chair

Howard Simmons Simmons da Silva LLP

March 8, 2017

Maintaining Minute Books and Solving Minute Book Problems

*CLE17-0030101-A-PUB*

DISCLAIMER: This work appears as part of The Law Society of Upper Canada’s initiatives in Continuing Professional Development (CPD). It provides information and various opinions to help legal professionals maintain and enhance their competence. It does not, however, represent or embody any official position of, or statement by, the Society, except where specifically indicated; nor does it attempt to set forth definitive practice standards or to provide legal advice. Precedents and other material contained herein should be used prudently, as nothing in the work relieves readers of their responsibility to assess the material in light of their own professional experience. No warranty is made with regards to this work. The Society can accept no responsibility for any errors or omissions, and expressly disclaims any such responsibility.

© 2017 All Rights Reserved

This compilation of collective works is copyrighted by The Law Society of Upper Canada. The individual documents remain the property of the original authors or their assignees.

The Law Society of Upper Canada 130 Queen Street West, Toronto, ON M5H 2N6Phone: 416-947-3315 or 1-800-668-7380 Ext. 3315Fax: 416-947-3991 E-mail: cpd@lsuc.on.ca www.lsuc.on.ca

Library and Archives Canada Cataloguing in Publication

Maintaining Minute Book and Solving Minute Book Problems

ISBN 978-1-77094-781-8 (Hardcopy)ISBN 978-1-77094-782-5 (PDF)

1

Chair: Howard Simmons, Simmons da Silva LLP

March 8, 2017 9:00 a.m. to 12:00 p.m.

CPD Hours = 2 h 30 m Substantive + 30 m Professionalism

The Law Society of Upper Canada 130 Queen Street West

Toronto, ON

SKU CLE17-00301

Agenda

9:00 a.m. – 9:05 a.m. Welcome and Opening Remarks Howard Simmons, Simmons da Silva LLP 9:05 a.m. – 9:30 a.m. The Basics: Foundational Issues about Minute Books that

you Need to Understand

Jason (Jake) Bullen, Cassels Brock LLP 9:30 a.m. – 9:50 a.m. Ontario’s New Record-Keeping Requirements for Corporations Having an Ownership Interest in Land

Jeffrey Alpert, Torkin Manes LLP

MAINTAINING MINUTE BOOKS AND

SOLVING MINUTE BOOK PROBLEMS

2

9:50 a.m. – 10:20 a.m. Ethical Issues in Minute Book Maintenance (30

minutes )

Jordan Dolgin, Dolgin Professional Corporation 10:20 a.m. – 10:30 a.m. Go Ahead and Ask Us (Q and A Session) 10:30 a.m. – 10:45 a.m. Coffee and Networking Break

10:45 a.m. – 12:00 p.m. Responsive Q and A Panel: We Take on Your Minute

Book Questions Moderator: Howard Simmons, Simmons da Silva LLP Panellists:

Bruce Chapple, McMillan LLP Deanne Henry, Corporate Law Clerk,

Miller Thomson LLP 12:00 p.m. Program Ends

March 8, 2017 SKU CLE17-00301

Table of Contents

TAB 1 The Basics: Foundational Issues about Minute Books that you Need to Understand – PowerPoint …………………. 1 - 1 to 1 - 35

Minute Book Review Template ……………………………………… 1 -36 to 1- 39

Jason (Jake) Bullen, Cassels Brock LLP

TAB 2 Ontario’s New Record-Keeping Requirements for Corporations Having an Ownership Interest in

Land …………………………………………………………………………… 2 - 1 to 2 - 8

Jeffrey Alpert, Torkin Manes LLP TAB 3 Ethical Issues in Minute Book Maintenance

Fact Scenarios …………………………………………………………….. 3 - 1 to 3 - 8

Jordan Dolgin, Dolgin Professional Corporation

MAINTAINING MINUTE BOOKS AND

SOLVING MINUTE BOOK PROBLEMS

TAB 1

The Basics: Foundational Issues about

Minute Books that you Need to Understand

Minute Book Review Template

Jason (Jake) Bullen, Cassels Brock LLP

March 8, 2017

Maintaining Minute Books and

Solving Minute Book Problems

Jason (Jake) BullenMaintaining Minute Books – Law Society of Upper Canada

March 8, 2017

The Basics: Foundational Issues About Minute Books That You Need to Understand

slide | ‹#›

Big Picture Considerations

1. What is a Minute Book?

2. What goes into the Minute Book?

3. Why perform a Minute Book review?

4. How to fix common Minute Book deficiencies.

1 - 1

slide | ‹#›

What is a Minute Book? – The Basics

“A minute book is a loose-leaf ring binder that acts as a

place to store minutes and resolutions in writing of the board

of directors, minutes and resolutions in writing of the

shareholders, the certificate and articles of incorporation,

by-laws, unanimous shareholder agreement, if any,

securities register ledger, register of transfers and share

certificates.”-Incorporation and Organization (OBCA), Practice Note from Practical Law,

http://ca.practicallaw.com/0-621-7772?q=minute+books

1 - 2

slide | ‹#›

What Should be in a Minute Book?

