Chapter 4 – Next Steps in Organizing Your Corporation

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Now that your business is incorporated, the next step is to complete the internal organization of the corporation.

4.1 First Directors

When you incorporated, you filed a form entitled Initial Registered Office Address and First Board of Directors with Corporations Canada. This form lists the first members of the board of directors of the corporation.

The mandate of these directors begins on the date Corporations Canada issues the certificate of incorporation and ends at the first meeting of shareholders. At that first meeting, the shareholders elect the corporation's directors. Elected directors may be chosen from the first directors or they can be entirely new.

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4.2 Organizational Meeting

Early in the life of a corporation, an incorporator or a director will usually call an "organizational meeting." The notice for this meeting must go out at least five days before the meeting to each director listed in the Initial Registered Office Address and First Board of Directors form filed with the Articles of Incorporation. This notice must indicate the date, time and place of the meeting.

At this meeting, the directors may:

• make by-laws (these by-laws will have to be approved by shareholders at the first annual meeting);
• adopt forms of security certificates and corporate records;
• authorize the issuance of shares and other types of securities;
• appoint officers;
• appoint an interim auditor to hold office until the first meeting of shareholders;
• make banking arrangements; and
• transact any other business.

By-laws

By-laws are rules that govern the internal operations of a corporation. For example, you may want your corporation to have certain rules that are not dealt with in the CBCA. You could also want to modify some of the rules that are in the CBCA, so long as the changes you wish to make are permitted by the Act.

Among other things, corporate by-laws can:

• set the date of a corporation's financial year-end;
• make banking arrangements;
• address the appointments, qualifications and duties of officers;
• delegate the responsibility for setting the salaries of directors and officers;
• establish the salaries or other remuneration of directors and officers;
• set down the procedures for calling and conducting directors' and shareholders' meetings;
• establish the minimum number of people required at directors' and shareholders' meetings to establish quorum; and
• make rules limiting the modifications that can be made to the powers given to corporate directors under the CBCA (e.g. the by-laws could make all share issuances subject to shareholder approval).

Consult Section 7.6 Making By-Laws for more information on by-laws. You will also find an example of by-laws in Annex C.

Issuing shares

One of a corporation's first activities following incorporation is to issue shares. A person becomes a shareholder when a corporation "issues" shares in that person's name or records a transfer of previously owned shares to the person. Generally, unless you indicate differently in your Articles of Incorporation or by-laws, your corporation's board of directors can issue shares whenever it wishes, to whomever it chooses, and for whatever value it decides.

Directors may decide to issue shares by majority vote. The directors' decision (called a resolution) to issue shares must be recorded in the corporation's minute books.

The corporation cannot issue a share until it actually receives full consideration (payment) for that share. This consideration is generally in the form of money, although it can also be in the form of services or property given to the corporation. A person's payment for the share(s), in a form agreed upon by the directors, represents that person'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;
• the name of the shareholder; and
• the number and class of shares it represents.

If your Articles of Incorporation contain restrictions on the transfer of shares (as do the Articles of most small corporations; see Section 2.3.4 Restrictions on Share Transfers), the share certificate itself must refer to these restrictions.

Shares are issued without nominal or share value. A share certificate does not set out a monetary value.

Appoint officers

Officers are appointed by the directors, and with the directors form the management of the corporation. Officers can take any position that you want them to fill (e.g. president, secretary or any other position). They are responsible for the day-to-day operations of the corporation.

Any individual may be an officer of your corporation. Officers may or may not be shareholders, and they may or may not also be directors of the corporation. One person may act as a director, officer and shareholder at the same time. In many small businesses, one individual is the sole director, the sole officer and the sole shareholder.

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4.3 First Meeting of Shareholders

The directors of a corporation must call the first shareholders' meeting within 18 months of the corporation's date of incorporation. This meeting is usually held after the first organizational meeting of the directors.

At this meeting, the shareholders:

• elect directors;
• confirm, modify or reject the by-laws established by directors; and
• appoint an auditor. Note that this auditor can either be the same one appointed by the directors or a different one.

Resolution in lieu of a meeting

In a small business where one or two people act as directors, officers and shareholders, meetings are not necessary. Shareholders in these corporations often prefer to act through written resolutions. If every shareholder signs a written record that sets out the terms of the necessary resolutions, then a shareholders' meeting is not needed.

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