Most of us think of resolutions as those goals we set around the new year, but in the business context ‘resolutions’ have an entirely different meaning. The reality is that when you run a corporation which is running smoothly, with little change year after year, you’re likely not thinking much about either kind of resolution at all.
Yet it’s that failure to remember your business resolutions that can get your corporation in some trouble. Your corporate resolutions are the annual updates to the filings for your corporation, and they are required under both provincial and federal law. While they may seem fairly standard issue, failure to file them could actually put your corporation, and your business, at risk.
So, what sort of resolutions are required, and what does the law say about a corporation’s requirements to file?
What type of resolutions do corporations need to file?
All corporations need to file some form of corporate resolutions, whether they are for-profit, non-profit, or even inactive, yet the filing requirements depend on whether the business is provincially or federally incorporated. Corporations are legally required to have at least one annual meeting, and it is at these annual meetings that resolutions are approved.
Annual resolutions are mandated under the Canada Business Corporations Act (“CBCA”) and the Business Corporations Act in Ontario (“OBCA”), depending on whether the corporation is registered provincially or federally. The requirements are similar, however there are nuances under specific sections of the law and some differences in the forms.
Generally speaking, resolutions will be drafted by the Corporate secretary and will be addressed at an annual meeting. These include resolutions to review and approve financial statements, review and approve an auditor’s report, elect any new directors, amend any of the corporate by-laws, and deal with anything else that is significant.
How these resolutions are dealt with may depend on the nature and setup of the corporation. A small corporation with only a few shareholders may forego these meetings and deal with these matters in writing, but for larger corporations at least one meeting a year is standard.
What is the purpose of annual resolutions?
In a very small corporation, such as 5 people or less, annual resolutions may seem frivolous on their face. Yet as the Corporation grows, it’s these annual resolutions that not only ensure that the business is staying compliant, but they help make sure that everyone is on the same page.
For example, an annual resolution to approve the annual financial statements can seem very standard, but it is an official way to ensure that everyone approves the finances, and an opportunity for stakeholders to ask questions about the numbers. Same with voting to re-appoint an auditor; if there are no issues with the auditor this will not raise any flags, but if there are then this is a great opportunity to make a change.
When you are not actively involved in the governance of a corporation, or on the board of directors of a non-profit, it can be easy to let your attention lapse at annual meetings. However, it is important to note that these documents serve a purpose and help facilitate better governance of the corporation. There may not be an issue in the immediate future, but if one does arise later than these documents can become critically important.
What are the penalties for not filing annual resolutions?
Under the CBCA, Corporations Canada assumes that if a business is not following its annual returns, then it has effectively ceased operations. In that case, a corporation can be dissolved if it has not filed resolutions for a year. However, Corporations Canada does offer a bit of breathing room. If a corporation has not filed for the last 2 years, it is at risk of being dissolved, but a warning will be mailed out 120 days prior.
The OBCA also contains several sections that require annual filings and may be liable for a fine for refusing to do so. More concerning though is that an up-to-date corporation helps keep the corporate veil intact, which protects directors and officers from personal liability. If directors and officers are accused of misdeeds, and the corporation that they believe is protecting them is no longer in place, they may potentially face the risk of personal exposure.
How can a business lawyer help?
Corporate resolutions may not be complicated in and of themselves, but when you’re busy running your business, they may be the last thing on your mind. Yet as cumbersome as it may be, good corporate governance is as important to the health of your business as good workplace policies or well-drafted vendor agreements.
Business lawyers ensure that annual resolutions comply with current laws and regulations, which can change frequently. This helps prevent legal issues and penalties for non-compliance. A business lawyer can also tailor resolutions to the specific needs and circumstances of the business, ensuring that all unique aspects and concerns are addressed.
Poorly drafted corporate resolutions can be just as damaging to your business’ financial well-being as a predatory contract.
Our business lawyers routinely advise corporations of all shapes and sizes throughout the Cambridge, Kitchener, and Waterloo Regions on a variety of governance and regulatory matters. Contact our office today to set up an appointment with a member of our business law team.