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This is a continuation of my January column in the Medicine Hat News on the Anatomy of Incorporation. To review my last months’ article, click here.
In my last article I discussed the Articles of Incorporation and the Bylaws as two of the initial concepts in incorporation. Further incorporation concepts include:
3. Officers and Directors
Are appointed by the shareholders to run the company. In many cases the shareholders and directors are the same people. The titles of directors’ include: president, vice-president, secretary, treasurer, or a combination like secretary-treasurer. It is important to note directors have the same powers and obligations. In other words, the president does not have more powers than the secretary.
The voting shareholders control the company by voting their shares. Some companies have shareholders holding equal amounts of voting shares, for example 50/50 ownership. If these shareholders have a falling out, the company may be locked in a stalemate as business decisions require a majority vote. If 2 people plan to form a company, they should consider whether unequal ownership, for example 51/49 ownership, would be helpful to avoid such a deadlock. Common shareholders are also entitled to share in the distribution of assets after a dissolution or wind-up of a company.
5. Share Certificates
A shareholder buys their shares from the company. A newly formed company has no initial value in it, so shares can be purchased for a nominal value. For example one shareholder can purchase 100 Class A Common Shares for $1.00 per share or $100.00. As the company grows in value, future purchases of the same class of shares would also increase. As it is important to have proof of payment of shares, the shareholder should pay for their shares by cheque.
6. Annual Returns
An annual return is more like a licensing fee to operate the business in Alberta. It is different from the company income tax return. If a company does not file annual returns for 2 years, it can be struck by the Corporate Registry. Sometimes I meet clients who did not understand the requirement for filing annual returns and unknowingly had their company struck. While a struck company can be reinstated, it costs more than keeping up to date with the annual returns.
7. Registered Office
This is where corporate registry will send correspondence about annual returns. Typically where the company wants the assistance of a lawyer to prepare the annual returns on behalf of a company, the law firm’s address is the registered office.
Important decisions made by directors or shareholders concerning the business are made in writing and signed. Normal resolutions passed by a company on a regular or annual basis include the appointing of officers and directors, approving auditors for the company and confirming dividend payments to shareholders.
9. Minute Book
The articles, bylaws, annual returns and resolutions need to be kept up to date and in order. The minute book is a binder where the information is recorded by the lawyer and provided to the company’s accountant or banker as required from time to time.
Normally the incorporation process can take a couple weeks but will depend on your specific situation.
I hope this basic overview is helpful for you as you move forward with incorporating your business, and increases your understanding of the anatomy of the incorporation process. I recommend you to discuss the incorporation process in detail with your lawyer and accountant to fully understand the implications of operating a company.