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I am Matthijs van Gaalen and I'm a corporate / commercial lending lawyer at Gowling WLG.
You are watching video two of our video series entitled Different Types of Borrowing Entities.
In this video, we are going to review Corporations.
Corporations are entities created or incorporated by filing Articles of Incorporation or Articles of Amendment under federal or provincial business corporations statutes.
Corporations are owned by one or more shareholders, and they are separate and distinct from their shareholders.
The liabilities of a corporation are limited to the value of assets owned by that corporation, and except in very rare cases involving fraud, the shareholders of a corporation cannot be sued individually for the debts of the corporation.
Take a moment to reflect on this point. If you want a shareholder to be responsible for the debts of the borrower, the lender needs a guarantee. As it creates a connection from the debt to the grantor or shareholder.
The shareholder is not responsible for the debts of the borrower without a guarantee.
So how is a corporation governed?
Corporations are governed by
egislation and
by the terms of their
articles,
by-laws and
any unanimous shareholders agreement that may be entered into by
their shareholders (commonly known as a USA). They can have
restrictions on whether the company can borrow or guarantee a
loan.
So how can a lender get confidence that the person signing the document has the authority to sign them?
Alternatively, one of the most common questions we face is do I need a solicitor's letter of opinion? So I'd like to review five things.
First, the Indoor Management Rule. This is the principle that if a person represents themselves as having the authority to execute a document, that they in fact do have that authority, and an institution, company or lend doesn't have to look further then the representation that they have that authority.
So that you can trust that if it's the president of the company signing the document, that they can sign that document.
Second, is a Directors Resolution. Sometimes the bank wants more confidence, whether its caused by the deal size or multiple shareholders.
And this comes in the form of evidence of a Directors resolution authorizing that individual or individuals to sign the loan document on behalf of the corporation.
Third, Shareholder Resolution. Sometimes unanimous Shareholder agreements or articles may say borrowing is only permitted when the shareholders authorize it. This is when you'll see a Shareholders Resolution also entered into.
Fourth, Officer's Certificate. This comes up regularly when a solicitor's letter of opinion is required and effectively, the president or officer of the company is saying we exist, this is our legal name, these are the articles and by-laws we are governed by, here's the resolution and these are the people who are the directors and officers of the company. Fifth and finally, the Opionin. This is asked for by lenders, caused by deal size or complexity when they want a lawyer to look through those corporate documents to say yes, this company does exist, these people do have the authority and they have taken the necessary corporate actions to sign the documents, among other opinion that may be provide.
One final point is you'll often hear Certificate of Status. This is document that confirms the legal name and existence of the corporation. It's important because this is the way you can confirm the loan and security documents signed under the correct legal name that has the correct officers and resolutions supporting it.
To recap:
First, a corporation is owned by shareholders. Second, the
liability for debts is limited to the corporation and without a
guarantee, does not extend to the shareholders. Third, consider the
debt size, complexity and credit parties and see if it merits, a
resolution, the indoor management rule, or a solicitor's letter
of opinion to support the debt.
Corporations are entities created or incorporated by filing articles of incorporation or articles of amalgamation under federal or provincial statutes. They are owned by one or more shareholders, and are separate and distinct from those shareholders.
In this video we discuss:
- The liability of a corporation and shareholders
- How a lender can have confidence that documents were properly signed
- The corporate authorization process
Read the original article on GowlingWLG.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