OBCA, Section 140:

1) A corporation shall prepare and maintain, at its registered office or at such other place in Ontario

designated by the directors,

a) the articles and the by-laws and all amendments thereto, and a copy of any unanimous

shareholder agreement known to the directors;

b) minutes of meetings and resolutions of shareholders;

c) a register of directors in which are set out the names and residence addresses, while

directors, including the street and number, if any, of all persons who are or have been

directors of the corporation with the several dates on which each became or ceased to be a

director;

d) a securities register complying with section 141; and

e) a register of ownership interests in land complying with section 140.1.

Idem

2) In addition to the records described in subsection (1), a corporation shall prepare and maintain,

a) adequate accounting records; and

b) records containing minutes of meetings and resolutions of the directors and any committee

thereof,

1 - 3

slide | ‹#›

What Should be in a Minute Book? - Continued

● Articles of incorporation

(and/or amendment,

amalgamation,

continuance, etc.)

● Note: BC equivalent –

Notice of Articles

● By-laws

● Note: BC equivalent –

Articles

● Shareholders’ agreements

● Minutes of meetings –

directors/shareholders

● Registers showing

shareholders, & issuance

and transfer of shares

● Cancelled share

certificates and share

certificate stubs

● Registers showing

directors and officers

● Government filings

1 - 4

slide | ‹#›

What Should be in a Minute Book? - New Developments

Register of interests in land in Ontario

OBCA Section 140.1:

(1) A corporation shall prepare and maintain at its registered office a register of its

ownership interests in land in Ontario.

(2) The register shall,

(a) identify each property; and

(b) show the date the corporation acquired the property and, if applicable, the date

the corporation disposed of it.

(3) The corporation shall cause to be kept with the register a copy of any deeds,

transfers or similar documents that contain any of the following with respect to each

property listed in the register:

1. The municipal address, if any.

2. The registry or land titles division and the property identifier number.

3. The legal description.

4. The assessment roll number, if any.

1 - 5

slide | ‹#›

Articles of Incorporation Contain:

● Corporate name

● Registered office address

● Number of directors (fixed vs. minimum-maximum)

● First directors

● Classes and any maximum number of shares that the

corporation is authorized to issue

● Share attributes attaching to each class of shares

● Restrictions on issue, transfer or ownership of shares (if

any)

● Borrowing provisions

● Restrictions on business, if any

1 - 6

slide | ‹#›

Articles of Incorporation - Continued

● Description of share capital, including restrictions on

issue, transfer and/or ownership of shares

● Share attributes

● participating v. non-participating

● voting v. non-voting

● increases to default percentage of votes to pass resolutions

(e.g. supra-majority voting) (Section 5(4))

● rights to dividends (fixed, cumulative, etc.)

1 - 7

slide | ‹#›

By-Laws

What are typically captured in by-laws?

● By-laws “regulate the business or affairs of a corporation”

● Review to confirm that the Company is governing itself in accordance with the by-law requirements concerning:

● election of directors, notice of and operation of directors’ meetings

● notice of and operation of shareholders’ meetings

● titles and duties of officers

● execution of instruments/documents

● shares

● directors’ and officers’ insurance and indemnification

● committees of the board

● dividend mechanics

1 - 8

slide | ‹#›

By-Laws - Continued

How to change make, amend or repeal by-laws:

● OBCA Section 116(1): subject to the articles, by-laws or a unanimous shareholder agreement, the directors may, by resolution, make, amend or repeal any by-laws

● OBCA Section 116(2): where the directors make, amend or repeal a by-law they shall submit same to the shareholders at the next meeting thereof to be confirmed, rejected or amended

1 - 9

slide | ‹#›

By-Laws - Continued

● Some important points to consider:● Does by-law address the Securities Transfer Act (Ontario)?

● Does by-law permit electronic participation by a director at a meeting of the board or a committee thereof?

● Does Chairman have a casting vote?

● Does by-law address a conflict of interest with respect to a director or officer?

● How broad are the indemnity rights in favour of a director, officer or former director/officer?

● Can a shareholders’ meeting be held by electronic means?

● What is quorum for a shareholders’ meeting?

1 - 10

slide | ‹#›

By-law No. 1 – Sample

● Contracts, documents or instruments in writing requiring

execution by the Corporation must be signed by 3

directors of the Corporation and any contracts,

documents or instruments in writing so signed shall be

binding upon the Corporation without any further

authorization or formality.

