Overview of Borrowing By-Law

What is this document?

This corporate by-law, often referred to as “By-Law No. 2”, is a by-law that is approved by the directors and shareholders of the corporation once the entity has been incorporated. It authorizes the directors of the corporation to incur and issue debt on behalf of the corporation.

When would I use this document?

This document is one of the two standard by-laws that are usually approved shortly after a corporation has been incorporated. It is approved in conjunction with the General By-Law, also known as “By-Law No. 1”. It is one element of the corporation’s minute book.

Who signs this Agreement?

This by-law is signed by the Secretary of the corporation and then approved in a resolution signed by the directors, and in a resolution signed by the shareholders of the corporation. If any shareholder is not an individual, but rather a corporation or other entity, it will be signed by an authorized signing officer on behalf of the corporate shareholder.

More details about this document

It is important that this document be approved in resolutions signed by both the applicable directors and the shareholders. The directors enact the by-law while the shareholders confirm the by-law. In practice, this can often be the joint resolutions of one sole director and shareholder in the case of a small business.

Once approved, this document should be kept safely as a record in the corporation’s minute book. This will be an important document for when the corporation seeks to borrow money, issue debt, loan money, or create any security interests on corporate property and assets. As such, the drafter should take care to read, understand, and customize the by-law as needed.

What are the core elements of this document?

The core elements include: the Power to Borrow and the creation of Directors’ Committees.

Additional clauses could include limitations on borrowing power.

Related Documents

  • Minute Book - this is where the corporate records are kept.
  • Directors’ Resolution - Directors have to enact the by-law with this resolution.
  • Shareholders’ Resolution - Shareholders are required to confirm the by-law.
  • General By-Law - a by-law setting out the requirements for officers, meetings, quorum etc; all dealing with the internal governance of the corporation.

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.