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Do you know your corporate responsibilities once you incorporate your corporation?

 If not, do you know the risks?

Congratulations! You have incorporated a corporation!  You searched the name to make sure no one else had it, you selected the name, you determined the share structure and then you filed the Articles of Incorporation.   It feels so good to be done with the paperwork!

Wait! Are you sure you are done? Not so fast…

Recently, I have come across several small successful businesses run by both savvy entrepreneurs or professionals.   One thing they all had in common?  They did not know about their legal requirement to prepare directors’ and shareholders’ resolutions (organizing or annually), what it meant to organize their corporations, or what a Minute Book was.  Some of them did not know what a resolution was.

This article is for you if you are asking:

  • What is the risk to my business if I don’t follow these requirements?
  • How does it benefit my business if I do them?
  • What do these terms mean: directors’ resolutions, shareholders’ resolutions, organizing a corporation, and Minute Books?
  • How do I eliminate these risks to my business?

1. Let’s start with the risk: What is the risk to your business if you don’t organize your corporation, prepare the required annual resolutions or have a Minute Book?

Failure to do so can have many negative implications for a business such as:

  • Failure to meet ongoing legal obligations under either the Ontario Business Corporations Act or the Canada Business Corporations Act (collectively the “Acts”). Under the Acts, the corporation is required to have one shareholders’ meeting and one directors’ meeting in a twelve-month period.  Certain decisions taken by the corporation must have shareholders’ approval; some special decisions must have super majority approval to be valid.  Properly-written resolutions can help you meet these legal requirements.
  • Canada Review Agency (CRA) audits/ penalties. For example, if your corporation is paying a shareholder money as a dividend instead of salary, and there is no paperwork to support this, you could have an issue with the CRA and the shareholder may have to pay more in taxes (dividends are taxed at a different rate than salaries and/wages) and/or face penalties.
  • Turning away potential buyers of companies. When potential buyers (or their lawyers or accountants) do due diligence on your business, one thing they will ask to see is the Minute Book. An incomplete or non-existent Minute Book could be a red flag to them that corporate governance is not taken seriously in your corporation. The corporation will also spend a lot more money in legal fees to have the Minute Book brought up to date on a “RUSH” basis.
  • Not being able to meet the corporation’s obligations to its shareholders. Under the Acts, each shareholder has the right to see (parts of) the Minute Book. All the shareholders’ resolutions and many other corporate records must be kept in the Minute Book and be available for inspection by shareholders.  Generally speaking, directors’ resolutions are also kept in the Minute Book, but they are not made available for shareholder inspection.
  • Challenges from other shareholders of past or current decisions. Sticking with the example of dividends, what if you had put in a lot of work in your corporation and the other shareholder(s) and director(s) agreed to give you a bigger dividend than the other shareholders.  Then, 1-2 years later, a disgruntled shareholder asks to see the Minute Book and says that there was no resolution granting you the dividend.  Could they accuse of you having improperly taken the money from the corporation?

 

2. How does it benefit my business if I do them?

In brief, you will:

  • Meet your legal requirements to have these documents in place and up to date.
  • Reduce or eliminate potential issues with CRA for failure to have these.
  • Demonstrate good corporate governance to your stakeholders (ie, banks, potential investors or buyers, etc).
  • Build discipline into how you make and record business decisions. This is good business practice that is also good for business.

 

3. What are these: directors’ resolutions, shareholders’ resolutions, organization of a corporation, and Minute Books?

Resolutions: Directors’ Resolutions and Shareholders’ Resolutions

Resolutions are, in essence, formal written documents that are required to document the corporation’s important decisions.  They are signed (and dated) by a majority (or more) of either the shareholders or directors of a corporation, depending on the topic.

Organizing a Corporation

Once you incorporate your business under the applicable Act, it needs to be organized within a certain amount of time.

Organizing means setting up the initial and key business frameworks and decisions, such as:

    • approving the company by-laws
    • the shareholders electing the directors, and directors’ consents
    • the directors appointing the officers
    • the shareholders appointing the auditors (or waiving this) and appointing the accountants
    • determining who has authority to do the company’s banking
    • setting the company’s year-end
    • issuing shares
    • determining how many directors there will be
    • and so forth.

