Chapter 3 - Organizing Your Company

Previous Page | Table of Contents | Next Page

Your newly formed corporation should hold its first meeting of directors (called an organizational meeting) shortly after incorporation. The orders of business of an organizational meeting are usually to appoint officers, issue shares, make by-laws, appoint an auditor until the first meeting of shareholders and make banking arrangements.
(CBCA section 104)

The CBCA does not specifically require an organizational meeting of shareholders. Rather, the statute requires only that the first annual meeting of shareholders be called within 18 months following incorporation. After the first meeting, the directors must call an annual meeting not later than 15 months after its last meeting and not more than 6 months after its financial year end.
(CBCA subsection 133(1))

In practice, many corporations hold a meeting of shareholders soon after incorporation, often immediately following the directors' organizational meeting. In such a case, shareholders will elect directors, confirm the corporation's by-laws, and (often) waive the audit requirement and name the corporation's accountant.

Rather than hold an actual meeting, many small companies conduct this initial business through written resolution instead. If so, the resolution must be signed by all of the voting shareholders of the company.
(CBCA sections 133, 142)

Back to Top

Chapter 3.1

Elect Directors

The first director(s) of the corporation is (are) named in Form 2 — Information Regarding the Registered Office and the Board of Directors, which is filed with your articles of incorporation. These directors hold office from the date the certificate of incorporation is issued by Corporations Canada until the first meeting of shareholders, at which time the shareholders will elect directors to replace the first directors.

Directors elected must not object to their election if they are present at the meeting. If they are not present at the meeting, they must either act as a director or consent in writing to their election before the election or within 10 days thereafter.

The company's directors are responsible for the overall supervision of the affairs of the corporation. They approve the company's financial statements; make, amend and repeal by-laws; authorize the issuance of shares; and call and conduct directors' and shareholders' meetings. The directors in turn usually appoint officers, who are responsible for the day-to-day operations. In a small, private corporation, one individual may act as sole shareholder, director and officer.

For certain company activities, shareholders must give their approval. For others, the directors (and officers, if the directors have authorized them) can make important decisions in a corporation without shareholder approval. In this sense, shareholders rely on directors and officers (together referred to as the "management") of their corporation to operate the company's day-to-day activities in a way that protects the shareholders' investment.

At the first meeting of shareholders and at each following annual general meeting at which an election is required (depending on the length or term of office the shareholders choose), shareholders elect directors. These directors will hold office for a term expiring no later than the close of the third annual general meeting of shareholders after such election. If no term is stated, the directors hold office until the next annual general meeting of shareholders. Once a director's term has expired, subject to what you have put in your company's by-laws, that individual can be re-elected as a director.
(CBCA sections 2, 102, 103, 106, 113)

Who Can Be a Director?

A director must be:

• at least 18 years old
• of sound mind (mentally competent)
• an individual (a corporation cannot be a director)
• not in a status of bankrupt.

In addition, at least 25% of the directors of a corporation must be individuals who are ordinarily resident in Canada. If the corporation has less than four directors, then at least one must be a resident Canadian. Corporations in sectors subject to ownership restrictions (like airlines and telecommunication)or corporations in certain cultural sectors (like book retailing, video film distribution) must have a majority of resident Canadian directors. You should keep this in mind when electing directors, and also when filling vacancies. There is no requirement for a director to hold shares in the corporation, nor is there any restriction against their holding shares.
(CBCA sections 2, 105)

Fill Your Board of Directors

Your company must have at least one director. In your articles of incorporation (Form 1, item 5), you will have specified the number of directors your company is to have, either a fixed number or a range (say, from one to ten).

It sometimes happens that because of death, resignation or disqualification of a director or directors, there is a vacancy on the board of directors. If this occurs, provided that the number of directors elected constitutes a quorum (the minimum number of directors required to be present at a meeting, as specified in your company's by-laws), the board may exercise all powers of directors. Also, the directors remaining on the board may fill the vacancy or vacancies on the board.

The directors may also wish to increase their number or change the minimum number of directors. To do so, they will need approval of the shareholders to amend the articles of incorporation. Alternatively, they may appoint additional directors between annual general meetings, if this provision is made in item 7 of the articles of incorporation (see Schedule II of Appendixes A and B of this guide).

Shareholders may decide that, for any variety of reasons, they want to remove a director they had previously elected. This is a simple procedure: it generally requires the approval of a majority of the votes represented at a meeting of shareholders called for the purpose of removing the director.
(CBCA sections 2, 106, 108, 109, 111)

Back to Top

Chapter 3.2

Appoint Officers

Once elected, one of the first activities undertaken by directors is the appointment of officers of the corporation. The officers designated can be president, secretary or any other office you wish. These officers take responsibility for the day-to-day operations of the company.

