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Clausehound Playbook – How to Draft a Shareholders Agreement

1 – Understand what a shareholders agreement entails
Overview of Shareholders Agreements

2 – Learn more about shareholders agreements

Article 1 – WHAT RIGHTS ATTACH TO YOUR SHARES?

Article 2 – LEGAL TIPS AND TRICKS: “SHOTGUN CLAUSE”

Article 3 – ROLE OF THE BOARD OF DIRECTORS: TO PROTECT THE INVESTORS

Article 4 – LEGAL TIPS AND TRICKS: “SHOTGUN CLAUSE”

3 – Fill out this checklist to understand your agreement goals
Checklist
4 – Read this sample agreement
Shareholders Agreement
6 – Have your agreement reviewed by a lawyer
How to ask for a lawyer
7 – Edit and finalize first draft
Tips of what to look out for
8 – Prepare a high-level list of what’s included
See example of list of terms
9 – Send to counterparty with email attached
Read this sample email to send to your counterparty

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Clausehound Playbook – How to Draft & Manage Your Minute Book

1 – Understand what a minute book entails
Overview of Minute Books
3 – Fill out this checklist to understand your agreement goals
Coming soon!
6 – Have your agreement reviewed by a lawyer
How to ask for a lawyer
7 – Edit and finalize first draft
Tips of what to look out for
8 – Prepare a high-level list of what’s included
See example of list of terms
9 – Send to counterparty with email attached
Read this sample email to send to your counterparty

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Maintaining the Corporation 5/5 – Managing the Registers

Approve the Form of the Share Certificates

Conventionally, a sample of each share certificate to be used for each class of share is prepared, the word “SAMPLE” is printed on its face and the certificate is inserted into the corporation’s minute book. The directors must then approve the form of the share certificates in a resolution.

Corporation’s Registers

Once the corporation has been organized, the various registers found in the corporation’s minute book must be completed and maintained at its registered office.

Directors’ Register

The Directors’ Register lists the names of all the directors, along with their addresses, the date on which each became a director and the date on which any ceased to be a Director.

Shareholders’ Register

The Shareholders’ Register lists the names of all the shareholders, along with their addresses, the date on which each became a shareholder and the date on which any ceased to be a Shareholder.

Share Register

The Share Register (or Shareholder Capitalization Table) lists, in alphabetical order, the name and address of each shareholder for each class of shares, along with the date on which the shares were issued or acquired by transfer, the share certificate number, the issue price paid for each share, the total amount paid upon issue and the aggregate number of shares held by each shareholder.  Shareholders have the right to review this register at any time. As such, it should be kept up to date.

Share Transfer Register

The Share Transfer Register contains a list of all share transfers that have taken place over time, including the number and date of the transfer, the name of the transferor and transferee, the number of shares transferred and the certificate numbers that were cancelled and issued.

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Maintaining the Corporation 4/5 – Management & Finances

Appointment of Officers

Directors appoint the officers, who are responsible for managing the day to day business of the corporation.  An officer can also be a director of the corporation and can be paid a salary for the work done as an officer.

Adoption of Banking Arrangements

Despite the fact that the general by-laws include rules regarding the execution of documents and the borrowing of money by the corporation, a specific banking by-law and banking resolution may be adopted by the board of directors by way of a resolution. The resolution should be adopted soon after incorporation in order to enable certain officers to sign on behalf of the corporation. In most cases, the president alone or the president and the secretary are given this authority. The banking resolution and by-law can vary depending upon the needs of the specific corporation involved. A corporation should maintain copies of any signature forms and other authorizers given to the depository or other financial institution of the corporation. The authority to act on behalf of the corporation in this regard should be authorized by corporate resolution.

A certified copy of both the borrowing by-law and the banking resolution must be delivered to the financial institution with which the corporation will do business.

Adoption of a Corporate Seal

A corporation is not obliged to adopt a corporate seal – “[a] document executed on behalf of a corporation is not invalid merely because a corporate seal is not affixed to it” (CBCA, s 23(2)).  If, however, a corporation decides to adopt a corporate seal, the directors must indicate their approval in a resolution.

Set the Fiscal Year

A corporation is free to choose any date as the end of its fiscal year. Regardless of the year-end that a corporation chooses, every corporation must file its annual report with the relevant government body within the prescribed dates.

Business Number

The Canadian Revenue Agency (the “CRA”) requires that an entity that will collect sales taxes, administer payroll, import or export, or file corporate tax returns open an account with the CRA and receive a Business Number. To register the corporation should complete and file Form RC1, Request for a Business Number with the CRA.

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Maintaining the Corporation 3/5 – Annual General Meetings

Annual General Meetings

The CBCA requires that the directors of a corporation call the first annual general meeting (an “AGM”) no later than eighteen (18) months after incorporation. Thereafter an AGM must be held at least every fifteen (15) months, but no later than six (6) months after the end of the corporation’s fiscal year.  Each director must be notified in writing five (5) days in advance of the date, time and place of the meeting.

During an AGM shareholders shall elect directors to hold office, appoint officers and auditors, make and approve banking arrangements, adopt a corporate seal, set a fiscal year, approve the form of the share certificates, and receive financial statements in accordance with the by-laws of the corporation or with the rules set out in the CBCA. These actions are evidenced by corporate resolutions.

 

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Maintaining the Corporation 2/5 – Corporate By-laws

By-laws
The by-laws of a corporation govern its day-to-day activities. By-laws will vary with each corporation, but in general they deal with matters such as the registered office, corporate seal, fiscal year, authority to dispose of (sell) securities, borrowing powers and general information concerning the officers, directors, shareholders meetings, transfer of shares, payment of dividends, loans and notice requirements. The by-laws must be approved by a resolution of the board of directors. As soon as the resolution is adopted, the by-laws come into effect.

