In-House Counsel As a Service

What is a “Minute Book” and why should I care?

After completing the incorporation process, your lawyer should provide you with a corporate minute book which becomes the permanent repository of your corporation’s key documents (the “Minute Book”). The Minute Book must be kept at the corporation’s registered office or at another place in Canada as designated by the corporation’s board of directors (the “Board”).

Your Minute Book should include Incorporation Documents and Annual Corporate Governance along with appropriately documenting and reflecting any decisions made by the Board or shareholders.

There are at least three good reasons to maintain your Minute Book:

1. It’s the Law: Both federally and provincially incorporated companies are required to maintain corporate records that meet the statutory requirements of the Canadian Business Corporations Act (section 20) and Ontario Business Corporations Act (section 140) respectively. Although rare, it is possible statutory penalties may be assessed for failure to attend to these matters.
2. Equity Transactions: An investor or purchaser of your corporation will likely want legal opinions relating to various corporate governance matters. Having an up-to-date Minute Book will provide for a smoother (and likely less expensive) transaction process. Even if you wish to transfer the corporation to a family member, you will want to ensure that the transfer is appropriately documented in order to avoid costly remediation in the future.
3. Third Party Review: Various other parties may also want or need to examine your Minute Book from time to time to verify corporate authority or structure including:

• Professional service providers (e.g. lawyers, accountants) prior to being retained
• Lenders prior to issuing a loan
• Real estate agents prior to completing commercial real estate transactions
• The Canada Revenue Agency (as part of a tax audit)
• Other federal/provincial taxation authorities.

As you can imagine, time is usually of the essence when a Minute Book is requested for review and remediating an out-of-date Minute Book can increase costs.  Setting up a Minute Book from incorporation and regularly maintaining it will save money and aggravation.

What is Annual Corporate Governance?

All corporations incorporated federally and provincially in Ontario are required by law to hold annual meetings of shareholders or to have annual resolutions signed by all of the shareholders in lieu of holding an annual meeting. Both the annual meeting and the annual resolutions are used to document certain critical decisions affecting the corporation both in the year that just past, and the year to come. Correctly identifying, preparing, passing, documenting and filing these decisions make up a corporation’s Annual Corporate Governance.

How is Annual Corporate Governance Helpful?

In addition to the legal obligation, engaging in appropriate Annual Corporate Governance is helpful in two ways:

1. Liability Management – Annual Corporate Governance helps ensure that the responsibility and authority to manage the corporation (along with the associated liability) is clearly understood. This is of particular concern to directors and officers for whom liability insurance should be purchased.
2. Changes in Structure (Investment, New Shareholders) / Major Transactions – When a corporation finds itself in a position to raise capital through investment, or is taking on new shareholders for any purpose, one of the first inquiries a potential investor or shareholder will make it to review the Minute Book (which includes all of the Annual Corporate Governance) to get a better understanding of your corporation’s governance structure. Corporations that have not maintained complete records generally find it very time consuming (and costly) to try and update and fully rectify their Minute Book at the time of investment. Furthermore, holding incomplete records can risk alienating the potential investor or shareholder from participating in the transaction. This can also be the case when a corporation is entering into other major transactions (including financing), as counterparties often wish to ensure that the individuals they are dealing with have the appropriate authority to bind the corporation to a significant commitment.

What decisions need to be documented?

Annual Corporate Governance documents involving several key decisions, including:

• Financial Statements – Approval by the directors and submission to the shareholders
• Approval of dividends, management salaries or bonuses
• Directors – Resignations during the year, elections for the next year and consents to act as directors
• Officers – Resignations during the year and appointments for the next year
• The issuance and transfer of any shares in the corporation
• Appointing Auditors & Accountants for the following year
• Exemption from statutory audit requirements
• Address Changes – Changes in the registered addresses of the corporation, shareholders, directors or officers, all of which require filing notice with the government.

What are the potential consequences of not maintaining Annual Corporate Governance?

In addition to the concerns with Liability Management, Changes in Structure and Major Transactions discussed above, not maintaining Annual Corporate Governance exposes a corporation to the following:

• Substantial fines and penalties for breaching the Business Corporations Act (Ontario) or the Canada Business Corporations Act levied against the corporation and directors
• Reassessment of income tax position by the Canada Revenue Agency
• Significant (and costly) room for contention regarding decisions & accounting practices during a shareholder dispute
• Missing critical communication from the government

Can I prepare the Annual Corporate Governance myself?

We are always happy to work with our clients to craft a bespoke solution to their Annual Corporate Governance needs. Smaller start-up clients often wish to draft initial resolutions themselves and have us provide a simple review, whereas more mature businesses often appreciate a comprehensive overview conversation prior to having us prepare their Annual Corporate Governance materials.