Annual Resolutions

Every year after the initial organizing resolutions are done, the corporation’s directors and shareholders must issue annual resolutions.  The annual resolutions cover topics such as:

    • approval of financial statements
    • appointment of auditors (or waiver) and appointment of accountants
    • election of directors (by shareholders) and appointment of officers (by directors), and each director’s consent to act as a director (directors have liability for the acts of the corporation)
    • any transfer of new issue of shares
    • dividends
    • changes to the items in the organizational resolutions
    • special resolutions (where required by law)

Minute Book

While a Minute Book is not a specific requirement, it is something that most (if not all) corporations have.

A Minute Book is a book (basically a special binder) that holds all of the resolutions mentioned above, as well as list of shares and when they were issued (share register), a list of when directors were elected and/or resigned and officers were appointed and/or resigned, (director register and officer register), the bylaws, etc.

Many corporations leave the Minute Book with their lawyer or accountant, many of whom now store the Minute Book in a cloud-based services.

As noted above, shareholders of a corporation are entitled to see many of the above-noted documents, but not the directors’ resolutions.  In a future blog, we will talk about when the shareholders and the directors are the same people, as is often the case in small, closely-held corporations.

 

4. How do I eliminate this risk?

If your corporate records, organizing or your annual resolutions are missing or are deficient, you will need to update your records.  How can you do this?  Where there are deficiencies it is best to speak to a lawyer that practices corporate law.

In some simple cases it may be possible to do one overall resolution to rectify the deficiencies; for example, if the corporation never issued any dividends or where the company has always had the same directors and officers.

Where corporate matters are more complex, such as related to issuing shares following the initial offering, redeeming or cancelling shares, or issuing dividends, the resolutions for those transactions will be more complex and will most likely need to be done on a year by year basis. Other measures may also be required.

The best way to protect your business is by understanding and protecting yourself from business risks.

Let us know if we can help you.

 

Today’s blog was co-authored with Colleen Peffers of Peffers Law (http://pefferslaw.ca/)

Amee Sandhu has been a business lawyer in Ontario for 20 years.  She created Lex Integra Professional Corporation in 2019 and focuses exclusively on business law and corporate ethics.  

In her current practice Amee advises clients on commercial, corporate, integrity, anti-corruption, ethics and compliance, and supply chain risks. 

Lex Integra:

Understand your risks. Perform with Integrity.

The purpose and contents of this blog is to provide information only, and it does not constitute legal advice.  Reading this blog does not create a solicitor-client relationship between the reader and Amee Sandhu or Lex Integra. It is recommended to engage (hire) a lawyer if you require or are interested in legal advice.

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Is it still a man’s world?

sandra

I watched Get on Up, the movie based on James Brown’s a few months ago.  As I watched him sing This is a Man’s World it made me wonder if this is still the truth, especially after recently celebrating International Women’s Day.  Of course, the song continues that the world would be nothing without a woman or a girl, but it still begs the question, are men still the one’s in control?

I think we are seeing a shift that may change the way James Brown would see the world today if he were still alive.  While we still aren’t seeing enough women in the boardrooms of the corporate world, I see a lot more of us deciding to leave the corporate culture altogether and do their own thing.  I’m not going to quote statistics here, but I’m pretty sure that the numbers of women starting their own businesses are on the rise.

When I go to networking events, I see more and more women out there promoting businesses that they are passionate about.  Whether they are doing direct sales or starting a business from the ground up, more and more women are realizing that the usual 9-5 isn’t going to give them the lifestyle that they want.  We all want more freedom, more time to do the things that are important to us, while earning an income that allows us to do it comfortably.

While many still consider becoming an entrepreneur to be a risky endeavor, it is also one of the most gratifying.  What is so great about the abundance of women entering the world of entrepreneurship is that you don’t have to look very hard to find support and encouragement along the way.  There are a lot of women out there who are trying to change the way we do business.  No one is denying the importance of being mindful of your bottom line at all times, but there is more to business than making a profit.  It’s about fostering long-term relationships and coming from a place of service rather than focusing solely on the sale.

I’m curious to see where the next 10 years will take us.  Will the number of female entrepreneurs continue to increase, or will we see a plateau?  Personally, I believe that as more women become entrepreneurs and achieve success, they will inspire more of us to do the same.  I think it’s up to us as existing business owners to support and encourage those who are considering entering the world of entrepreneurship.

I believe the most important thing is to be honest about the journey.  Don’t sugar coat it and paint this idealistic view of what it means to leave your full-time job and do your own thing.  This isn’t to scare anyone off, but to give them a realistic view of what’s in store.  The saying that it takes 10 years to become an overnight success isn’t an overused cliché, but the truth!