The CBCA does not impose any restrictions on who can be an officer of your corporation, other than to require officers to be individuals. Officers may or may not be shareholders, and they may or may not also be directors of the corporation. There is no reason why the same individual cannot act as a director, officer and shareholder simultaneously. In fact, for many small businesses, one individual is the sole director, officer and shareholder.
(CBCA sections 2, 121)

Back to Top

Chapter 3.3

Appoint Auditors

At the organizational meeting, directors can also appoint the company's first auditor(s), who will hold office until the first shareholders' meeting; thereafter the shareholders appoint the auditors. Once the shareholders meet, however, the shareholders may choose to waive the audit requirement, provided that all voting and non-voting shareholders agree. Most companies will retain the services of an accountant to prepare the financial statements.

A company must keep up-to-date financial statements. Copies do not have to be filed with the Director under the CBCA unless the corporation distributes its shares to the public (that is, it is listed on a securities exchange).
(CBCA sections 104, 160–163; CBCA Regulation 49)

All financial statements must be prepared in accordance with Generally Accepted Accounting Principles, as set out in the CICA [Canadian Institute of Chartered Accountants] Handbook — Accounting and modified from time to time.

Copies of your financial statements must be given to the shareholders at least 21 days before your company's annual general meeting each year.
(CBCA sections 155, 157, 158, 159; CBCA Regulations 44, 46)

Back to Top

Chapter 3.4

Issue Shares

One of the first corporate activities undertaken by a company following incorporation is the issuance of shares. Persons become shareholders when a company "issues" shares in that person's name, or records a transfer of previously owned shares to a person. Generally, unless you provide differently in your articles of incorporation or by-laws, shares can be issued whenever, to whomever and for whatever value the board of directors of your company decides.

Issuing shares is not complicated. Directors can decide to issue shares by majority vote. The directors' decision (called a resolution) to issue the shares must be recorded in the company's minute books. A share cannot be issued until full consideration (payment) for that share is actually received by the corporation. This consideration is generally in the form of money, although it can also be in the nature of services or property given to the company. The consideration paid for the shares, in whatever form has been agreed to by the directors, is the individual's investment in the corporation.

Once a share has been issued, the shareholder is entitled to a share certificate. This certificate must state the corporation's name, as set out in the articles of incorporation. It also must set out the name of the shareholder and the number and class of shares it represents. Finally, if your articles of incorporation contain restrictions on the transfer of shares in your company (as do most small companies; see Section 2.7 , Other Provisions: Private Company Restrictions/Other Clauses, of this guide), there must be a reference to these restrictions on the share certificate itself.

Shares are issued without nominal or share value. No monetary value is set out on the certificate.
(CBCA sections 6, 25, 26, 49, 50)

Back to Top

Chapter 3.5

Make By-Laws

You may also want to make some by-laws for the internal operations of your company. By-laws are basically an agreement between the company and its shareholders, setting out the rules by which the corporation will function. For example, you may wish your company to have some rules that are not dealt with in the CBCA. For some rules, even if they are covered in the CBCA, you may wish to modify them.

For example, the CBCA permits corporations to specify in their by-laws that directors can attend director meetings and that shareholders can attend shareholder meetings and even vote by telephone or electronically. The by-laws permit private companies to specify less than 21 days for notice of an annual meeting.

For another example, the CBCA provides that the location of shareholders' meetings can be set by the directors, unless the by-laws set out a different rule. One possibility is that shareholders' meetings will always be held at the registered office of the corporation.

By-laws can also modify other powers given to the directors of the company under the CBCA. For example, instead of the directors having the sole authority to issue shares, the by-laws could make all share issuances subject to shareholder approval.

By-laws can also deal with matters such as the appointment, qualification and duties of the officers of the company. Details could spell out who sets the salaries for directors and officers, the procedure for calling directors' and shareholders' meetings, and what minimum number of people have to be present at meetings to establish quorum for business to be legally transacted. Other topics often found in by-laws include the date of the corporation's financial year-end, banking arrangements, indemnification provisions, and salary or other remuneration of directors and officers. Some companies also adopt a particular set of rules of conduct for directors' and shareholders' meetings, such as Robert's Rules of Order.

Unless your by-laws provide differently, the directors have the power to make, repeal and amend by-laws. All by-laws and by-law changes (including repeal) require shareholder approval. This approval must be received at the first regular meeting of the shareholders after the by-law has been passed by the directors. Even though a by-law does not receive approval until that meeting, the effective date of the by-law is the date of original passing by the directors. For a company with only one shareholder/director/officer, meetings are not necessary, and these approvals may be done through written resolution only (see Appendix E of this guide).
(CBCA sections 25, 103, 104, 114, 121, 125, 132, 139–141).

Back to Top

Previous Page | Table of Contents | Next Page