Free Word download • Edit online • Save & share with Drive • Export to PDF
A By Law Approving Borrowing of Money is a formal corporate resolution — enacted as a by-law of the corporation — by which the board of directors or shareholders officially authorize the company to borrow funds from a lender, pledge corporate assets as collateral, and empower named officers to execute all related loan and security documents on the corporation's behalf. It is the internal governance instrument that transforms a business decision to take on debt into a legally documented, lender-enforceable corporate act. Unlike a general meeting minute, a borrowing by-law is a self-contained authorization document that can be certified by the corporate secretary and delivered to the lender as conclusive evidence that the signing officers had authority to bind the corporation.
Without a certified borrowing by-law, most institutional lenders will not advance a single dollar — it is a standard closing condition on virtually every corporate loan, line of credit, or secured credit facility. Beyond satisfying the lender, the document protects the corporation and its officers: if the borrowing is ever disputed or the corporation enters insolvency, a properly passed resolution establishes that the debt was incurred with full board authority, shielding officers from personal liability claims that arise when borrowing lacks documented corporate approval. Corporations that skip this step also expose themselves to ultra vires risk — the possibility that an unauthorized act is void — which can unwind security registrations and complicate enforcement. A completed, certified borrowing by-law passed before loan closing eliminates all of these risks in under an hour, and this template gives you the structure to do it right the first time.
| If your situation is… | Use this template |
|---|---|
| Borrowing authorized by the board of directors alone | Board Resolution to Borrow Money |
| Borrowing requiring shareholder approval due to articles or statute | Shareholder Resolution Approving Borrowing |
| Pledging specific corporate assets as collateral for a secured loan | By Law Approving Borrowing of Money (with Security) |
| Authorizing a revolving line of credit with a financial institution | Corporate Resolution — Line of Credit Authorization |
| Issuing corporate bonds or debentures to multiple investors | Debenture Agreement |
| Confirming previously approved borrowing in an omnibus annual resolution | Annual General Meeting Minutes |
| Authorizing a director loan from a shareholder to the corporation | Shareholder Loan Agreement |
Why it matters: An open-ended authorization creates unlimited borrowing authority, which exposes the corporation to governance liability and may conflict with fiduciary duties owed to shareholders or minority investors.
Fix: State a specific maximum principal amount and, if the facility is a revolving line, clarify whether the limit applies to the maximum outstanding balance or aggregate draws.
Why it matters: If the sole authorized officer is unavailable at loan closing — due to illness, travel, or departure — the lender cannot advance funds and the transaction stalls until a new resolution is passed.
Fix: Designate at least two authorized signatories by title and name, specifying that either may act individually, so closing can proceed regardless of officer availability.
Why it matters: A resolution that post-dates the loan agreement technically fails to authorize the act it was intended to cover; it only ratifies — and some lenders or courts may not accept retroactive ratification.
Fix: Pass and certify the borrowing by-law before or simultaneously with the execution of the loan agreement. Include a ratification clause only as a backstop, not as the primary mechanism.
Why it matters: Pledging assets subject to a prior undisclosed security interest may constitute misrepresentation to the lender and can trigger default, demand, or lender liability claims.
Fix: Conduct PPSA, UCC, or land title searches on all assets to be pledged before passing the resolution, and disclose or discharge any prior registrations to the lender.
Why it matters: Corporate authority and borrowing requirements differ materially between US states, Canadian provinces, and UK or EU jurisdictions — a form that is valid in one place may be defective in another.
Fix: Confirm the template matches the jurisdiction in your corporation's constating documents and the location of the lending institution's branch of account.
Why it matters: Officers who signed term sheets or commitment letters before the resolution was passed acted without formal corporate authority — those acts are technically unauthorized and the lender's counsel may flag them as a closing condition gap.
Fix: Include a standard ratification clause confirming all prior acts taken in connection with the borrowing are retroactively approved by the board.
In plain language: States the corporation's full legal name, jurisdiction of incorporation, and confirms that the board or shareholders have authority under the articles and applicable statute to pass a borrowing by-law.
WHEREAS [CORPORATION NAME] (the 'Corporation') is incorporated under the laws of [JURISDICTION] and its articles and by-laws permit the board of directors to authorize borrowing on behalf of the Corporation;
Common mistake: Citing the wrong statute or failing to reference the corporation's specific articles — lenders may reject a certified resolution that does not clearly trace the authority to borrow back to the constituting documents.
In plain language: The operative clause that grants the corporation formal permission to borrow money from lenders, up to a stated maximum aggregate amount, on terms approved by the authorized officers.
BE IT RESOLVED that the Corporation is hereby authorized to borrow from [LENDER NAME / any chartered bank or financial institution] a principal amount not exceeding [DOLLAR AMOUNT] on such terms and conditions as the authorized officers deem appropriate.