1 - 11

slide | ‹#›

Resolutions

● Organizational resolutions of Directors and Shareholders should typically be passed at the time of incorporation

● Directors’ Resolutions

● share issuances and form of share certificates

● enact by-laws

● appoint accountants (if applicable)

● Shareholders’ Resolutions

● elect directors

● approve by-laws

● appoint auditors (or waive the appointment of auditors)

1 - 12

slide | ‹#›

Resolutions - Continued

● The review of share issuances and transfers is critical:

● Do the number of common or preference shares

purportedly issued exceed the number authorized?

● Was proper consideration received for each share

issuance in compliance with Section 23(4)

● is there evidence in the minute book that sufficient

consideration was received?

● Were all share transfers made with the appropriate approval of directors and/or shareholders?

1 - 13

slide | ‹#›

Section 23 of the OBCA (excerpts)

(1) Subject to the articles, the by-laws, any unanimous shareholder agreement and section

26, shares may be issued at such time and to such persons and for such

consideration as the directors may determine.

Fully-paid shares

(3) A share shall not be issued until the consideration for the share is fully paid in money

or in property or past service that is not less in value than the fair equivalent of the

money that the corporation would have received if the share had been issued for

money.

Value determined by directors

(4) The directors shall, in connection with the issue of any share not issued for money,

determine,

(a) the amount of money the corporation would have received if the share had been

issued for money; and

(b) either,

(i) the fair value of the property or past service in consideration of which the

share is issued, or

(ii) that such property or past service has a fair value that is not less than the

amount of money referred to in clause (a).

1 - 14

slide | ‹#›

Resolutions - Continued

● The review of share issuances and transfers is critical (continued):

● Do the share registers match the resolutions

approving share issuances and/or transfers?

● Is there evidence of share transfers in the form of

endorsed certificates or stock powers of attorney?

● Compliance with restrictions on the issuance or

transfer of shares (such as pre-emptive rights, rights of

first refusal and similar rights or limitations) contained

in the articles or a Unanimous Shareholder

Agreement?

1 - 15

slide | ‹#›

Resolutions - Continued

● Many corporate actions require the authorization, by resolution, of the directors and/or the shareholders

● OBCA Subsection 129 (Directors) and Subsection 104(1) (Shareholders) provide that a resolution in writing signed by all of the directors or shareholders entitled to vote thereon is as valid as if it had been passed at a meeting of, respectively, directors or shareholders

1 - 16

slide | ‹#›

Shareholders’ Agreement

Unanimous Shareholders’ Agreement

● directors (size, nominees, filling vacancies)

● restrictions on powers of the directors

● increase in voting requirements (versus OBCA)

● procedures re: issuing/transferring shares

● restrictions on how changes can be made to by-laws and

articles

1 - 17

slide | ‹#›

Unanimous Shareholders Agreements

OBCA S.108

Agreement between shareholders

(2) A written agreement among all the shareholders of a corporation or among all the

shareholders and one or more persons who are not shareholders may restrict in

whole or in part the powers of the directors to manage or supervise the management

of the business and affairs of the corporation.

Where shareholder has power, etc., of director

(5) A shareholder who is a party to a unanimous shareholder agreement has all the

rights, powers, duties and liabilities of a director of a corporation, whether arising

under this Act or otherwise, including any defences available to the directors, to

which the agreement relates to the extent that the agreement restricts the discretion

or powers of the directors to manage or supervise the management of the business

and affairs of the corporation and the directors are relieved of their duties and

liabilities, including any liabilities under section 131, to the same extent.

1 - 18

slide | ‹#›

Government Filings

The minute book should contain originals/copies of all

corporate governmental filings for the entity, including:

● Business name registrations for the home jurisdiction

● Initial Return – Form 1

● Notice of Change – Form 1

● Annual Returns

● Certificates of registration for extra provincial registrations

● Business name registration for extra provincial registrations

● Limited Partnership Declaration – Form 3, if there is no separate

minute book for the limited partnership

1 - 19

slide | ‹#›

Why Perform a Minute Book Review?

● To understand the “status” of the corporate records and

identify, and fix, deficiencies.

● To understand the structure and history of a company.

● To ensure the validity of formation and existence.

● For a transaction:

● to get an initial feel or understanding of a target corporation

● to assist in drafting documents for the transaction

● to confirm representations and warranties being made to

your client

● to support a legal opinion

1 - 20

slide | ‹#›

How to Commence a Minute Book Review

● Order corporate searches against the corporation,

including (as applicable) a microfiche, a Corporation

Profile Report or the use of an online search program

such as the Industry Canada website

● Order a Corporation Point in Time Report

● Ensure that your due diligence request list includes all of

the relevant minute book materials as well as related

materials such as share certificate books, all applicable

shareholder agreements and corporate organizational

charts

1 - 21

slide | ‹#›

How to Commence a Minute Book Review -

Continued

● Confirm and apply the applicable corporate statute(s)

(including the correct version) for the minute book that

you are reviewing

● Start with a good minute book review template

● Identify all deficiencies; you can provide your input on the

relative materiality of each once the summary has been

submitted

1 - 22

slide | ‹#›

Fundamental Questions

● Does the corporation have the requisite power and

capacity to own its property and carry on its business?

