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, are the persons that run the day-to-day operation of the business. In small businesses however, very often the shareholders, directors and officers are one and the same person. Other times, shareholders elect different persons 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 are those positions of 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 then, that in addition to transferring the shares of the corporation to the purchaser, the vendor must also resign from its positions of director and officer of the corporation as it 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 are essentially:
- 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 exiting 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 exiting 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 exiting 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.
-Shira Kalfa, BA, JD, Partner and Founder
© Kalfa Law, 2018
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.