Common mistake: Omitting a specific borrowing limit — leaving the amount open-ended may satisfy the immediate lender but creates audit and governance exposure by granting unbounded authority.
In plain language: Identifies by title — and optionally by name — the officers who are empowered to execute loan agreements, security documents, promissory notes, and related instruments on the corporation's behalf.
BE IT FURTHER RESOLVED that [TITLE, e.g., President] and [TITLE, e.g., Chief Financial Officer], acting jointly or individually, are authorized to execute and deliver any and all documents required to give effect to the foregoing borrowing.
Common mistake: Authorizing a single signatory without a backup — if that individual is unavailable at closing, the entire transaction can be delayed while a supplementary resolution is prepared.
In plain language: Authorizes the corporation to pledge, hypothecate, or mortgage corporate assets — including accounts receivable, inventory, equipment, and real property — as collateral to secure the borrowing.
BE IT FURTHER RESOLVED that the Corporation is authorized to grant security over its assets, including by way of general security agreement, mortgage, or hypothec, in favor of [LENDER NAME] to secure repayment of the borrowed amounts.
Common mistake: Granting security over assets the corporation does not own free and clear — pledging encumbered assets without disclosing prior security interests can constitute misrepresentation to the lender.
In plain language: Extends the authorized officers' signing authority to all documents the lender may require: promissory notes, commitment letters, pledge agreements, financing statements, and amendments.
BE IT FURTHER RESOLVED that the authorized officers are authorized to negotiate, execute, and deliver all promissory notes, financing statements, pledge agreements, and any other documents or instruments as the lender may require in connection with the borrowing.
Common mistake: Limiting the clause to 'the loan agreement' only — lenders routinely require a suite of ancillary documents, and a narrowly worded resolution forces the company back to the board for each one.
In plain language: Authorizes the corporate secretary to affix the corporate seal (where applicable) and to certify copies of the resolution for delivery to the lender as evidence of proper authorization.
BE IT FURTHER RESOLVED that the Secretary of the Corporation is authorized to certify copies of this by-law under the corporate seal, and that any certified copy so provided to [LENDER NAME] shall be conclusive evidence of the matters stated therein.
Common mistake: Omitting the certification clause entirely — most institutional lenders require a certified resolution, not just a photocopy, before advancing funds.
In plain language: Confirms and ratifies any steps already taken by officers or directors in anticipation of the borrowing, protecting the corporation from claims that pre-resolution actions were unauthorized.
BE IT FURTHER RESOLVED that all actions taken by the directors and officers of the Corporation prior to the passing of this by-law in connection with the borrowing contemplated herein are hereby ratified and confirmed.
Common mistake: Skipping this clause when the corporation has already signed a term sheet or commitment letter — without ratification, those pre-resolution acts technically lack formal board approval.
In plain language: States how the by-law may be amended or revoked, typically requiring a further resolution of the same body that passed it, and clarifies that revocation does not affect obligations already incurred.
This by-law may be amended or revoked by a resolution of the board of directors, provided that no amendment or revocation shall affect the validity of any borrowing or security already made or given pursuant hereto.
Common mistake: Not including a savings clause — revoking a borrowing by-law without one could theoretically call into question the validity of a loan already advanced, creating unnecessary dispute risk.
In plain language: Specifies the jurisdiction whose corporate and commercial laws govern the interpretation and enforcement of the by-law and any borrowing made pursuant to it.
This by-law shall be governed by and construed in accordance with the laws of [PROVINCE / STATE / COUNTRY], and the Corporation attorns to the exclusive jurisdiction of the courts of [JURISDICTION].
Common mistake: Choosing a governing law that differs from the jurisdiction of the lender's standard security documents — mismatched governing law clauses create enforcement complexity if the lender ever needs to call the loan.
Use the exact registered corporate name as it appears on the certificate of incorporation — including any 'Ltd.', 'Inc.', or 'Corp.' suffix. Enter the jurisdiction of incorporation in the recitals and governing law clause.
💡 Cross-reference the corporate registry search before completing the document — a name discrepancy between the resolution and the lender's search can delay closing.
Review your articles of incorporation and existing by-laws to confirm the board (or shareholders, if required) has authority to pass this borrowing resolution without additional approvals. Note any borrowing limits already imposed by your articles.
💡 If your articles require shareholder approval for borrowings above a threshold, obtain a shareholder resolution in addition to the board resolution — or the by-law may be ultra vires.
Insert a specific maximum aggregate dollar amount the corporation is authorized to borrow. This should be large enough to cover the current facility plus reasonable headroom for future draws or fees.
💡 Set the limit at 110–120% of the facility amount to avoid having to pass a supplementary resolution if loan fees or interest are capitalized into the principal.
