Corporate Governance Basics (Part 2): The Directors

The board of directors plays a crucial role in corporate governance and is elected by the shareholders of the company. Their primary responsibilities include overseeing the company’s business and affairs, representing the company in its interactions with third parties, and convening regular meetings to make decisions and discuss important company matters.

When a company is initially incorporated and organized, the first directors are named. Subsequently, directors can be replaced or added through a vote of the shareholders during annual meetings (for more details, refer to Part 1). It is important to note that at least 25% of the directors must be Canadian residents, and all directors must be of sound mind, at least 18 years of age, and not bankrupt.

Directors act by passing “directors’ resolutions” either at a meeting of the directors or by written resolution signed by all of the directors. In practice, shareholders and directors of small businesses typically sign written resolutions instead of having meetings. These resolutions deal with all the matters that would be dealt with at a meeting and have the same binding force as a meeting. Resolutions are prepared by the company’s business lawyer, who stores and updates them in the company’s “minute book.”

Directors must call “annual meetings” every 15 months. Here, they will approve financial statements, appoint accountants, and appoint officers (See Part 3). They will also pass  resolutions to declare compensation to shareholders, in the form of dividends and bonuses.  If new shares in the corporation are going to be issued, directors must do this through a resolution at a directors meeting.

When starting a business or dealing with corporate governance, a good first step is to speak to a corporate lawyer or a business lawyer and a corporate accountant.

Extreme care must be taken when drafting resolutions to ensure that directors and shareholders have the legal authority to act and vote. Many government departments, such as Canada Revenue Agency, Employer Health Tax, Workplace Safety and Insurance, and others can and do audit corporations.  All typically require a review of the minute book, which they expect will be up to date. 

A good business lawyer will work closely with a corporation’s accountant to ensure that all of the corporation’s ducks are in a row .

Antonio DiMinno

647-205-9128

antonio@drlawyers.ca

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Disclaimer: All number figures are approximate only and may be subject to change. Like all material on this website, this is not financial, legal, or tax advice. Contact a professional for your specific situation.