A change of director happens in a precise order: the decision by the competent body, a written resolution recording it, the declaration to the register, then updating third parties. Skipping a step leaves an appointment fragile or a departing director still exposed. Late declaration is the most frequent cause of unpleasant surprises.
This is one of the most common operations in a corporation’s life, and one of the most often done badly. The reflex is to “change it at the register”. But the register only publishes a decision that must have been taken elsewhere, and properly.
Three different acts people confuse
Appointment belongs to the shareholders, who elect the directors. It is the founding act: without a valid election the person entered in the register is not a director, whatever the public file says. Depending on the constituting documents, the board can sometimes fill a vacancy during a term.
Resignation is a unilateral act of the director. It does not have to be accepted in order to take effect, but it must be in writing and delivered to the corporation, then declared in the register. A verbal resignation, or one written but never delivered, leaves the person exposed.
Removal belongs to the shareholders, in the form the law and the corporation’s documents provide. It is the most delicate of the three, and the one where procedure matters most: a removal done badly can be challenged.
These three acts do not involve the same people or the same formalities. Treating them as one and the same operation is the origin of most of the files we have to redo.
Appointment, resignation, removal
| Nomination | Démission | Destitution | |
|---|---|---|---|
| Who decides | The shareholders | The director themselves | The shareholders |
| The others’ agreement required | A vote under the rules | No | A vote under the rules |
| A writing is indispensable | Election resolution | A letter delivered to the corporation | Removal resolution |
| Effect on the office | Immediate once elected | On the date stated, or on delivery | Immediate once adopted |
| Declaration to the register | Required without delay | Required without delay | Required without delay |
| Risk if omitted | Appointment open to challenge | The departing director stays exposed | Removal open to challenge |
Every change presupposes its resolution before going to the register.
The order of operations
Four steps, always in that order, and it is reversing them that creates the problems.
Un. The decision is taken by the competent body, the shareholders or the board as the case may be. Deux. It is recorded by a written resolution, dated and signed by those entitled to vote, as our article on annual resolutions. Trois. The change is declared to the register, which must be done promptly and not at the next annual deadline: see our article on the updating declaration. Quatre. The internal registers are corrected and the documents filed in the minute book.
A federal corporation adds a step: the change must be declared to Corporations Canada within its own deadline, separate from Québec’s. Our article on federal annual return sets out that double obligation.
What the person leaving should obtain
This is the part no one asks for and everyone regrets not having.
A director leaving office should take away three things: a copy of the resignation letter with proof that it was delivered, confirmation that the register has been corrected, and the state of the files under way at the moment of departure. As long as their name appears publicly as a director, they appear as one to third parties, with the consequences described in our article on director liability.
The most recurrent case: someone leaves a corporation on bad terms, no one updates the register, and two years later a claim targets the directors on file. Proving you had resigned without written evidence of it is an uncomfortable and expensive exercise.
The case of the sole director
Many Québec corporations have only one director, who is also the sole shareholder. The configuration is perfectly valid and it simplifies everything: decisions are taken alone, resolutions are signed alone.
It does, however, create a fragility almost no one anticipates. If that person dies, becomes incapable or is durably prevented from acting, the corporation is left with no one to run it. It can no longer sign, authorize a payment or renew a contract, even though the business keeps operating and employees are waiting to be paid. The shareholders can elect a replacement, but the sole shareholder is precisely the person who is prevented, and their shares form part of their estate or fall to their representative.
There is a way out, but it runs through estate proceedings or the courts, which takes weeks during which the business idles. Three precautions reduce the risk: provide in your will for what becomes of your shares and who will exercise the rights attached to them; consider a second, trusted director even if they never intervene day to day; and make sure someone close to you knows where to find the minute book and who your lawyer is. It costs nothing and avoids the worst kind of paralysis.
When one change hides another
A director’s departure often comes with something else, and that is the moment to deal with it rather than let it drift.
If the person leaving was also a shareholder, leaving the board does not take away their shares: they are two distinct things, and any buy-back is a matter for the shareholder agreement. If they were an officer, president or secretary, they must also be replaced in those offices, which presupposes a board decision. And if they held a significant part of the capital, your list of ultimate beneficiaries can change.
Dealing with all of this at once costs markedly less than discovering the pieces one by one, six months later, each with its own catching-up.
The frequent omissions
With the register corrected, the work is not over. There remains the financial institution and the authorized signatories, often the most urgent point since someone who has left can still bind the accounts. There remain the tax registrations and the employer accounts, where the declared representative must match reality. There remains the insurance, including the directors’ and officers’ policy if there is one. And there remain the sector permits, which sometimes require the identity of the officers to be declared.
None of these updates itself automatically from the register. A list made at the time of the change saves coming back to it a year later, out of order.
Frequently asked questions
How do you appoint or replace a director?
In this order: the decision is taken by the competent body, it is recorded by a written and signed resolution, the change is declared to the register without waiting for the annual deadline, then the internal registers are corrected and filed in the minute book.
Is a verbal resignation enough?
No. The resignation must be in writing and delivered to the corporation, then declared to the register. A resignation never delivered or never declared leaves the person exposed, since they still appear publicly as a director.
What happens if the sole director dies or becomes incapable?
The corporation is left with no one to run it: no signature, no authorization of payment. The way out runs through estate proceedings or the courts. Providing for what becomes of your shares in your will, and considering a second director, reduces that risk.