Minute Book Documents | Requirements When Selling Shares

Necessary Minute Book Closing Documents Required When Selling Shares

What are the necessary minute book closing documents required when selling shares?

Previously, we reviewed several key closing documents necessary for any purchase or sale of a business, whether that be an asset or share sale. In this article, we will discuss the necessary minute book closing documents that are required when selling shares of a business only. These closing documents are called minute book documents. Because we are selling the shares of a corporation, we invariably require a number of corporate resolutions.

Minute Book Documents

A corporation has three principal positions – that of shareholder, director and officer. Shareholders own the corporation. Often times they are silent investors, while other times they are actively engaged in the business. However the key feature of shareholders is that they are passive owners of a business. They own the shares, but are not actively involved in its operation or management.

Directors and officers, on the other hand, run the day-to-day operation of the business. However, in small businesses, the shareholders, directors and officers are often one and the same person. Other times, shareholders elect individulas to occupy these positions.

Directors run the overall business on a high level and have signing authority over the corporation. Officers are appointed by directors to run individual slices of the business. Officers include the president, chief executive officer, chief operating officer and chief financial officer, etc. Each of these positions oversee different aspects of the business.

In a transfer of a business that is sold by way of a share sale, the purchaser purchases the entire corporation which houses the target business. This means that in addition to transferring the shares of the corporation to the purchaser, the vendor must also resign from the positions of director and officer of the corporation, as he will no longer be involved in the business in any way shape or form. The new purchaser is then appointed as director and officer of the corporation.

Therefore, the minute book documents necessary to consummate a share sale include the following:

The transfer of shares to the purchaser;
The resignation of the vendor as director; the appointment of the purchaser as director, and
The resignation of the vendor as officer(s); the appointment of the purchaser as officer.

It is only once these three positions are transferred, is the business owned and controlled by the purchaser.

The minute book documents required in a share sale are as follows:

The Authorizing Resolution of Corporation: This is a resolution whereby the Directors authorize the execution of the Purchase Agreement and authorize the President to sign all necessary documentation to give effect to the transaction. This authorizing resolution is dated the date of the execution of the Purchase Agreement.
Resolution of Corporation re Transfer: This is a resolution whereby the Directors of the Corporation authorize the transfer of shares from one shareholder to the new purchaser. This resolution is dated on the date of closing.
Transmission of Shares: This document is a transmission signed by the existing shareholder that states he or she irrevocably transfers his or her shares to the purchaser. This transmission is dated on the date of closing.
Share Certificate Cancellation and Issuance: The share certificate of the vendor is cancelled and a new share certificate is issued to the purchaser.

At this point in time, the shares have been legally transferred to the purchaser. Now we must transfer the remaining positions of director and officer of the Corporation.

Resignation of Vendor as Director: This document is signed by the Vendor and states that he or she resigns from the position of Director of the Corporation.
Resolution of the Shareholders Electing New Directors: This document is a resolution of the new Shareholders of the Corporation (per documents 1-4, above), confirming receipt of the resignation of the existing vendor and electing the new director of the Corporation. In a small business, the director is often the same as the shareholder.
Consent to Act as Director: This consent is required by the Business Corporations Act. At such time when any person is elected to act as director of a private corporation, he or she must consent to act in this capacity. The reason for this is because directors are personally liable for the Corporation’s unremitted trust funds to the CRA. Trust funds are unremitted GST/HST and payroll deductions that are owing to the CRA. Because of this elevated personal liability, the director must consent to be saddled with such responsibility.
Resignation of Vendor as Officer: This document is signed by the Vendor and states that he or she resigns from the positions of Officer of the Corporation (President, CEO, CFO).
Resolution of the Directors Appointing New Officers: This document is a resolution of the Directors of the Corporation (who were elected in document 6, above) confirming receipt of the resignation of the existing officers and appointing new officers of the Corporation. In a small business, the officer is often the same as the director and shareholder.
Ledgers and Registers: The following 5 ledgers and registers of the minute book are updated to reflect the transaction: Director’s Register, Officer’s Register, Shareholders Register, Share Transfer Register and Shareholders Ledger.

As we have seen, the documents required to transfer over a business in a share sale are far more than that is required in a pure asset sale, and this is because of the additional minute book documents that are required in order to effect the transfer of the director, officer and shareholders of the Corporation.

F.A.Q’s:

What is the difference between a director, officer, and shareholder of a corporation?

A director of a corporation runs the overall business on a high level and has signing authority. Officers are appointed by the directors to run individual slices of the business (e.g. President, Secretary). Shareholders own the corporation and can either be passive investors or actively engaged in the business.

What are the minute book documents necessary to completing a share sale of a corporation?

The minute book documents necessary to complete the sale of shares in a corporation typically include the instrument of transfer, the resignation of the vendor as director and officer of the corporation (or nominees of the vendor), resolution of the purchaser appointing new directors, and resolution of the directors electing new officers.

Are minute book documents indicating the resignation of a vendor as director or officer necessary when selling the shares of a business?

Not necessarily since directors and officers do not have to be shareholders. However, it is customary for the purchaser to appoint new directors and elect new officers to oversee the operations of the business now that the vendor is no longer involved in the business.

What are the closing documents necessary to effect the transfer of shares of corporation from the vendor to the purchaser?

The closing documents necessary to effect the transfer of shares of a corporation from the vendor to the purchaser include: Authorizing Resolution of Corporation, Resolution of the Corporation re transfer, transmission of shares, cancellation of the existing share certificates, and issuance of new share certificates in the name of the purchaser.

What is an Authorizing Resolution of Corporation?

The Authorizing Resolution of Corporation is a resolution whereby the Directors authorize the execution of the Purchase Agreement and authorize the President of the Corporation to sign all necessary documentation to give effect to the transaction.

What is a Resolution of Corporation re Transfer closing document?

The Resolution of Corporation re Transfer is a resolution whereby the Directors of the Corporation authorize the transfer of shares from the selling shareholder(s) to the new purchaser.

What is the Transmission of Shares closing document?

The Transmission of Shares is a document that states that the existing shareholder(s) irrevocably transfers his or her shares to the purchaser.

What is the Share Certificate Cancellation and Issuance?

The Share Certificate Cancellation and Issuance effects the cancellation of the share certificate of the vendor and the issuance of the share certificate to the purchaser.

What closing documents are necessary to remove the vendor or nominees of the vendor from their positions as directors and officers of the Corporation?

The closing documents are the Resignation of Vendor (or nominee of the Vendor) as Director and Officer, the Resolution of the Shareholders Electing New Directors, Consent to Act as Director, and Resolution of the Directors appointing new officers.

What is the Resignation of Vendor as Director closing document?

The Resignation of Vendor as Director is a document that is signed by the Vendor, which states that he or she resigns from the position of Director of the Corporation.

What is the Resolution of the Shareholders Electing New Directors?

The Resolution of the Shareholders Electing New Directors document is a resolution of the new Shareholders of the Corporation, which confirms receipt of the resignation of the vendor and electing new directors of the Corporation. In a small business, shareholders are often directors as well.

What is the Consent to Act as Director closing document?

The Consent to Act as Director is required by the Business Corporations Act. When any person is elected to act as the director of a private corporation, he or she must consent to act in this capacity because directors are personally liable for the Corporation’s unremitted trust funds to the CRA.

-Shira Kalfa, BA, JD, Partner and Founder

Shira Kalfa is the founding partner of Kalfa Law Firm. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax Foundation, Women’s Law Association of Ontario, and the Toronto Jewish Law Society.

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.