DIRECTORS & SHAREHOLDERS RESOLUTIONS

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Corporate resolutions are the formal, written decisions of a corporation's governing bodies, typically the Board of Directors and the shareholders, that authorize and document specific corporate actions. Resolutions formalize significant corporate action, and are evidenced by the recorded vote or confirming signatiure of each of the required persons (directors or shareholders), which serve to provide:

A. Legal Validity and Proof of Authority

  • Authorization for Action: Resolutions provide the legal authority for the corporation to undertake specific actions. Without a resolution, a major corporate act (like taking out a loan, selling assets, issuing shares, or entering a significant contract) may be deemed unauthorized or ultra vires (beyond the power) of the corporation or the individuals acting on its behalf.

  • Compliance with Corporate Law: Corporate statutes (like the Alberta Business Corporations Act or the Canada Business Corporations Act) mandate that certain decisions be made by resolution. This ensures the corporation operates within the legal framework.

  • Evidence in Disputes: In a legal dispute, a properly drafted and executed resolution serves as irrefutable proof that a decision was made and authorized according to the corporation's by-laws and applicable laws.

B. Corporate Governance and Accountability

  • Clarity of Decision-Making: Resolutions clearly articulate what was decided, by whom (Board or shareholders), when, and often the rationale. This brings transparency to the decision-making process.

  • Accountability of Directors and Officers: They record directors' and officers' participation in decisions, ensuring accountability for their actions. Directors can record their dissent to a resolution if they disagree, which can protect them from liability.

  • Defined Roles and Powers: Resolutions often empower specific officers or individuals to act on behalf of the corporation (e.g., "The President is hereby authorized to sign this agreement").

C. Risk Management and Protection

  • Limited Liability Protection: Maintaining proper resolutions helps reinforce the corporate veil, protecting shareholders and directors from personal liability by demonstrating that the corporation is operating as a distinct legal entity.

  • Due Diligence Defense: In cases of negligence or breach of duty allegations against directors, documented resolutions demonstrating sound decision-making processes can serve as a strong defense.

D. Facilitating Transactions and Due Diligence

  • Lenders (Banks): Banks will almost always require resolutions (e.g., borrowing resolutions) proving that the corporation's board has authorized the loan and designated specific individuals to sign the loan agreements.

  • Investors: Potential investors conducting due diligence will meticulously review resolutions to confirm the proper issuance of shares, changes in capital structure, and valid authorization of past transactions. A well-maintained set of resolutions signals a well-run, compliant business.

  • Buyers/Sellers in M&A: During mergers, acquisitions, or asset sales, resolutions are crucial to confirm that the selling corporation has properly authorized the sale and that the acquiring corporation has properly authorized the purchase.

  • Professional Services: Accountants, lawyers, and auditors rely heavily on resolutions to verify transactions, ensure compliance, and prepare legal opinions.

E. Internal Management and Reference

  • Historical Record: Resolutions, kept in the minute book, provide a chronological history of the corporation's significant events and decisions. This is invaluable for future reference, strategic planning, and understanding past actions.

  • Consistency and Continuity: They help ensure consistency in corporate actions over time, especially with changes in personnel.

  • Employee/Stakeholder Confidence: A well-governed company with clear records builds confidence among employees, suppliers, and other stakeholders.

F. Tax Compliance

  • Certain tax-related decisions, such as waiving the requirement for an audit (for eligible private corporations in Alberta), or declaring dividends, must be properly documented by corporate resolution to be valid for tax purposes.

Providing corporate-commercial legal advice and strategic direction to business enterprises engaged as Alberta provincial corporations or federal corporations, from business formation to corporate governance to contracts and business transactions. Contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 to schedule a confidential initial consultation for your business.

Canadian-Controlled Private Corporation (CCPC)