By: Nicolas Guevara-Mann | Queen’s Business Law Clinic | December 2021
Editor: Mikela Page
You’ve just incorporated your business – congratulations!
The first thing that that you must do as a director of a new corporation is holding your first directors’ meeting. The purpose of this meeting is for the initial directors to organize the corporation to allow it to conduct its activities. Notice for this meeting must be sent to each director at least five days before the meeting, and this meeting must be held before the first shareholders’ meeting (which must be held within 18 months after incorporation). Topics on the agenda at this meeting include adopting the by-laws, authorizing the issuance of shares, appointing officers, appointing an auditor, and more.
The by-laws are the internal rules of the corporation. They permit you to deviate from the default rules under the Canada Business Corporations Act or the Ontario Business Corporations Act. The by-laws can outline details regarding director terms, remuneration, and responsibilities as well as other important procedural requirements such as meeting quorums and the number of votes required for certain resolutions to be passed. The by-laws are passed by the directors at the first meeting and then must be approved by the shareholders at the first meeting of the shareholders.
The directors must issue shares at the first meeting. A person who receives a corporation’s shares will become a shareholder. A shareholder is the owner of certain rights in the corporation, including the right to vote on resolutions, the right to receive dividends, and the right to the corporation’s remaining assets upon dissolution of the corporation. Shareholders do not manage the corporation, but rather oversee management by electing directors. In small, closely-held corporations it is very common for directors to also be shareholders.
Appointing an Auditor
Another important item at the first meeting of the directors is to appoint an auditor. Corporations must have audits conducted by an independent auditor unless they are non-issuing and all shareholders agree to waive this requirement. The shareholders will confirm the appointment of an auditor at the first shareholders’ meeting, or they will unanimously waive appointing an auditor.
First Shareholders’ Meeting
Once this meeting has been completed, the directors can call a shareholders’ meeting where the shareholders will elect directors (or re-elect the initial directors) and confirm the by-laws and auditor. In closely held corporations, the shareholders may alternatively sign a written resolution in lieu of this meeting which will deal with all required matters at the meeting.
Understanding your initial responsibilities as a director is very important for the success of the corporation. When working with the Clinic, we can help you draft the by-laws and take care of other matters to ensure that you know your post-incorporation obligations and that your business is organized for success.
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