Lenders ask for a borrowing resolution before they advance money to a corporation: a resolution of the directors approving the loan, the security the corporation gives, and who may sign the documents. Many lenders supply their own form.
It protects the corporation too. The resolution records what the corporation agreed to and that the directors considered it, which matters later if a shareholder, a buyer or a new lender asks.
- Approved by
- The directors, unless the articles, bylaws or a unanimous shareholder agreement say otherwise
- Signed by
- Every director entitled to vote, if passed in writing
- Shareholder approval
- Not usually needed, even to pledge all the assets; check your articles and any shareholder agreement
- Who gets a copy
- The lender, usually certified by an officer
- Filed with the government
- No, but the lender registers its security
When you need one
- Taking a term loan, line of credit or credit card facility in the corporation’s name.
- Giving the lender security: a general security agreement, a mortgage on property, or a pledge of shares the corporation owns.
- The corporation is guaranteeing another company’s debt, such as a holding company guaranteeing its operating company’s line of credit.
- Renewing or increasing a facility, when the lender asks for a fresh resolution.
- Borrowing from a shareholder instead: see the shareholder loan resolution.
Who approves it
Corporate statutes let the directors borrow, guarantee and give security on the corporation’s behalf without asking the shareholders, unless the articles, bylaws or a unanimous shareholder agreement limit that power.
| Jurisdiction | Rule |
|---|---|
| Canada, federal (CBCA) | Directors may borrow, issue or pledge debt obligations, give a guarantee, and mortgage or pledge the corporation’s property, without shareholder authorization (s. 189(1)). They may delegate these powers to a director, a committee or an officer (s. 189(2)). |
| Ontario (OBCA) | The same powers are deemed to be in the articles unless the articles, bylaws or a unanimous shareholder agreement say otherwise (s. 184(1)); delegation under s. 184(2). |
| British Columbia (BCBCA) | There is no specific borrowing section: a company has the capacity of an individual (s. 30) and the directors manage the business (s. 136). The standard articles (Table 1) give the directors the borrowing power expressly, so check yours. |
| Alberta (ABCA) | Directors may borrow, issue debt, guarantee and give security without shareholder authorization (s. 103(1)); delegation under s. 103(2). A guarantee for a shareholder, director or their associate must be disclosed to the shareholders (s. 45). |
| Quebec (QBCA) | Unless the bylaws or a unanimous shareholder agreement say otherwise, the board may borrow, issue debt, give a suretyship and hypothecate the corporation’s property (s. 115). |
| Delaware (DGCL) | A corporation may borrow, guarantee and secure its obligations (s. 122(13)), through its board (s. 141(a)). A mortgage or pledge of its assets needs no stockholder approval unless the certificate of incorporation requires it (s. 272). |
| Model Act states (MBCA) | A corporation may borrow, guarantee and give security (s. 3.02). A mortgage or pledge of any or all of its assets needs no shareholder approval unless the articles require it (s. 12.01). |
Before you sign
- Read the commitment letter. Note the amount, rate, term, fees, security and covenants the corporation is agreeing to.
- Check your articles, bylaws and any shareholder agreement for borrowing limits or a requirement that shareholders approve.
- Know what you are signing personally. Lenders to small corporations usually want a personal guarantee from the owner. That is a separate document you sign as an individual, and the corporation’s resolution doesn’t cover it. For SBA loans in the US, owners of 20% or more generally must guarantee the loan.
- Watch for conflicts. If a director benefits personally, for example if the loan repays money the corporation owes that director, the director must disclose the interest.
When the corporation guarantees someone else’s debt
A corporation that guarantees a related company’s loan takes on risk without receiving the money, so the directors should record why the guarantee benefits the corporation giving it: for example, that the borrower is its subsidiary, its main customer or its supplier. Lenders often ask for a separate resolution from each company in the group.
Sample wording
Adapt the wording to your corporation: replace everything in square brackets, and check your articles, bylaws and any shareholder agreement first. Each person signs and dates a copy, and a scanned or electronic signature is usually fine.