It might still be a man’s world today, but I don’t think that it will stay that way for long.  Women are taking control of their lives and their futures.  We no longer want to be bound by the limitations of a typical corporate job.  We want more, and we want to do it on our own terms.  Scary? Definitely!  Worth taking the risk? Absolutely!

Sandra Dawes is a certified life coach specializing in helping women who feel unfulfilled with their 9-5 follow their dreams and pursue their passions. She holds an Honours BA, an MBA as well as a certificate in Dispute Resolution.She has completed her first book,Embrace Your Destiny: 12 Steps to Living the Life You Deserve!
Connect:
www.embraceyourdestiny.ca
www.facebook.com/embraceyourdestiny
www.facebook.com/embraceyourdestinythebook
www.twitter.com/sandradawes

Being a Lady in the Corporate World

 

Praveeni

Business. It’s a man’s world so to speak. Being an entrepreneur is challenging enough but being a female entrepreneur is even tougher. Women in business are constantly subjected to stereotypes and double standards; this makes focusing on growing your business and watching your bottom line even more challenging.

 

Although being a female entrepreneur has its challenges it is not without its perks as well.  It’s always nice to have doors opened for you or to get to sit first at business lunches. However the biggest obstacle women in business face is not earning respect and acceptance of their male counterparts and peers, but learning to be a lady and maintain their femininity in the corporate world.

 

Here are a few words of advice I have with regards to being a lady in the corporate world :

 

1. Dress appropriately

Never dress in a provocative or revealing manner. Marilyn Monroe said it best

“your clothes should be tight enough to show you’re a woman but loose enough to show you’re a lady”

 

Avoid any skintight clothing or plunging necklines that might garner you the wrong kind of attention.  Stick to business attire such a business suit or dress for formal meetings and conservative casual attire for weekend meetings. A lady should be well put together so don’t be afraid to add in accessories such as a necklace or bracelet.  If in doubt always opt for a more conservative look.

 

2. Mind your language
No matter how tempting it may be resist the urge to curse, swear or hurl insults.  Using coarse language will ruin a polished image and make you seem unprofessional and crass. If you are subjected to profanity or insults do not retaliate or engage in a altercation simply walk away.

Remember:

“Profanity is the effort of a feeble brain to express itself forcibly.” – Spencer W. Kimball

 

3. Don’t take things personally

In business and in life not everyone will like you or agree with you or the way you do things. You will be faced with negativity. The key is not to get offended. Getting offended and angry never solves anything; in fact it just causes you more aggravation and frustration. If someone doesn’t like you or what you do don’t try to change their mind. It’s just their opinion and it doesn’t determine your success or self worth.

 

4. Show your appreciation

When someone goes out of their way for you, say thank you. Show your appreciation by calling them (yes I said actually calling them and speaking to them) on the phone or sending them a hand written (not typed) thank you note. You can also go one step further and treat them to coffee or lunch. Sometimes sending a text or email just isn’t personal enough.

 

5. Learn to be gracious
Being gracious is one of the key components of being a lady. Whether in business or in your personal life treating others with respect and dignity will never make you seem weak or small. Although the business world is competitive and sometimes ruthless, a little kindness and courtesy goes a long way.

 

“I think sometimes it’s more important to be gracious than to win “ – Dorothy Kilgallen

 

6. Know your table manners
 Table manners are extremely important in the corporate world as you will be attending business lunches and dinners. Knowing which fork to use and how to behave at the table is as crucial to your success as knowing your product.  If you are unsure about your table manners or etiquette in general investing in etiquette and protocol training is strongly recommended. When it comes to etiquette never assume, always ask an expert.

 

“The world was my oyster but I used the wrong fork” – Oscar Wilde

 

7. Expect respect but don’t demand it

As a woman in business you should expect respect from your peers and counterparts, but to expect it you have to earn it not demand it. You can earn respect in the way you act and how you run your business. Know your product, who you’re selling to and why you’re in your chosen field of business. Never demand or force others to respect you and worship you.

 

“Being powerful is like being a lady, if you have to tell people you are, you aren’t” – Margaret Thatcher
Praveeni Perera is the CEO and co-founder of Professional Edge Consulting a corporate training company based in Ottawa offering training and coaching services to clients around the world.  She can be reached via Website, Twitter, Facebook or her Blog.

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