The Corporate Minute Book: What Every Ontario Business Needs to Know

A company’s minute book is its bible. It documents the corporation’s major changes and events. It is an assembly of its most important governing records from birth to death.

This timeline document begins when the company is first incorporated, and its creation is called Organization. Organization involves assembling the following documents:

1. Initial Resolutions. This is the first time that directors and officers, the company’s decision makers, are elected. For more on directors and officers, check out our Corporate Governance Basics series.
2. Share Issuance. The Corporation’s founder(s) issue shares, which represent an ownership interest in the company.  Those who receive shares are called shareholders. Without this crucial step, nobody legally “owns” the company.
3. Corporate Registers & Ledgers. These are lists of all the directors, officers, and shareholders of the company, and any real property owned by the company.
4. Corporate By-laws. This is the company’s “rulebook”, which deals with the company’s day-to-day management.
5. Shareholders Agreement. Where there is more than one shareholder, a shareholders agreement sets out their relationship to one another.
6. Various other government filings.

In the past, the minute book came in the form of a leather-bound binder, but is now more commonly in electronic form. The minute book is required by law to be complete and updated year after year.

After creating the initial resolutions, the shareholders and directors must update the corporate minute book annually. They do this by signing Annual Resolutions, also known as “Annuals”. Typically, a corporate lawyer will prepare the annuals after the company’s accountant has filed its tax returns. Corporate taxes are usually filed at the end of a calendar year. Some of the main items included in the annuals are the approval of:

• financial statements prepared by an accountant;
• bonuses, dividends, or salaries paid;
• any transfer of shares or sale of assets;
• changes to the officers, directors, shareholders, registered office address, corporate bank, corporate lawyer, or corporate accountant;
• contracts or loans entered into by the company

It is becoming increasingly common for online companies to offer incorporation at bargain basement prices. These companies usually know very little about the law. They don’t tell their clients that their service only completes about 10% of a proper incorporation.  Most of the work in an incorporation is in creating a minute book that reflects the specific needs of the company.

Having an updated minute book is important for the following reasons:

1. Government Audits

A number of government departments, such as Canada Revenue Agency, Employer Health Tax, Workplace Safety and Insurance, and others can and do audit corporations. All typically require a review of the minute book, which they expect will be up-to-date.                                                                       

If the CRA audits your company, and you do not have an updated minute book, you run a higher risk of a tax audit. Since keeping an updated minute book is the law, the CRA will make a negative assumption that you are also not complying with tax laws. You may also be hit with penalties, in addition to the accounting and legal costs required to deal with a tax audit. 

2. Selling Your Business

When selling a business, the buyer will almost always request an updated minute book as part of their due diligence process. Failure to produce an updated minute book in a timely manner is a red flag that your business is unsophisticated, that it may be concealing important information, or both.

 3. Tax Savings

Canadian private companies enjoy a lifetime capital gains exemption of up to $892,218 on the sale of its shares. This can translate into hundreds of thousands of dollars in tax savings when you sell all or part of your business, or when you leave it as an inheritance. Obtaining this exemption requires that you have an updated minute book.

4. Accounting & Legal Fees

Having your minute book updated regularly is usually far less expensive than completing years worth of annuals retroactively.

When incorporating or updating your minute book, a great first step is to speak to a business lawyer. Extreme care must be taken when drafting resolutions and keeping the minute book accurate and up-to-date.

A good business lawyer will work closely with you and your accountant to ensure that all your company’s ducks are in a row.

If your minute book is not up to date, or you do not have one at all, we can help get you compliant with the law.

Contact us today for a free strategy session!