After a corporation has been incorporated, it needs to be organized by issuing shares to the initial shareholders, electing the initial directors, appointing the initial officers, approving the By-law(s), and filing the initial notices advising the appropriate governmental authority of the newly elected directors and officers.
Shares
A corporation must have at least one class of shares although it may have more. Usually the owners of the “common” shares have the right to vote at shareholder meetings. The owners of “preferred” shares usually have no voting rights, but have preference regarding the payment of dividends and/or the division of assets of the corporation in the event that the corporation is dissolved.
Shareholders
Shareholders are the owners of the corporation. They own the shares of the corporation but not the assets. The assets are owned by the corporation itself.
Shareholders do not run the corporation. Voting shareholders elect directors who in turn appoint officers to manage the day-to-day operation of the corporation.
Directors
Directors are elected by the shareholders and have an obligation to govern the corporation on behalf of shareholders in good faith and in the best interests of the corporation. Both federal and Ontario corporations must have at least one director who is a resident Canadian, is over 18 years of age, and not a bankrupt. An Ontario corporation requires that a majority of the directors must be resident Canadian, whereas only twenty-five percent of the directors of a federal company must to be resident Canadians.
Directors select the officers who manage the corporation. Directors are also commonly involved in major corporate decisions such as forming the business plan, making decisions about selling or issuing shares, incurring debts and liabilities in the name of the corporation, allocating corporate profits and paying dividends to shareholders.
The law imposes significant potential personal liability on directors of corporations. Some of these liabilities include: liability for failing to act in the best interest of the corporation, including obligations to avoid conflicts of interest; liability for the corporation’s failure to remit Goods and Services Tax and employee income tax source deductions; liability for unpaid wages including vacation pay; and liability for environmental damage caused by the corporation’s activities.
Officers
The directors of the corporation appoint the officers of the corporation and may delegate certain powers to them to manage the affairs of the corporation, subject to the terms of the Articles of Incorporation, the By-laws or a unanimous shareholder agreement. Officers are subject to the same duties as directors to act in good faith and in the best interests of the corporation and to avoid conflicts of interest.
The more common officers appointed include, a President, Treasurer, and Secretary. Treasurers usually record the issuance of shares, while secretaries maintain the corporate records of the corporation. Other officers can include: a Vice President, Chief Executive Officer, Chief Financial Officer and Chief Technology Officer. One person may hold several offices of a corporation simultaneously.
By-Laws
While not mandatory, By-laws are usually enacted by directors and approved by shareholders to provide for matters relating to the operation of the corporation. Normally a By-law #1 is enacted during the initial organization of the corporation. By-law #1 describes the procedure for meetings, including location, notices and quorum requirements and provision for proxies. By-laws may also define the responsibilities of officers and determine who may sign documents on behalf of the corporation.
The minute book
A corporation’s life and history is reflected through its documents which are maintained in a corporate “minute book”.
Both federal and Ontario corporations are required to keep corporate records, including a copy of the articles of incorporation, all by-laws and amendments, unanimous shareholder agreements, minutes of meetings and resolutions of shareholders, a register of directors, a securities register, accounting records, records containing minutes of meetings and resolutions of directors.