List at least two officers by title (President, CFO, Secretary) and include their full names. Specify whether they may sign individually or only jointly — most lenders accept individual signing authority for operational efficiency.
💡 Name a backup signatory in case the primary officer is unavailable at closing — this single step prevents the most common last-minute borrowing delays.
Identify the type of security the lender requires — general security agreement over all personal property, real property mortgage, or a specific pledge of named assets — and confirm the corporation has clear title to those assets.
💡 Run a PPSA (Canada), UCC (US), or Companies House (UK) search before execution to identify any prior security interests that must be subordinated or discharged.
Call a board of directors meeting with proper notice (or obtain signed written consents from all directors), confirm quorum is present, and record the vote in the meeting minutes before the by-law is signed.
💡 Many jurisdictions permit directors to pass resolutions by unanimous written consent without a formal meeting — confirm this option in your applicable corporate statute to save scheduling time.
The corporate secretary should sign a certification page confirming the resolution was duly passed, attach it to a true copy of the by-law, and affix the corporate seal if one is maintained.
💡 Prepare at least three certified copies at execution — one for the lender, one for the corporate minute book, and one for the officer executing the loan documents.
Provide the lender's counsel with the certified resolution as part of the closing condition checklist. Confirm receipt and that no further corporate approvals are required.
💡 Ask the lender for their form of corporate certificate checklist at least five business days before closing — some institutions require additional officer certificates or good-standing certificates alongside the resolution.
A by-law approving borrowing of money is a formal corporate resolution passed by a company's board of directors — or shareholders, where required — that authorizes the corporation to borrow funds from a lender, pledge corporate assets as security, and execute all related loan documents. It is the internal corporate authorization that most banks and financial institutions require as a closing condition before advancing any loan or credit facility to a corporation.
Lenders need documented proof that the individuals signing the loan agreement on behalf of the corporation had actual authority to do so. Without a certified borrowing resolution, the lender cannot confirm that the corporation's board formally approved the transaction, which creates enforceability risk. If the loan were ever disputed, a missing or defective resolution could allow the corporation to argue the debt was not properly authorized — making the resolution a lender self-protection requirement as much as a corporate governance one.
Not always, but it is standard practice for any material borrowing by a corporation. Many corporate statutes — including the Canada Business Corporations Act and most US state corporation acts — permit borrowing by board resolution rather than a formal by-law amendment. However, institutional lenders almost universally require a certified resolution or by-law regardless of statutory minimums, and certain articles of incorporation explicitly require a formal by-law for borrowings above a threshold amount. When in doubt, passing a formal by-law provides the clearest evidence of authority.
The by-law must be passed by the required quorum of directors at a properly constituted board meeting, or by unanimous written consent of the directors in jurisdictions that permit it. The signed minutes or written consent form constitute the record of the decision. The corporate secretary then certifies a copy of the resolution for delivery to the lender. The authorized officers named in the by-law sign the actual loan and security documents — their signatures on those documents are what the by-law authorizes.
A borrowing by-law is a standalone corporate authorization document specifically authorizing the corporation to incur a particular class of debt and grant security. A general banking resolution is a broader document — typically provided on the lender's own form — that authorizes the corporation to open accounts, operate credit facilities, issue cheques, and conduct general banking business with a specific institution. Most loan transactions require both: the borrowing by-law confirms corporate authority; the banking resolution authorizes the mechanics of operating the loan account.
A borrowing by-law remains valid until amended or revoked by a further resolution of the same body that passed it. In practice, corporations pass a new or supplementary resolution whenever: the borrowing limit needs to increase, the lender changes, the authorized signatories change (due to officer turnover), or the nature of the security being granted changes materially. It is good governance practice to review borrowing authorizations annually as part of the corporation's annual organizational meeting to confirm they remain current.
Borrowing without a formal authorization resolution creates several risks. The transaction may be characterized as ultra vires — beyond the corporation's authorized powers — which could expose the signing officers to personal liability for the debt. The lender may also have difficulty enforcing the loan agreement if the corporation later disputes that the officers had authority to bind it. Most institutional lenders will not advance funds without a certified resolution precisely to avoid this scenario, so the practical result is that the loan simply will not close.
In most jurisdictions, a borrowing by-law does not need to be filed with a government corporate registry — it is an internal governance document kept in the corporation's minute book. However, the security documents authorized by the by-law — such as a general security agreement or mortgage — typically must be registered in the applicable personal property registry (PPSA in Canada, UCC in the US) or land titles office to be effective against third parties. Confirm registration requirements with counsel in your jurisdiction before closing.
A shareholder loan agreement governs a loan made by a shareholder to the corporation — documenting repayment terms, interest, and subordination to senior debt. A borrowing by-law authorizes the corporation to borrow from any lender, including external banks. The two documents are complementary: the by-law provides internal corporate authority; the shareholder loan agreement governs the specific transaction between the corporation and its shareholder-lender.