● Have significant agreements and transactions been duly

authorized?

● Have shares been properly issued and transferred?

1 - 23

slide | ‹#›

Deficiencies

Deficiencies refers to issues in the minute book. Some

common deficiencies include:

● Documents with missing signature

● Annual proceedings not up to date

● Missing resignations for previous directors and officers

● Missing authorizing resolutions for entering into agreements and

transactions

● Filings of notices and annual returns are not up to date

● Share certificates were not properly issued

● Registers of directors, officers, shareholders, share transfers are

not up to date

● Shareholders ledgers are not up to date.

1 - 24

slide | ‹#›

Rectification of Deficiencies

● Confirming or ratifying resolutions

● Statutory Declaration

● Amendment of articles

● Statutory remedies

● Other alternatives:

● indemnity (e.g. from Vendor)

● reduction or withholding of purchase price (transactional)

● affidavit or other evidence of authorization being provided

● Transfer shares to Newco and amalgamate or wind up

(see next 2 slides)

1 - 25

slide | ‹#›

Step 1: Transfer of Shares

Unknown

Shareholder

Shareholder

NewCoOldCo

Issuance of

NewCo

SharesTransfer of

OldCo

shares

1 - 26

slide | ‹#›

Step 2: Winding-Up or Amalgamation

Winding Up

Shareholder

NewCo

OldCo

Unknown

Shareholder

Dissolution

of OldCoAssets and

Liabilities

Amalgamation

Shareholder

NewCo

OldCo

AmalCo

Unknown

Shareholder

X cancelled

X Converted

Shareholder

AmalCo

Unknown

Shareholder

Cancelled

after date of

redemption

Assets &

Liabilities

Assets &

Liabilities

Conversion into

redeemable

shares

1 - 27

slide | ‹#›

Sample Rectifying Language

By-Laws

1. The directors hereby confirm that By-law No. 1 be and it is hereby

repealed and By-law No. 2, being the general by-law of the Corporation, a

copy of which is annexed hereto as Schedule “A”, be and the same is

hereby passed as By-Law No. 2 of the Corporation;

Directors

2. The shareholders hereby ratify, confirm and approve that the number of

directors to be elected to the board as of the date of incorporation to and

including June 6, 1997 was determined to be one (1) director;

3. The shareholders hereby ratify, confirm and approve that Joe Technology

was elected as the first director of the Corporation on May 31, 1996;

1 - 28

slide | ‹#›

Sample Rectifying Language - Continued

4. the shareholders hereby ratify, confirm and approve that the number of directors to be elected to the board was increased from one (1) director to two (2) directors on June 6, 1997;

5. the shareholders hereby ratify, confirm and approve that Jamie Accountant was elected as director of the Corporation on June 6, 1997;

6. the shareholders hereby ratify, confirm and approve that the number of directors to be elected to the board was decreased from two (2) to one (1) on December 1, 1998, as a result of the resignation of Joe Technology; and

7. the shareholders hereby ratify, confirm and approve that the sole director of the Corporation as of the date hereof is Jamie Accountant.

Signed - all the shareholders of the Corporation

1 - 29

slide | ‹#›

Further Rectifications

Company A Rectifying Resolution:

WHEREAS the Corporation's records are incomplete;

AND WHEREAS the directors and shareholders wish to ratify, confirm and approve all past actions of both the board of directors and the shareholders and to verify the current directors and officers of the Corporation, as well as the

current shareholders and their respective shareholdings in the Corporation;

AND WHEREAS it is in the best interests of the Corporation to update the

corporate records and documentation of the Corporation;

1 - 30

slide | ‹#›

Further Rectifications - Continued

BE IT RESOLVED THAT:

1. all by-laws, contracts, acts, appointments, proceedings and payments enacted, made, drawn and taken by the directors, officers and shareholders of the Corporation since incorporation, be and the same are hereby ratified, confirmed, and approved including but not limited to…….

2. it is hereby confirmed and acknowledged that there were a total of 717 issued and outstanding preferred shares in the capital of the Corporation as at July 9, 1991 notwithstanding that only 700 preferred shares were authorized to be issued pursuant to the Articles of the Corporation; and

3. it is hereby confirmed and acknowledged that Articles of Amendment were filed and dated June 25, 1992 increasing the number of preferred shares that the Corporation was authorized to issue from 700 to 1,000;

1 - 31

slide | ‹#›

The Principles of Rectification (SCC)

● Two recent SCC decisions in Attorney General (Canada) v. Fairmont Hotels

Inc. (2016 SCC 56) and Jean Coutu Group (PJC) Inc. v. Canada (Attorney

General) (2016 SCC 55) highlight the standards applied by the court for

contract rectification claims.