The by-laws (with the exception of the various provisions relating to the agents, officers and servants of the corporation) will only have effect until a subsequent annual shareholders meeting, where the shareholders may confirm, amend or reject the by-law (CBCA, s 103). If the by-laws are not confirmed at the annual meeting, they will cease to have effect from that date.
Shareholders can only vote to ratify or not to ratify the by-laws adopted by the board of directors. Shareholders cannot repeal, amend or modify the by-laws in any way because these powers are statutorily given to the Directors.
To see sample by-laws on Clausehound.com, please visit the Small Business Law Library.

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Maintaining the Corporation 1/5 – Corporation’s Minute Book:

Properly maintaining a corporation’s minute book is crucial for all businesses. The corporation’s minute book includes the fundamental documents required for a corporation to maintain its status with governmental agencies, raise capital, enable important actions (such as the corporation taking on debt), or selling the business.

 

A corporation must keep records, in paper or electronic form, which must be stored at its registered office.

The minute book should include:

  1. the articles of incorporation;
  2. the by-laws of the corporation;
  3. a unanimous shareholder agreement or any written agreement by a sole shareholder restricting the powers of the directors;
  4. minutes of meetings and resolutions of the shareholders;
  5. the full name of each director and the date on which the term of office of each director begins and ends;
  6. minutes of meetings and resolutions of the board of directors and the executive committee;
  7. names in alphabetical order and last known addresses of persons who were or are presently shareholders;
  8. number of shares held by these persons;
  9. date and details of the share issue and transfer of each share; and
  10. liens on shares, if any.

Shareholders, but not the creditors, can consult the records with the exception of the information relating to the board of directors and the executive committee meetings and resolutions. Only the directors and auditors have access to this information, unless the shareholders acquire this right as a result of a unanimous shareholder agreement. Shareholders are also entitled to obtain from the board of directors, free of charge, a copy of the corporation’s Articles of Incorporation, by-laws and any unanimous shareholder agreement.
If you are interested in procuring minute book documents for your business, please visit Clausehound’s document library that hosts the documents required to keep a corporation’s minute book up-to-date. 

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Overview of Corporate Minute Books

Overview of Corporate Minute Books

 

What is this document?

The Corporate Minute Book is a collection of documents that forms the official record of the activities of the corporation, beginning at incorporation. It should include all documents related to the formation and management of the corporation, and all major contracts.

 

When would I use this document?

Every corporation should maintain an up to date and organized minute book. The Minute Book is subject to examination by financial auditors and potential lenders and investors, who will be concerned about whether corporate actions were properly authorized.

 

Who Signs this Agreement?

The Minute Book is a collection of documents, each of which is signed by the person(s) authorized to do so. Most documents will be executed by the shareholders and directors of the corporation in accordance with the relevant legislation, the Articles of Incorporation, the by-laws and any shareholders’ agreement.

 

More details about this document

Because the Minute Book is a collection of documents, it can be organized into a binder (or collection of binders, depending on the number of documents) with tabs dividing it into the core elements. For assistance with this, see the ‘Minute Book Cover’ document on Clausehound.

Many corporations also keep electronic versions of the Minute Book for ease of reference. It is important to scan and file executed documents promptly to keep the Minute Book up to date, and to prevent the loss or ‘misplacement’ of important documents.

It is a good practice to review and update the Minute Book annually, and with every major transaction.

 

What are the core elements of this document?

The core elements of the Minute Book are as follows:

  1. Corporate Filings including the articles of incorporation, the articles of amendment and the articles of amalgamation, and annual filings;
    2. Consents that the directors qualify and agree to be directors of the corporation;
    3. By-laws governing all matters related to the corporation;
    4. Subscription Agreements for each shareholder to purchase shares in the corporation ;
    5. Shareholder Resolutions relating to all matters requiring shareholder approval, eg. the number and election of directors and any activity related to fundamental corporate changes such as a merger or sale;
    6. Director Resolutions relating to director decisions such as the form of share certificates, the number of shares issued, employee contracts, location of company records, the appointment of officers, loans, major business decisions etc.;
    7. Registers and Ledgers that record share ownership and all matters relating to the identity of shareholders, officers and directors; and
    8. Material Corporate Documents including employee contracts, employee stock option plans, share transfer agreements etc, depending on what is material for the particular corporation.  

 

What additional clauses could this document contain?

The Minute Books contain many agreements and documents, all of which can be found on Clausehound. Please search for each document separately.

 

Related Documents

Articles of Incorporation – this is the basic constitution of the corporation and sets out the classes of shares, the number of directors etc.

Shareholders Resolutions – the shareholders will pass resolutions electing the directors, approving/waiving an auditor etc.

Directors’ Resolutions – the director(s) will need to pass organizing resolutions to adopt bylaws, appoint officers, establish the financial year end, issue initial shares etc.

Directors’ Consents – a document in which the director declares consent to continue as a director and declares their residency

By-Laws – (also called bylaws) deal with matters such as meetings, voting, borrowing, officers etc.

Subscription Agreement – an agreement between the issuer (the corporation that is issuing shares) and the subscriber (the person who is buying the shares) for the purchase of the corporation’s shares or other securities

Shareholders’ Agreement – an agreement between the shareholders that governs the relationship of the shareholders, voting rights, management decision making authority, shareholders exits from the company etc. A Unanimous Shareholders Agreement may have precedence over the Articles of Incorporation.

 

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