Why Should You Organize Your Corporation?

It is so easy to set up a corporation: all you need to do is go online, file and there you have it, a brand-new legal person. While I do not totally disagree with this approach, what is usually discounted are the matters that need to be dealt with after the corporation must have been founded. Organizing a corporation from inception gives such corporation the confidence of corporate structure from the onset.

Organizing a corporation entails establishing and maintaining its corporate records according to which a corporation will be bound. The CBCA and OBCA places emphasis on corporations taking adequate precaution to avoid false or untrue information in its record. The form in which a corporate record may be kept may range from loose-leaf book, bound book, saved as electronic data or stored in the web cloud space. Whatever form chosen by a corporation to store its corporate information, such must be accessible by specified persons within a reasonable time in an intelligible form failure of which, such corporation may be liable under the prescribed law.

Usually most of the records may be approved at the first directors’ or shareholders’ meeting. The Records that may be included in a corporate book include articles, bylaws, resolutions, minutes of meetings, registers, ledgers and securities. It is crucial to note that corporate records not only serve as the constitution according to which a corporation may be governed, it also acts as checks and balances for corporations especially offering corporations whose records may be accessed by any person upon reasonable request.

Further, a corporation may want to be organized for the following reasons:

  1. To keep the corporation in line with federal or provincial laws to avoid unforeseeable and preventable liabilities.
  2. To maintain good corporate governance practices by having a structure of keeping up with corporate formalities in relation to resolutions, registers and ledgers.
  3. To have a centrally located Corporate record for search by persons qualified to view same including but not limited to directors, auditors and shareholders depending on the type of corporation which may lead to an increase in public confidence in such corporation.
  4. To serve as a point of reference or act as precedent as to the reason a decision affecting a corporation, or its shareholders was carried or avoided. This may be contained in series of minutes or resolutions.

The above is not exhaustive on why a corporation should keep corporate records nonetheless, corporate record keeping by a corporation is not optional, it is imperative. It is not enough to organize the corporate records of a corporation, but such corporate records must be updated frequently depending on the size of the corporation for it to have the anticipated effect of usefulness.

Based on the foregoing, the benefits of organizing a corporation and maintaining its corporate records from its inception far outweighs any inconveniences and the potential liabilities that may arise from not doing so. Still, failure to organize your corporation from its inception, better to be late. However, you may still want to ask: why should you organize your corporation? Because it is vital to the long term survival of your corporation.

This article is intended for informational purpose only and does not constitute legal advice or a client-lawyer relationship.

 

 

The effect of Minors as Shareholders of a Corporation Toronto Ontario Canada

Shareholders are the individuals or corporate bodies who have subscribed to the shares of a Corporation. A share is a portion of a larger amount to which people are subscribed. The CBCA prescribes the general condition that must be fulfilled before an individual may be appointed a director of a corporation including that the individual must:

  1. be at least 18 years of age;
  2. not be bankrupt:
  3. not be incapable; and
  4. be an individual.

Unlike directors of a corporation, the CBCA does not have any restriction as to who may own shares in a corporation. It follows therefore that any person, both individual and corporate entities are capable of validly owning shares in a corporation regardless of the conditions imposed on being a director in a corporation.

However, despite there being no restrictions on who may be a shareholder of a corporation, shareholders nevertheless have obligations to a corporation regardless of whether the shareholder is a minor. A minor is any individual who is less than 18 years old which is the age of majority. Obligations a shareholder may have towards a corporation include but not limited to attending the annual general meeting, executing contracts to bind the company, voting and execution of various document for the benefit of the corporation.

It is imperative to note any legal person including minors may enter into a contract as long as such person is capable. The problem lies in the capacity of a minor to enter into a contract in the first place and where a minor enters into a contract, such minor can decide to void such contract before they attain the age of majority without being held liable.

Again, shareholders have the right to approve, vote and ratify resolutions of the board of directors on behalf of a corporation. It is debatable if a minor by herself has the capacity to approve, vote on or ratify such board resolution which may include-

  1. any change or amendment to the articles of the Corporation;
  2. the change or amendment to the articles of the Corporation;
  3. the purchase by the Corporation or redemption of any shares of the Corporation; and
  4. any action that may result in a material change in the nature of the business of the Corporation.

Assuming but not conceding that a minor may be able to understand what is expected of them is any of the above scenarios yet, the major hurdle of scaling through the capacity to enter a contract will be tested.  Therefore, the effect of a minor taking up shares by herself in a corporation goes beyond the shares in itself and towards the capacity to undertake the responsibilities that come with owning a share in a corporation as highlighted above.

It follows that when contemplating whether to issue shares to a minor, recourse must be had to the obligations which comes with owning shares in a corporation and if a minor will have the capacity to fulfil same. In essence, while considering whether to allot shares to a minor, various ways a minor may hold shares in a corporation may be explored including but not limited to holding such shares in trust on behalf of the minor. It is also essential to consider the effect a minor shareholder may have in ratifying a corporate document without making such document voidable to the detriment of the Corporation.

 

This article is intended for informational purpose only and does not constitute legal advice or a client-lawyer relationship.