Spotlight On: Maintaining Your Corporate Minute Book

Keeping your minute book up-to-date is a legal requirement and can save you headaches down the road

It’s that time of the year… again. If you have a corporation with a fiscal year end of December 31, you are likely working with your accountant to prepare your corporate tax return. You should also take a moment to make sure your corporate minute book is up to date.

The Importance of Good Records

Each corporate statute requires that certain records of the corporation be maintained as described below.

It is our practice to maintain a physical minute book as well as an online copy of each minute book. The online version serves as a backup and makes it easy to share the records with interested parties, including your accountant and other stakeholders.

When we take on a new corporate client, one of the first things we do is review the corporate minute book. Any deficiencies we find can usually be rectified by having all of the directors and shareholders sign a rectification resolution, but sometimes that is not possible. There might be directors or shareholders who have passed away or who are unavailable. The corporate records may conflict with the public record or tax filings. There may be gaps in knowledge that can’t be filled. These issues can create costly delays and result in potential liabilities.

Annual Resolutions

Each of the Canada Business Corporations Act (the “CBCA”) and the Business Corporations Act (Ontario) (the “OBCA”) set out certain annual requirements for directors and shareholders. Other jurisdictions in Canada have similar requirements. Where a corporation has more than 50 shareholders or it is a public company, additional corporate and securities requirements apply.

Annual General Meetings

Corporations are required by law to hold at least one annual general meeting of the shareholders (commonly referred to as an “AGM”). This can be done by actually holding a meeting (which may be in person or virtual, provided quorum is obtained and any other requirements under the corporation’s by-laws are met) or, where it is a closely-held corporation, by having all of the shareholders sign written resolutions.

The corporate statutes provide for a deadline for holding the AGM. Under the CBCA and the OBCA, the AGM generally must be held within six months of the corporation’s fiscal year end.

Elections of Directors

Directors are elected by the shareholders. Directors typically serve for a term that ends at the next AGM unless they are re-elected at the AGM (it is unusual to have a staggered board in Canada). Any time a new director wants to join the board, a shareholder resolution is required, although it is possible for the board to fill a vacancy between AGMs.

Being a director is a serious commitment. For more details about what to consider, see our blog “So you want to be a director?”

Presentation of Financial Statements

Annual financial statements must be provided to each shareholder. Typically these statements are provided along with the notice of meeting for an AGM. The board of directors must approve the financial statements; the shareholders receive the financial statements but do not actually vote on them.

Audited Financial Statements

The CBCA and OBCA require that a corporation’s financial statements be audited. Preparing audited financial statements can be very expensive and time-consuming.

The corporate statutes provide that the shareholders may waive the requirement for the audit (the corporation would therefore provide “reviewed” financial statements rather than “audited” financial statements to the shareholders). All shareholders, including non-voting shareholders, must agree to the waiver each year. Failure to obtain the waiver in any year means that a shareholder could require the audit to be performed.

Public Filings

Most corporations are required to file corporate annual filings each year. The requirements vary based on jurisdiction but these filings typically capture the most up to date information for a corporation including the identify of the directors and also notifies the governing agency that a corporation is still active.

In most jurisdictions, failure to file a corporate annual filing could result in financial penalties or even dissolution.  For example, federal corporations who fail to file their corporate annual return with Corporations Canada face involuntary dissolution after two consecutive years of not filing.

In order to avoid these penalties, you should be sure to file the corporate annual filing each year within the prescribed time period.

As mentioned in our New Year’s Update, prior to May 15, 2021 accountants in the province of Ontario were typically responsible for filing the Ontario corporate annual return.

You should check in with your accountant to confirm if they will continue to file the corporate annual return. If the accountant cannot assist, you should reach out to the corporate law firm that is maintaining the minute book.

Ledgers and Registers

Standard Registers

The registers and ledgers of the minute book should always be up to date.  At a quick glance they can provide information on who the directors, officers and shareholders of the corporation are. The ledgers also provide the key dates for a variety of transactions (i.e. redemptions, transfers, and issuances).

Additional Registers

Certain statutes, such as the CBCA, require private corporations to maintain a register that identifies and records “individuals of significant control” in addition to the standard registers and ledgers. At least once every financial year, reasonable steps must be taken to ensure that a private corporation has identified all “individuals of significant control”. This includes ensuring that the register is accurate and complete. Please see our blog “Tracking Controlling Shareholders” for more information.

Ontario corporations are required to prepare and maintain at their registered offices a register of their ownership interests in land in Ontario. In addition, they are required to keep with such register a copy of the deeds, transfers or similar documents that contain the prescribed details. For more information, see our blog “Real Estate Record-Keeping Requirements for Ontario Corporations”.

Key Take-Aways

• Keeping your corporate minute book up-to-date is required by law and can save you headaches in the future.
• The corporation’s accountant will typically prepare a letter each year setting out corporate matters that need to be completed, such as the declaration of dividends. The Canada Revenue Agency can ask to see these documents.
• Even if the corporation has only one person who is the sole shareholder and sole director, for example it is a personal holding company, that person should still sign all of the required resolutions. Failure to do so can result in issues if that person passes away and the records can’t be recreated.
• Before any corporate transaction can be undertaken, including bringing on new investors or selling the business, the minute book needs to be up-to-date and accurate. Trying to rectify the old records can add significantly to the cost and risks associated with the transaction.

Our Corporate Services

We would of course be delighted to assist you with maintaining your corporate minute book. For a fixed annual fee, we will do the following:

• preparing the annual director and shareholder resolutions;
• preparing resolutions for changes in directors, officers and registered address, and related government filings;
• maintaining a calendar of key dates for annual filings and registration renewals (e.g. extra-provincial registrations and name registrations);
• obtaining signatures from directors and shareholders;
• maintaining the minute book in our Toronto office;
• making the minute book and key documents available to you online; and
• where applicable, maintaining the registers for individuals with significant control and real property.

Once we are familiar with your corporation, we we can help assist you with any corporate transactions and avoid those headaches!