At incorporation, the first documents you should find in your corporation’s Minute Book include:

1. General Operating By-law (“By-Law No. 1”) – By-Law No. 1 is a list of general operating rules for the corporation.
2. First Director(s) Resolution – The individual(s) who agreed to be the first director(s) on the Articles have a legal obligation to approve certain things right after incorporation including: the allocation of shares and confirming the consideration (i.e. amount) paid for those shares. Once the first director(s) has approved these matters they officially resign as the “first director(s)”.
3. First Shareholders Meetings – Once the shares are allocated, the shareholders hold their first meeting (or unanimously sign resolutions in lieu of a meeting). A shareholder (owner of a company) does not have to be a director and a director does not have to be a shareholder. Some of the items approved at the first shareholders meeting are:
   • Establishing the number of directors
   • Accepting the resignation of the first director(s) and voting on the new director(s)
   • Confirming By-Law No. 1.
4. Consent to Act – Directors must consent to act as directors and this consent must be signed and inserted into the Minute Book.  This ensures that a director is not elected to the Board and his or her name is not put on the public record without his or her consent.
5. Exemption from Appointment of an Auditor – Most privately held corporations are not required to have audited books. However, the statute governing a Canadian or Ontario corporation will require that the shareholders approve an audit exemption.
6. Registers – Registers must be prepared for the corporation listing (i) the addresses and dates of appointment and resignation for directors and officers, and (ii) all of the individuals or corporate entities that hold shares in the corporation, the number of shares they own and the date they received those shares. It also records when shares are returned to the company or transferred to other individuals or corporate entities. Each shareholder will also have an individual ledger showing the date upon which shares were received and how many shares were allotted.
7. Government Forms – All corporations must file returns with the government under which they are incorporated regarding changes to the status or personal information of the directors and officers.
8. Share Certificates – Every shareholder has a right to a share certificate. This certificate evidences ownership and should be a part of the Minute Book.

Step 1 – Decide on whether to incorporate Federally or Provincially

Will your operations take place only in Ontario, across the country or internationally?

Step 2 – Decide on your company’s name

Every company needs a name. If you want a unique name, we will conduct a name search to ensure that someone else hasn’t registered your proposed name. If you don’t want a unique name, your company can be registered and known as a numbered company (e.g. 100001 Canada Ltd. or Ontario 101202 Ltd.).

Your name must include one of the following: Limited, Ltd., Incorporation, Inc., Corporation or Corp.

You may also consider registering a trademark for your company name at this point.

Step 3 – Decide on who your directors will be

We will need the name, address and citizenship of each of your anticipated directors. For both Federal and Ontario corporations at least 25% of directors must be resident Canadians, but if you have less than four directors one of them has to be a resident Canadian.

Step 4 – Meet with your accountant

At this point we strongly suggest meeting with an accountant to discuss the following issues:

1. Shareholdings – You should discuss the tax and practical implications of who the shareholders will be, what types of shares will be issued (common, preferred, voting, non-voting, convertible etc.), how many shares will be issued and what price the shares will be issued for.
2. Year-end Date – What date makes sense in the life cycle of your business and the availability of your accountant?
3. Financial Distributions – How are the various stakeholders in the proposed business (you, your business partner, your significant other) going to be compensated by the business (salaries? Dividends? Options?)

We are happy to introduce you to an accountant with experience relevant to your business.

Step 5 – Confirm the following with us

Now that you have met with your accountant, we should be able to easily identify the following stakeholders in your company:

1. The Shareholders – Their names, addresses and the number and type of shares they are to be issued (at this stage you will also want to consider whether a Unanimous Shareholder Agreement is required
2. The Officers – Who the President and Secretary will be, and any other anticipated or required officers

We also request the following information:

1. Signing Authority – Who will have the authority to execute documents on behalf of the corporation? Will there be situations when multiple signatories are required (usually when transactions exceed a certain financial threshold)?
2. Registered Head Office Address – A residential address is fine
3. Accountant / Auditor – Name and address of the company’s accountant/auditor

And advise that you consider:

1. Pre-incorporation Intellectual Property – Prepare an inventory of all the IP owned by the corporation’s stakeholders. These assets need to be properly assigned to the corporation.

Step 6 – Incorporating and organizing the company

At this step we are now ready to incorporate your company. We will conduct the appropriate name searches, register the company with the appropriate governing authority, and prepare a comprehensive minute book that contains all the required corporate documents (by-laws, resolutions, certificates, registers).

Once the minute book is ready, we will schedule a meeting with you where we can walk you through our minute book, and have you execute all of the required documents.

Step 7 – Start your business

Now that your corporation has been organized correctly you can feel free to move forward with common considerations including:

1. Registering for a Canada Business Number
2. Registering for a GST/HST Number
3. Setting up a bank account

We are always happy to discuss any of the steps enumerated above, and answer any questions you may have about the incorporation process.

