How and Why You Should Keep Your Corporation’s Minute Book Up to Date
A corporation’s minute book is a story of the corporation’s life from beginning (incorporation) to end (dissolution). Although maintaining a full and complete corporate record is likely the last thing on a business owner’s mind, it can critical and essential that your minute book is updated to acknowledge the current state of affairs of the corporation. Minute books are relied upon by lawyers, accountants, lenders and third party purchasers for various important reasons, and an updated minute book provides certainty in many critical situations. Moreover, a current and accurate minute book is mandated by law.
Nearly every change or event related to your corporation should be reflected in its minute book. For example, a change to the directors, officers or shareholders, the preparation of financial statements for a fiscal period, a change to the corporation’s registered address, a dividend being issued to a shareholder, and an agreement involving the corporation as a party are all changes and events that must be recorded in the corporation’s minute book in a specific way. Furthermore, certain events must also be reported to either the provincial or federal government, depending on which statute governs the corporation.
Besides the law demanding that your corporation’s minute book be up to date, there are many other reasons why you should keep accurate and complete corporate books and records. For instance, when a shareholder wishes to sell its shares in the corporation, when the corporation is being sold to a third party purchaser, or when the corporation needs to obtain a loan from a bank, if the minute book is not current and complete, the transaction may be delayed until sufficient fact finding has occurred, all necessary details are discovered and the minute book is updated. A governmental body like the Canada Revenue Agency may also demand that the corporation be audited, which will require the minute book to be fully updated. The more active a corporation has been and the more deficient its minute book, the longer the delay will be and the more difficult it will be to update it. Procrastinating with this area of record keeping could prove detrimental.
So what does an up to date corporate minute book normally contain? Some of the typical items that form part of an Ontario corporation’s records include the following:
Originating resolutions (completed during incorporation)
By-Law 1 (dealing with the organization and management of the corporation) and By-Law 2 (the “borrowing by-law”)
Minutes of annual shareholder meetings (also known as annual resolutions)
Minutes of directors meetings
Government filings under the Corporations Information Act (Ontario) (e.g., Initial Returns, Annual Returns, Notices of Change)
Directors and securities registers
Drawing on funds of the corporation (e.g., declaring a dividend or designating a management bonus to certain individuals – these matters should be properly recorded, especially for tax purposes)
Significant transactions involving the corporation
A recent amendment to the Ontario Business Corporations Act (OBCA) that came into effect in December 2016 has made it a requirement that all corporations incorporated under the OBCA also contain an accurate register of the corporation’s ownership interests in land in Ontario. Non-compliance with these provisions or others in the OBCA may result in the corporation and its directors or officers being subject to fines or other penalties.
Just like a computer’s software needs to be regularly updated, so too must a corporation’s minute book. Because the maintenance of a corporation’s minute book can be a highly technical task requiring corporate law expertise, you should always consult a corporate lawyer to perform the required updates to your corporation’s minute book.