There are many advantages to incorporating a business. The extra paperwork required is not one of them. One of the extra steps that every incorporated company should commit to is maintaining its corporate records which can be easily done with a minute book. This is an important administrative step that helps ensure the smooth running of the business now and in the years to come.
What are minute books and do all companies need them?
By law, you need to keep corporate records. Corporate records should be maintained by all federally or provincially incorporated companies, regardless of their size. A minute book is a common, and convenient, way to do so. It is a standardized binder with information organized in a certain manner. A minute book serves as a convenient way to record your company’s significant activities. Setting it up from the moment you incorporate is the easiest way to start.
What is included in the minute books?
When you start your company, you should include the following documents in your minute book:
- Articles of Incorporation, Amendments or Amalgamation, as applicable
- By-laws and organizational resolutions
- Shareholders’ agreement, if there is one
- Forms filed with the provincial and or federal government, as applicable
Once the company begins to operate, the minute book maintains the corporate records of the activities and decisions taken by the company, its directors and shareholders. These typically include:
- Minutes of directors and shareholders meetings
- Appointment of auditors
- Change or reappointment of directors
- Approval of the financial statements
- Change or reappointment of officers
- Exemption from the legal requirement of audited financial statements, if applicable
- Change in share ownership
- Significant agreements for your company (e.g., purchase of a property if your company is in the business of selling landscaping material)
- Dividends paid, and
- Changes to the by-laws.
Am I legally required to maintain the minute books?
Companies incorporated federally or in the province of Ontario are not legally required to have a minute book, but are legally required to keep corporate records. It is best practice for companies to proactively maintain these corporate records as it will ultimately save a time and money when the information is needed. A review of the corporate records may be required for an audit by Canada Revenue Agency (“CRA”) or by another party interested in purchasing your company. Out-of-date corporate records can add stress to such events.
Who can view the minute book and how does it help the business?
All shareholders and directors can request to see the minute book at any time. The company’s history can be a very useful tool for resolving or preventing internal disputes. CRA can also request to see your corporate records if it is conducting an audit.
It is also useful for a company to have an up-to-date minute book when it is considering selling the business or are seeking external funding from banks or other investors. These parties are likely to request the corporate records from the minute book as part of their due diligence. As well, it would be prudent to ensure the corporate records in the minute book are up-to-date if there is a corporate re-organization or voluntarily dissolution.
It may be easy to let the minutes book slide for a while when you are busy running and growing a business. But remember, it is something that will need to be dealt with at some point. When updated every year, the burden and cost of the maintenance of the corporate records is likely minimal compared to spending time piecing together several years’ worth of history. The potential cost of having to drop everything to piece together the corporate records for a CRA audit or business transaction due to out-of-date information is much, much higher and more stressful.
By Diem Nguyen of Kelly Santini