Physicians practicing in Ontario are permitted to incorporate their medical practices and operate as a medicine professional corporation (“MPC”). The law grants corporations certain powers that may be financially beneficial for physicians, such as the ability to hold assets and incur liabilities; as well as certain added responsibilities which may be somewhat onerous, such as additional paperwork and fees.  For these reasons, recent graduates, solo or small groups of practitioners and newly resident physicians may be interested in exploring this option. This series of blogs explores the following topics:

• Part 1: Advantages of incorporating as an MPC
• Part 2: Pre-incorporation considerations
• Part 3: Key steps in MPC incorporation

Key Steps in PMC Incorporation

Having reviewed the advantages and pre-incorporation considerations of an MPC, if a physician or a group of physicians should decide to incorporate, the key steps towards successfully incorporating an MPC listed below would apply.

Assemble Advisers

Incorporating a medical practice can be a complex process. It is advisable that practitioners start by assembling a team of advisers including legal, accounting/tax and financial expertise.

Incorporation

Once a lawyer has the following requisite information to file the application for incorporation, receiving the approved Articles of Incorporation from the government generally takes 1-2 days. The necessary information is as follows:

1. Jurisdiction: MPCs must be incorporated as a provincial corporation under the Business Corporations Act (Ontario).
2. Name: Naming an MPC requires adhering to strict rules. A corporate name must include the physician’s surname as it appears on College of Physicians and Surgeons of Ontario’s (“CPSO”) register. It may also include given names or initials and “Dr.”. If the prospective MPC has more than one physician member, its name only requires one of their respective names. The name must also include the words “Medicine Professional Corporation”.
3. Issuing Shares: The type and number of shares being issued to the physician(s) and their family members is most often determined by coordinating with the physician’s accountant and lawyer. Three common classes of shares that are often issued include:
   1. Special Shares: Special shares have their values frozen upon issuance (e.g $1.00 per share) and are typically issued to family members. The MPC’s board of directors is then able to declare variable amounts of dividends (or no dividends at all) to the family member shareholders assuming they each hold a different class or series of shares. The board of directors may easily redeem the Special Shares at any time because their value was frozen at issuance.
   2. Common Shares: Common Shares are usually issued to the physician shareholder and are also the voting shares of the MPC.
   3. Preference Shares: Transferring an existing medical practice to an MPC can be accomplished on a tax-free basis by having the physician and MPC engage in a section 85(1) rollover agreement (as permitted under the ITA). This “rolls over” the practice from the physician to the MPC at its tax values. As part of the consideration for the rollover, the MPC issues Preference Shares to the physician at the fair market value of the practice as at the time of transfer.
4. Restrictions: There are several nuances between a standard for-profit corporation and an MPC. For example, the Articles of an MPC must provide that “the corporation cannot carry on a business other than the practice of medicine and activities related to or ancillary to the practice of medicine”. Furthermore, restrictions should be put in place ensuring that only shareholders who are members of the CPSO can become officers or directors of the MPC.
5. Certificate of Authorization

Once the MPC has been incorporated, a copy of the Articles can be used to establish a corporate bank account or change the name on the existing account. An application to the CPSO is also required and must be submitted along with a fee of $350.00 in order to obtain a Certificate of Authorization. Without this certificate, the corporation is not permitted to practice. It generally takes about two to three weeks to obtain a Certificate of Authorization from the CSPO, but the Certificate will be dated and take effect from the date CPSO received the completed application.

Statutory Declaration

A statutory declaration executed by a director of the MPC must be completed not more than 15 days prior to submitting the application to CPSO. It certifies that the MPC is in compliance with applicable law, will only carry on the business of practicing medicine and that the information provided to CPSO is accurate and complete. This must be signed in the presence of a lawyer or notary public.

Organize the Corporation

As with every corporation, the physician’s lawyer will prepare a comprehensive minute book that contains all the required corporate records such as by-laws, resolutions, certificates and officer/director/shareholder registers.

1. Miscellaneous (if necessary):

1. Rollover Agreement to Transfer Practice to the MPC: If transferring an existing practice to the MPC, the physician’s lawyer and accountant will prepare a Section 85(1) Rollover Agreement.
2. Assign Lease: If the physician’s existing practice is operating as a tenant under a lease it may be necessary to get the landlord’s consent prior to assigning the lease to a new entity (i.e. the MPC). The lease provisions should be reviewed to ensure the appropriate assignment process is followed.
3. Employment Agreement: It may be beneficial to prepare an employment agreement whereby the physician personally agrees that all services being provided to patients are being made on behalf of the MPC and the physician as trustee for the MPC holds payments received by the physician personally. It may be that if a physician receives these payments personally without an agreement the Canada Revenue Agency will tax the physician at personal income tax rates rather than at corporate tax rates in the MPC.
4. Renewal of Certificate of Authorization: MPCs must apply for renewals of authorization on the anniversary of the certificate’s date of issue. Administrative filing charges will apply.

We are always happy to discuss any of the steps enumerated above, and answer any questions you may have about establishing an MPC.

Note: Tax information was graciously provided by our friend Scott Vloet, Partner at Vloet & Kan LLP.