misconception that if a company registered in Canada wishes to conduct business across Canada, it must register in the federal jurisdiction and once registered it automatically has the right to carry on business everywhere in Canada.

It should be realized that any company registered in Canada, in any province or territory, can conduct business in any other province or territory without registering federally.  It would extra-provincially register in the other provinces/territories.

A Federal company incorporated in Canada must register in the province in which its registered office address is located.  If a Federal company wishes to conduct business in other provinces and/or territories in Canada it must register extra-provincially in each of those provinces and/or territories in order to conduct business.  Each jurisdiction in Canada has its own definition of carrying on business in Canada which should be reviewed before registering since it can be expensive to register and there are annual registration costs.

One of the few benefits of continuing from a province or territory to the federal jurisdiction is that the name of the company is cleared throughout Canada and there is a little bit more protection for the name.  If the federal company wishes to register extra-provincially it usually gets an automatic name clearance if its home jurisdiction is federal.

In light of the above limited benefits to continuing into the federal jurisdiction, it should also be noted that the federal government clears the company names very carefully and it is possible that the current name of your company will not be accepted in the federal jurisdiction.  In that case the company would either have to change its name or stay in its home province/territory and register extra-provincially in any other provinces or territories as it wishes.