● To be eligible for rectification, a party must demonstrate on a balance of

probabilities that:

● A prior agreement existed, with definite and ascertainable terms;

● The agreement was in effect at the time the written instrument under review was

executed;

● The written instrument under review does not accurately record the prior

agreement; and

● The instrument, if rectified, would carry out the prior agreement of the parties. In

the case of a unilateral mistake, the party seeking rectification must

demonstrate the other party knew or ought to have known about the mistake,

and allowing the defendant to take advantage of the error would amount to fraud

or the equivalent.

1 - 32

slide | ‹#›

Opinions

● Officer’s Certificate

● Authorizing resolutions

● Presumption of regularity

● Indoor management rule

1 - 33

slide | ‹#›

Conclusion: Deficiencies

● There are deficiencies that can be fixed or at least

ameliorated (by resolutions, amending articles, repealing

by-laws, use of Newco, statutory remedies), and

deficiencies that cannot be fixed

● Opinions may be difficult, or impossible, to give

● Creative solutions: reorganization, revised business

terms, indemnities, reduction in purchase price, etc.

1 - 34

© 2011 CASSELS BROCK & BLACKWELL LLP.

CASSELS BROCK AND THE CB LOGO ARE REGISTERED TRADE-MARKS OF CASSELS BROCK & BLACKWELL LLP.

ALL RIGHTS RESERVED.

The Basics:

Foundational Issues

About Minute Books

That You Need to

Understand

Jason (Jake) BullenMaintaining Minute Books – Law Society of Upper Canada

March 8, 2017

1 - 35

Legal*13233098.2

MINUTE BOOK REVIEW

[CORPORATION NAME] (the “Corporation”)

1. GENERAL FILE INFORMATION

File No.

Responsible File Lawyer

Review by

Review Completed as at

2. CORPORATE SUMMARY

Jurisdiction of Incorporation

Incorporation / Amalgamation Date

Corporation No.

Registered Office Address

Principal Place of Business

Activity Classification

Fixed or Sliding Board (No. of Directors)

Fixed Board Currently fixed at directors.

Sliding Board A minimum of and a maximum of directors. Currently fixed at directors.

1 - 36

Page 2

Legal*13233098.2

Vacancies on Board yes no If yes, vacancies.

Objects

Authorized Share Capital/Structure (Including Attributes)

Share Issuance/Transfer Restrictions

Private Company Restrictions

Amalgamation between

Execution of Instruments any one officer or director or

Bank and Signing Authority

Fiscal Year-end (dd/mm)

Auditors Auditor required: yes no

If yes, name of auditors:

If no, date (dd/mm/yyyy) as of which auditor requirement was waived:

Accountants

Shareholders’ Agreement contained in records

yes no

If yes, describe any material provisions

3. AMENDMENTS TO ARTICLES (AMENDMENT, CONTINUANCE, REVIVAL, RESTATE, ETC., IF ANY)

Date (dd/mm/yyyy) and Description

4. BY-LAWS

General Title Date Enacted by Directors (dd/mm/yyyy)

Date Confirmed by Shareholders (dd/mm/yyyy)

1 - 37

Page 3

Legal*13233098.2

Meeting Provisions Shareholders Directors

Quorum:

Notice:

Shareholder Casting Vote: yes no

Quorum:

Notice:

Director Casting Vote: yes no

Special Rights and Restrictions

Other Noteworthy Provisions

5. DIRECTORS SUMMARY

Name Resident Canadian/ Citizenship

Date Elected (dd/mm/yyyy)

Consent to Act Residential Address/ Address for Service

Date Resigned or Removed

(dd/mm/yyyy)

yes no

6. OFFICERS SUMMARY

Office Name Date Appointed (dd/mm/yyyy)

Residential Address/Address for Service Date Resigned or Removed

(dd/mm/yyyy)

7. SHAREHOLDERS SUMMARY

Date (dd/mm/yyyy) Issued / Transferred

Name Residential Address/Address for Service No. of Shares

Class Share Certificate No.

1 - 38

Page 4

Legal*13233098.2

8. BUSINESS NAMES

Business Name Jurisdiction Date of Registration (dd/mm/yyyy)

Registration No. Comments

9. EXTRA-PROVINCIAL REGISTRATIONS

Jurisdiction Date of Registration (dd/mm/yyyy)

Registration No. Comments

10. ANNUAL RESOLUTIONS

Date (dd/mm/yyyy)

Directors Shareholders New Directors

Approve Financial Statements for Year Specified,

unless waived by shareholders

Accept and Receive Financial Statements for

Year Specified OR

Financial Statements Waived

Elect Directors

Appoint Auditors

Consent to Auditor

Exemption

Confirm and Ratify

Acts of Directors

Consent to Act as

Directors

Appoint Officers

Appoint Accountants

11. OTHER RESOLUTIONS AND OTHER DOCUMENTS

Date (dd/mm/yyyy)

