A corporation is legally required to record certain transactions in its minute book including the appointment and resignation of directors and officers, changes to the address of its registered office, changes to the addresses of directors, officers and shareholders, and issuances and transfers of shares. A corporation is also required to update the government records when there is a change of director, officer or registered office.
Whether your business is large or small you are obligated by law to hold an annual meeting of shareholders and directors or to have annual resolutions signed instead of holding an annual meeting. Typically, at these meetings financial statements are submitted to the meeting and approved and directors and officers are appointed for the upcoming year. Shareholders may also sign an audit exemption resolution which exempts the Corporation from preparing audited financial statements for that year which can be a considerable monetary saving for the corporation. Resolutions approving dividends and management bonuses should be documented in the minute book whenever they are declared.
Why Your Minute Book Should be Kept Up to Date
As with any legal obligation, there are consequences for not complying with it. Come of these consequences include:
- A significant fine for failing to properly maintain the corporation’s minute book in accordance with the Business Corporations Act (Ontario).
- In regards to dividends or management bonuses, if the Canada Revenue Agency performs an audit, it may ask review the corporate minute book. In that case the minute book should be up to date, if it is not, the Canada Revenue Agency has reassessed corporations by taking the position that transactions reported in their tax filing did not actually happen because the minute book does not reflect such transaction. This can result in paying higher taxes, fines and penalties.
- When dealing with a financial statement, the financial institution will typical want a lawyer’s opinion on the status of the corporation. Without an up to date minute book, it is difficult for a lawyer to provide such opinion. This can delay your transaction and the corporation can incur significant costs to have a lawyer bring a minute book up to date at the last second.
- If the minute book is not properly maintained, shareholders who have a falling out have been known to claim (sometimes years later) that they were unaware of certain transactions, or that if they were aware of them, that they never approved them. This can be cause for lengthy disputes and costly litigation.
- If a corporation does not comply with its obligation to file notice with the government of any change to its registered office or mailing address, it may miss notices that are sent to it by the government which can result in the dissolution of the corporation and the corporations property becoming property of the government. The process to rectify this can be lengthy and costly.
- When selling shares in a corporation, the buyer will typically ask to see the minute book of the corporation to see that everything is up to date and properly documented. Failure to have a proper minute book can cause serious issues when selling shares in the corporation.
- It is common for shareholders at an annual meeting or by resolution waive the statutory requirement for audited financial statements. If such waivers are not provided by every voting shareholder, then any shareholder can require the Corporation prepare audited statements which can is a significant cost.
We Can Help
TSC Law has invested heavily in our staff and in technology in order to assist our clients in keeping their minute books up to date. We store all minute books on-site and have an electronic system where we coordinate with you and your accountant to ensure that the minute book is updated each year for a very low and reasonable price.