No company book, what to do?

It is not uncommon for an entrepreneur toincorporate his business himself. Very often, incorporation done without the help of a professional is deficient and problematic, as discussed in another article. What to do in such a situation?

Several "upgrades" are required when we have a corporation without a corporate book or adequate structure (share capital, transfer restrictions).

Company book

Firstly, a company book should be drafted and assembled so that it best reflects the intention of the shareholders/directors of the company. Organisational resolutions of directors and shareholders may be adopted "retroactively", provided that this reflects the original intention of the parties, and that no third parties are harmed. In general, the term "effective date" or "effective date" is used when the date of signature does not correspond to the date indicated on the resolutions.

Amendment of the statutes

An amendment to the company's articles of association is often required in order to have a suitable and compliant corporate structure. The amendment of the articles must be authorised by a special resolution (two-thirds vote) passed by the shareholders of the company entitled to vote. The resolution should authorise a director or officer of the company to sign the articles of amendment.

The following changes will generally be made:

Share capital

Where there is no provision in Section 2 of the articles of incorporation for share capital, corporate law (both provincial and federal) provides that the corporation has unlimited share capital with a single class of shares, and that these shares have the following three basic rights: the right to vote at meetings, the right to receive any dividends declared, and the right to receive the residue in the event of liquidation. While such a single class structure may meet the needs of probably most companies, we are amending the Articles to adopt a share capital structure with several classes of shares. These classes of shares may be useful in the long term to implement various reorganisations.

It will also be necessary to state in the articles of amendment that the issued and outstanding shares are being converted into new shares of the new share capital, usually designated "A" shares.

Restrictions on transfer

In order to comply with National Instrument 45-106 regarding private issuer status, it is generally required to adopt restrictions on the transfer of shares and other securities of the company. This is an essential condition to be exempted from producing a prospectus when distributing shares or securities of the company. Otherwise, an agreement between all the holders of the shares and securities will have to be concluded in order to place restrictions on their transfer.

Number ofdirectors

The articles of association of a company may provide for a fixed number ofdirector or a variable number between a minimum and a maximum number. It is not uncommon for the articles to provide for a fixed number when the entrepreneur has incorporated himself, depending on his intended structure at that time. However, for more flexibility, a variable number is often suggested (e.g. a minimum of 1 and a maximum of 10), in order to allow for the possibility of changing the composition of the board more easily. One example is when a shareholder withdraws from the business, or a new shareholder joins the existing ones and wishes to participate in the decisions and management of the company.

Correction update

Sometimes the initial declaration following incorporation is not adequately completed and inaccurate information will be found. Common errors include: indication of an elected domicile, declaration of the existence of a unanimous shareholder agreement, no declared functions of officer ...

Fortunately, the Act respecting the legal publicity of enterprises provides for the possibility of amending any declaration sent to the Enterprise Registrar, and this, retroactively. A correction update will thus generally be produced if there is erroneous information in the Register.