Description

12. DEFICIENCIES

Notes

1 - 39

TAB 2

Ontario’s New Record-Keeping Requirements for Corporations Having an

Ownership Interest in Land

Jeffrey Alpert, Torkin Manes LLP

March 8, 2017

Maintaining Minute Books and

Solving Minute Book Problems

ONTARIO'S NEW RECORD-KEEPING REQUIREMENTS FOR

CORPORATIONS HAVING AN OWNERSHIP INTEREST IN LAND

A. INTRODUCTION

Corporations incorporated under the Ontario Business Corporations Act (the

"OBCA") need to be aware of some important changes to the law regarding record-keeping and

forfeiture of corporate property that came into force on December 10, 2016. These changes

require corporations to maintain a new record called a "register of ownership interests in land in

Ontario". The changes also affect the law relating to a corporation's personal and real property

that is forfeited to the Crown (i.e., the Province of Ontario) following the dissolution of the

corporation.

On December 10, 2015, the Ontario Government passed Bill 144, the Budget

Measures Act, 2015 to implement measures contained in the 2015 Ontario Budget, including the

enactment of a new statute called the Forfeited Corporate Property Act, 2015 (the "FCPA").

The FCPA makes changes to the existing law regarding what happens when a corporation's

personal and real property is forfeited to the Crown following the dissolution of the corporation.

As part of these changes, the FCPA also makes certain amendments to the OBCA, which

governs business corporations in Ontario, and to the Ontario Corporations Act and the Ontario

Not-for-Profit Corporations Act (if the latter ever comes into force), which govern other kinds of

corporations. This paper will focus on the amendments to the OBCA and all references are to a

corporation incorporated, amalgamated, or continued under the OBCA. The FCPA and the

related amendments to the OBCA both came into force on December 10, 2016.

2 - 1

B. FORFEITURE OF CORPORATE PROPERTY

Ontario law provides that, upon the dissolution of a corporation, all of its personal

and real property is forfeited to and becomes the property of the Crown. Before the recent

amendments, the owners of a dissolved corporation had up to twenty years following the date of

its dissolution to apply for the revival of the corporation and to recover its property. After the

FCPA came into force, the owners of the dissolved corporation still have twenty years to apply

for its revival following its dissolution, but they will not be entitled to recover its personal and

real property if the revival takes place more than three years after the date of its dissolution

(subject to certain exceptions).

The FCPA provides that, starting three years after the date of dissolution, the

Province of Ontario can use the forfeited assets for Crown purposes, sell them, remove any

encumbrances registered on title to the forfeited real property, and remove any security interests

registered against the forfeited personal property under the Personal Property Security Act.

The FCPA states that forfeited real property and interests in real property include:

1. a charge under the Land Titles Act or a mortgage; and

2. a building or structure that is owned separately from the land on which the

building or structure is located or an interest in such building or structure.

2 - 2

C. NEW RECORD-KEEPING REQUIREMENTS UNDER THE OBCA: REGISTER OF

OWNERSHIP INTERESTS IN LAND

In connection with the introduction of the FCPA, there are related amendments to

the OBCA which impose new record keeping requirements for a corporation. A new Section

140(1)(e) has been added to the OBCA, which provides that a corporation shall prepare and

maintain a register of ownership interests in land complying with Section 140.1 of the OBCA.

The new Section 140.1 states that a corporation shall prepare and maintain at its registered office

a register of ownership interests in land in Ontario which shall:

1. identify each property; and

2. show the date the corporation acquired the property, and, if applicable, the date

the corporation disposed of it.

As supporting documents for this new register, Section 140.1(3) states that the

corporation shall cause to be kept with the register a copy of any deeds, transfers or similar

documents that contain any of the following with respect to each property listed in the register:

1. the municipal address, if any;

2. the Registry or Land Titles Division and the Property Identifier Number;

3. the legal description; and

4. the assessment roll number, if any.

As to the form of the above records, Section 139(1) states that where the OBCA

requires a record to be kept by a corporation, it may be kept in a bound or a loose leaf book or

2 - 3

may be entered or recorded by any system of mechanical or electronic data processing or any

other information storage device.

There is no prescribed form for the register of ownership interests in land.

Attached hereto as Schedule "A" is a suggested form for this register.

D. WHERE TO KEEP THE REGISTER OF OWNERSHIP INTERESTS IN LAND

The new amendments to the OBCA specify that the register of ownership interests

in land must be maintained at the corporation's registered office. According to Section 144(3),

this register can only be maintained at the corporation's registered office and cannot be kept at

another location in Ontario designated by the directors. If the registered office is at a location

other than the corporation's place of business (such as the office of the corporation's lawyer or

accountant), then the register must be maintained at that location. If so, then the corporation will

need to provide on a timely basis to its lawyer or accountant (as the case may be) all of the

information required to maintain its register of ownership interests in land.