Board meeting minutes record all decisions made at a directors' meeting, including a borrowing resolution — but minutes are an internal record of proceedings, not a standalone authorization instrument. A formal borrowing by-law is a separate, self-contained document that can be certified and delivered to the lender as conclusive evidence of authority, without sharing the full meeting minutes. Most lenders prefer the by-law over a minutes extract for this reason.
A promissory note is the debt instrument itself — it is the corporation's written promise to repay a specific amount under defined terms. A borrowing by-law is the internal corporate authorization to create that promise. The by-law must come first to authorize the signing officers; the promissory note is the downstream document they are empowered to execute. Both documents are typically required at loan closing.
A general security agreement (GSA) is the collateral document that creates the lender's security interest over the corporation's assets. A borrowing by-law authorizes the corporation to grant that security — it is the corporate authority upstream of the GSA. Without a valid borrowing by-law, the authorized officers technically lack authority to sign the GSA, which could affect the enforceability of the lender's security interest.
Borrowing resolutions for corporate-held properties must specifically authorize mortgage security over named parcels, and often require a companion land title search confirming clear title before the resolution is passed.
Equipment financing and asset-based lending require resolutions that explicitly authorize security over specific machinery, inventory, and receivables — general language may not satisfy asset-based lenders' collateral requirements.
Revolving lines of credit secured against inventory and receivables are common; the resolution must authorize fluctuating principal balances and grant security over after-acquired inventory without requiring amendment each time stock turns over.
Venture debt and revenue-based financing facilities often require IP assignment or pledge clauses alongside the standard borrowing authorization — the resolution should specifically authorize security over intellectual property where required by the lender.
Corporate borrowing authority is governed by state corporation statutes — Delaware, Nevada, and most other states vest borrowing authority in the board of directors by default under their general corporation laws. UCC Article 9 governs the perfection of security interests over personal property, requiring a financing statement filed with the Secretary of State. Some states require shareholder approval for mortgages on substantially all assets; confirm requirements in the corporation's state of incorporation.
The Canada Business Corporations Act (CBCA) and provincial equivalents (OBCA, ABCA, BCBCA) permit the board to authorize borrowing by ordinary resolution unless the articles require otherwise. Security over personal property is governed by provincial PPSA legislation; registration in the province where assets are located is required for perfection. Quebec borrowers face distinct rules under the Civil Code, including hypothec registration in the Register of Personal and Movable Real Rights (RPMRR). Corporations incorporated in Quebec must ensure the resolution complies with the Business Corporations Act (Quebec).
Under the Companies Act 2006, UK companies have unlimited objects by default, meaning no separate by-law is typically required for borrowing authority — but the articles of association may impose limits. Board resolutions authorizing specific facilities are standard practice and required by lenders. Fixed and floating charges over company assets must be registered at Companies House within 21 days of creation or they are void against liquidators and creditors. Scottish companies follow the same registration requirements but security law is governed by Scots law, which differs in some respects from English law.
EU member states have materially different corporate governance rules for borrowing authority — French sociétés anonymes require board authorization; German GmbHs and AGs have supervisory and management board approval requirements that vary by transaction size. Security registration requirements are entirely national: France uses the registre du commerce et des sociétés; Germany uses the Handelsregister and specific pledge formalities. GDPR does not directly affect borrowing by-laws, but cross-border loan documentation may involve personal data transfers requiring standard contractual clauses where EU officers' data is shared with non-EU lenders.
| Path | Best for | Cost | Time |
|---|---|---|---|
| Use the template | Straightforward bank loans or lines of credit for domestically incorporated corporations with standard articles | Free | 30–60 minutes |
| Template + legal review | Borrowings above $500K, security over real property or IP, or corporations with complex articles or unanimous shareholder agreements | $300–$800 for a corporate lawyer review | 1–3 business days |
| Custom drafted | Syndicated credit facilities, cross-border lending, regulated industries, or transactions where the lender's counsel requires bespoke authority opinions | $1,500–$5,000+ | 1–3 weeks |
This document is one of 3,000+ business & legal templates included in Business in a Box.
Access over 3,000+ business and legal templates for any business task, project or initiative.
Customize your ready-made business document template and save it in the cloud.
Share your files and folders with your team. Create a space of seamless collaboration.
"Fantastic value! I'm not sure how I'd do without it. It's worth its weight in gold and paid back for itself many times."
"I have been using Business in a Box for years. It has been the most useful source of templates I have encountered. I recommend it to anyone."
"It has been a life saver so many times I have lost count. Business in a Box has saved me so much time and as you know, time is money."
Stop downloading documents. Start operating with clarity. Business in a Box gives you the Business Operating System used by over 250,000 companies worldwide to structure, run, and grow their business.
Free Forever Plan · No credit card required