Resolutions of the directors of [Corporation name] (the “Corporation”)
BE IT RESOLVED THAT:
1. The Corporation borrow from [lender name] (the “Lender”) up to $[amount] by way of [term loan / revolving line of credit], on the terms of the commitment letter dated [date] (the “Commitment”), which the directors have reviewed and approve.
2. As security, the Corporation grant the Lender [a general security agreement over all its present and after-acquired personal property / a mortgage of the property at address], as described in the Commitment.
3. [Name, title] [and name, title] are authorized to sign the loan agreement, the security documents and any other document the Lender requires, with any changes they approve, their signature being conclusive evidence of that approval.
4. The Corporation may borrow, repay and reborrow under the facility from time to time, within the limit approved above.
The foregoing resolutions are passed by the signatures of all the directors of the Corporation, as of [date].
______________________________
[Name], director
______________________________
[Name], director
Action by unanimous written consent of the board of directors of [Corporation name] (the “Corporation”)
RESOLVED, that the Corporation borrow from [lender name] (the “Lender”) up to $[amount] by way of [term loan / revolving line of credit], on the terms of the commitment letter dated [date] (the “Commitment”), which the board has reviewed and approves;
RESOLVED FURTHER, that as security the Corporation grant the Lender a security interest in [all of its assets / description], as described in the Commitment;
RESOLVED FURTHER, that [name, title] is authorized to sign the loan agreement, promissory note, security agreement and any other document the Lender requires, with any changes the officer approves, the officer’s signature being conclusive evidence of that approval; and
RESOLVED FURTHER, that the Secretary is authorized to certify these resolutions to the Lender.
This consent is signed by all the directors of the Corporation, is effective as of [date], and will be filed with the minutes of the proceedings of the board.
______________________________
[Name], director
______________________________
[Name], director
After you sign
- Deliver the certified resolution with the loan documents.
- The lender registers its security: in Canada under the provincial personal property security registry (a hypothec registered in Quebec’s register of personal and movable real rights), or in the US by filing a UCC-1 financing statement with the state. Check that the registration matches what you agreed.
- Diarize the covenants and reporting dates. Many facilities require annual financial statements by a set date.
- When the loan is repaid, ask the lender to discharge its security registration.
What to keep in your minute book
- The signed resolution.
- The commitment letter and the signed loan and security documents.
- Any guarantee the corporation gave, with the resolution approving it.
- The discharge of security when the loan is repaid.
Common questions
Do the shareholders need to approve a loan?
Usually not. The directors can borrow and give security without shareholder approval unless the articles, bylaws or a shareholder agreement require it. Selling all or substantially all of the corporation’s assets is different and does need the shareholders.
Does the corporation’s resolution cover my personal guarantee?
No. A personal guarantee is your own promise to repay if the corporation doesn’t, and you sign it as an individual. Read it separately, and ask whether it is limited to an amount.
Does the SBA have its own board resolution form?
Not for 7(a) loans. The SBA prescribes the note and guaranty forms, and lenders use their own resolution forms. Ask your lender for theirs.
We already signed the loan. Can the directors approve it afterwards?
Yes. A resolution confirming the loan and the documents already signed puts the record right. Lenders often ask for one at renewal anyway.
This page is general information about corporate resolutions in the United States and Canada, not legal or tax advice. The sample wording is a starting point: your articles, bylaws and any shareholder agreement may require something different, and rules change over time. For advice about your corporation, speak with a qualified lawyer or accountant.
Sources
- Canada Business Corporations Act, section 189
- Ontario Business Corporations Act, section 184
- British Columbia Business Corporations Act, sections 30 and 136
- Alberta Business Corporations Act, sections 45 and 103
- Quebec Business Corporations Act, section 115
- Delaware General Corporation Law, section 122
- Delaware General Corporation Law, section 272
- Model Business Corporation Act (American Bar Association), sections 3.02 and 12.01
- 13 CFR 120.160, SBA loan conditions (personal guarantees)
- SBA SOP 50 10, lender and development company loan programs