E. TRANSITIONAL RULES

According to the new Section 140(4), if a corporation was incorporated or

continued under the OBCA before December 10, 2016, then the corporation has two years to

comply with the new record keeping requirements, that is, until December 10, 2018. However,

according to the new Section 140(5), if a corporation is incorporated or continued under the

OBCA on or after December 10, 2016, then the real property register requirements apply to it

commencing on the date of its incorporation or continuance.

2 - 4

F. WHAT IS AN OWNERSHIP INTEREST IN LAND?

The OBCA does not define the term "ownership interest in land in Ontario". It

has been suggested that this phrase includes both beneficial interests in land, as well as registered

interests in land. Assuming that this interpretation is correct, this means that the corporation's

register must list and contain the necessary information for each property with respect to which

the corporation is the registered owner on title and also those properties in which the corporation

has a beneficial ownership interest. For example, if a corporation is a bare trustee or nominee

which holds the registered title to land in trust for another corporation as the beneficial owner,

then the subject lands should be listed in the registers maintained by both the bare

trustee/nominee corporation and the beneficial owner corporation, together with all the required

supporting documents.

What else could be regarded as an "ownership interest in land in Ontario"? As

noted above, the FCPA states that forfeited real property and interests in real property include a

charge under the Land Titles Act or a mortgage. Assuming that an "ownership interest in land"

as referred to in the OBCA has the same interpretation, then a corporation which holds a charge

or mortgage over land in Ontario would be required to list the subject lands in its register

together with a copy of the supporting documents including the charge or mortgage.

An "ownership interest in land in Ontario" would not include any interest in land

located outside of Ontario that is owned by an Ontario corporation. Accordingly, an Ontario

corporation does not need to record this interest in its register of ownership interests in land.

It should also be noted that these new record-keeping requirements under the

OBCA do not apply to a corporation incorporated under a jurisdiction other than Ontario (such

2 - 5

as a corporation incorporated under the Canada Business Corporations Act), even though the

non-Ontario corporation may have an ownership interest in land in Ontario.

G. CONSEQUENCES OF NON-COMPLIANCE WITH THE NEW RECORD-KEEPING

REQUIREMENTS

Pursuant to Section 145(1), the registered and beneficial owners of shares and the

creditors of a corporation (and their agents and legal representatives) are entitled to examine the

corporation's records, including the register of ownership interests in land, and to take extracts

from those records. Section 258(1) provides that every person who, without reasonable cause,

contravenes Section 145 or otherwise commits an act contrary to or fails or neglects to comply

with any provision of the OBCA is guilty of an offence. On conviction, a corporation is liable to

a fine of not more than $25,000.00. Where the guilty party is a corporation, every director or

officer who, without reasonable cause, authorized, permitted or acquiesced in such offence is

also guilty of an offence and on conviction is liable to a fine of not more than $2,000 or to

imprisonment for a term of not more than one year, or to both.

H. CONCLUSIONS

Presumably, these amendments to the OBCA are intended to make it easier for the

Province of Ontario to locate the assets of dissolved corporations and to make it easier for the

Province to use or sell any forfeited corporate property. However, these new requirements

impose a burden on many corporations, especially ones that have extensive real estate holdings.

Not only are corporations required to keep a list of their real estate holdings, but they are also

required to record all dispositions of their properties. For example, a corporation which is a real

2 - 6

estate developer that sells properties on a regular basis will need to keep its register up-to-date

regarding all of its dispositions.

Although it is highly unlikely that the Ontario Government will enforce these

record-keeping requirements, other problems may arise if the corporation is not in compliance

with these requirements. For example, many loan agreements contain covenants, representations

and warranties by a corporate borrower that it is in compliance with all applicable laws. If a

corporation is not maintaining its register of land ownership as required by the OBCA, then the

corporation may be in breach of its loan agreement. If so, then its lawyers may not be able to

provide the necessary legal opinion to the corporation's lender, unless the lender is willing to

accept a qualification relating to these requirements.

In view of the fact that these changes to the OBCA affect so many corporations, it

is surprising that the Ontario Government did so little to inform the general public and the legal

profession about these new record-keeping requirements. It is now too late to do anything except

comply with the new legislation.

Jeffrey Alpert Direct Tel: 416-777-5418 Direct Fax: 1-888-823-9019 jalpert@torkinmanes.com

TORKIN MANES LLP Barristers & Solicitors 151 Yonge Street, Suite 1500 Toronto, Ontario CANADA M5C 2W7

www.torkinmanes.com

JALPERT/1745754_.1

2 - 7

Schedule "A"

REGISTER OF OWNERSHIP INTERESTS IN LAND (ONTARIO)

FOR [INSERT NAME OF CORPORATION]

PROPERTY

(municipal address, legal description, and Property Identifier Number)

DATE OF

ACQUISITION DATE OF DISPOSITION

SUPPORTING DOCUMENTS*

(please list)

*Supporting documents required under the Ontario Business Corporations Act, Section 140.1(3) include copies of deeds, transfers, or similar documents containing the following information:

Municipal address, if any; the Registry or Land Titles Division and the Property Identifier Number; the legal description of the property; and the assessment roll number, if any.

