Why Should I Keep My Corporate Records Up To Date?
September 5th, 2017 by Gemma Brown
With the hustle and bustle of everyday business life, business owners sometimes forget about little things, including corporate record maintenance. Managing your corporate affairs should also include managing your corporate record maintenance, and in particular, the legal aspects of maintenance.
There are many changes that may seem simple that occur during a corporation’s life cycle, such as officers and directors of the corporation changing, changing of accountants preparing the fiscal financial statements, changing of registered addresses of the corporation, and changes in shareholder structure. Provincial and Federal corporate legislations require that each of these events be recorded in the corporation’s Minute Book in a specific way, and certain of these events need to be reported to the Companies Office of Manitoba (or Industry Canada if the corporation is a federal corporation).
In an event such as the sale of shares of a corporation, or upon a corporation obtaining a loan from a financial institution, if the corporation’s Minute Books are not up to date, a transaction may be delayed until such time as sufficient fact finding has occurred, appropriate details are discovered and the Minute Book is updated. These types of investigations can often take time, and the preparation of the various recordings will need to ensue. At times, it may be difficult in some circumstances to obtain the accurate information, for example if a shareholder has died, or its shareholders have parted ways. In addition, in the event of an unfortunate breakdown between the shareholders, accurate corporate records can avoid claims by one shareholder or director that they were unaware of certain actions being taken by the corporation or other shareholders or directors. In short, keeping the corporate records of the corporation up to date is both legally required and provides certainty in many critical situations.
Below is a short list of some types of items that should regularly form part of your corporate records and be kept in the corporation’s Minute Book.
- Annual shareholders meetings – at which meeting the directors of the corporation are elected, financial statements for the preceding fiscal year are presented to the shareholders by the directors, and either auditors of the corporation are appointed or waived by the shareholders. For many small corporations the transactions of such business does often not warrant an actual meeting. In such cases, our corporate legislation provides that shareholders may be permitted to sign resolutions in writing approving the annual resolutions in lieu of an actual meeting, provided that all resolutions are signed by all of the shareholders of the corporation (whether voting or non-voting).
- Special meetings of shareholders – where special meetings of shareholders are held in between annual meetings in order to transact specific business, the minutes of such meetings or resolutions in writing in lieu of those meetings should also form part of the corporation’s records.
- Directors meetings – corporate legislation provides that after incorporation, the directors of a corporation are required to meet annually in order to appoint officers of the corporation and to approve the financial statements for the preceding year. Once again, in lieu of a meeting, directors are permitted to sign resolutions in writing setting out the information required to be transacted in lieu of a meeting, provided all resolutions are signed by all of the directors of the corporation.
- Corporate annual returns – once the corporation is incorporated, the legislation requires that a corporation file an annual return following the anniversary date of incorporation in each year. The annual return provides confirmation to the Companies Office of the shareholders that hold more then ten percent of the voting shares of the corporation, and the names and addresses of the directors and officers of the corporation who would be required to be served with notice of any pending action. In the event of changes in any year, this information would be provided on the annual return directly to the Companies Office. Failure to file annual returns for two years can result in the dissolution of your corporation, and therefore it is extremely important that this matter be kept up to date.
- Registers – Corporate legislation also requires that the corporation maintains an accurate list of both past and current directors of the corporation together with their addresses and the date upon which they became or ceased to be a director of the corporation. This information may become critical in the event that an issue of director liability arises during the specified period of time. In addition, the legislation also requires that a record be kept which includes the name, address and number and class of shares that any particular shareholder holds, as well as the date of issuance of such share. A transfer register should also be kept in the Minute Book and kept up to date.
- Dividends or bonus transactions – recording of dividends or bonuses evidences that matters were authorized by the corporation’s directors and ultimately serves as support for the tax returns that are filed by the corporation. If the corporation is ever audited, properly recorded resolutions or minutes which are maintained in the corporation’s Minute Book will assist in proving that all matters reported in connection with the corporation’s tax position were sanctioned. In addition, there are certain formal requirements of notice and filings to be given for eligible and capital dividends.
- Significant transactions – corporations engage and approve various transactions throughout any given period. Such transactions can include the purchasing of properties or significant capital assets, the purchasing or sale of shares in other corporations, and various large investments, as well as the borrowing of money from a financial institution. These significant transactions should be documented by resolutions. In addition, a lending institution will ask for a form of resolution of the corporation’s directors approving the borrowing to ensure that the loan transaction has been properly authorized.
We often like to think of a corporation’s Minute Book as its diary or the story of its creation to its ending or dissolution. The Minute Book should accurately reflect the information that has occurred and has been transacted by the directors and shareholders of the corporation which can be relied upon by third parties such as purchasers, lenders, accountants and Canada Revenue Agency.
In the event that you believe your Minute Book is deficient, please contact us to review your Minute Book and we will suggest ways in which it can be brought up to date. For more information or questions about corporate minute books and record keeping or a specific situation, please contact us.
Notice: The articles on our website are provided for general information purposes only and should not be relied upon as legal advice or opinion. They reflect the current state of the law as at the date of posting on the website, and are subject to change without notice. If you require legal advice or opinion, we would be pleased to provide you with our assistance on any of the issues raised in these articles.