Notes: This register must be maintained and kept at the registered office of the corporation This register may be kept in a bound or loose-leaf book, or entered or recorded by any system of mechanical or electronic data processing, or

any other information storage device Supporting documents must be kept with the register

2 - 8

TAB 3

Ethical Issues in Minute Book Maintenance

Jordan Dolgin, Dolgin Professional Corporation

March 8, 2017

Maintaining Minute Books and

Solving Minute Book Problems

Maintaining Minute Books and Solving Minute Book Problems

March 8, 2017

Ethical Issues in Minute Book Maintenance

Jordan Dolgin, Dolgin Professional Corporation

Fact Scenario 1

You act as corporate counsel for an Ontario company, ABC Co. ABC Co. is owned equally by John and Nancy Fox (spouses) who are also its only directors and officers. John runs the business and, as Chair of the board, is the person who provides you with instructions from time to time. Nancy has never been active in the business and you have never met or spoken with her before. Nancy calls you one day to advise that she and John have separated and her family lawyer requires you to send the minute books over for review. She informs you that, as a shareholder and director, she is legally entitled under the OBCA to review the minute book on demand.

3 - 1

1 . How do you respond to Nancy’s request?

A) Send the minute books to Nancy’s lawyer. B) Refuse Nancy’s request.C) Request that Nancy’s family lawyer contact you directly. D) Advise Nancy that you need to confirm her request with John in writing.

3 - 2

Fact Scenario 2

Your new client, David Snow, is selling his business via share sale. You review the company’s minute book and provide a detailed report to David, the sole shareholder of the company based on the signed and complete minute book documentation. After reading your minute book summary, David calls you in a panic to advise that the ownership reflected in the minute book is all “wrong” and should reflect that the issued shares are owned equally by himself, his wife, and his three adult children. The lawyer who incorporated the company (now deceased) failed to take his proper instructions. David instructs you to destroy the “erroneous” minute book documentation to reflect his true original intentions by backdating new documentation of 5 equal shareholders. His accountant confirms to you that these were the original intentions but has no written evidence.

3 - 3

2. How do you respond to David’s request?

A) Shred the signed minute book documents and re-create new (backdated) documents for signing. B) Refuse David’s request and tell him he is asking you to participate in a fraud. C) Withdraw from acting and report David and his accountant to the CRA for their fraudulent intentions. D) Advise David that you cannot destroy existing documents, but can discuss how his “intentions” can be reflected in the minute book and how to present the inconsistency to the purchaser and their lawyers.

3 - 4

Fact Scenario 3

A long standing client, Tamara Stevens, wants to incorporate a new Ontario company. The company will be owned by Tamara and her new partner, Deborah Fields. You have never met or spoken with Deborah. Tamara instructs you that both of them wish to be named as the incorporators and first directors and to prepare draft articles on this basis. Since Tamara is in a hurry and neither she nor Deborah are available to deal with “legal stuff”, she instructs you to file the articles online ASAP. She promises to get you all the required signatures from her and Deborah in due course.

3 - 5

3. How do you respond to Tamara’s request?

A. File the articles, as instructed. B. Refuse to file the articles without speaking with Deborah first. C. Advise Tamara that you must satisfy yourself that Deborah understands what it means to sign the articles and become a first director. D. Decline to act in this matter.

3 - 6

Fact Scenario 4

In 2005, you are contacted by a new client, James Green, to assist to incorporate a new company and prepare a shareholder agreement between James and his new partner, Peter Wilson. James will own 95% of the shares and Peter will be a 5% minority shareholder. Following incorporation, both James and Peter are active in the business, but virtually 100% of your communications are with James, the president, and James alone gives you all your instructions. Peter regards you as the company’s lawyer. He recalls you telling him that your role was neutral and that you recommended they each get separate counsel before signing the shareholder agreement. Now, James and Peter are not getting along. James wants to meet with you to discuss using the “shot-gun” clause under the shareholder agreement and have you prepare the shot-gun materials on his behalf which he intends to deliver to Peter next week.

3 - 7

4. How do you respond to James’ request?

A. Inform James you have a dual role for both the company and James as majority shareholder and can freely act for him without conflict.

B. Decide you are obligated to share this information with Peter and call him to tell him James intends to use the shot-gun immediately.

C. Advise James you are uncomfortable acting for him without Peter’s consent and tell him not to share any more information with you and immediately seek separate counsel to advise him on all shot-gun matters.

D. Tell James it’s risky for you to act for him without Peter’s consent but you’ll proceed as he wants but may need to withdraw in future if Peter objects.

E. Decline to act for James and immediately withdraw as corporate counsel and distance yourself from the matter entirely.

3 - 8