What are minute books supposed to contain?
Under the Ontario Business Corporations Act or the Canada Business Corporations Act, a corporation is required to keep, a record containing the articles of incorporation, corporate bylaws, minutes and resolutions of the shareholders and directors, registers of all current and past directors, officers and shareholders, shareholder agreements (if any), and a register of ownership interest in property.
What are organizational resolutions?
Organizational resolutions of a corporation approve, authorize and adopt certain corporate actions. For example, electing initial directors and officers, adopting by-laws, the corporation’s bank, fiscal year end and, most importantly, issuing shares to its shareholders.
What happens if I don’t keep proper minutes books?
If you do not have proper minute books, you run the risk of incurring some very severe consequences. These include the following:
- If you are audited by the CRA, you run the risk of having to pay more taxes than you would have otherwise if you had kept proper records.
- You may be hit with additional penalties for failure to comply with the law.
- A prospective buyer of the shares of the corporation will want to review the minute book so it would require more time and effort to go back in time to update the minute book.
Can I produce a minute book when requested by the CRA instead of keeping one from the outset of my business?
As far as the CRA is concerned, creating minute books on request is tantamount to falsification of documents. The CRA has tracing scans, which has the ability to trace the age of the documentation using scientific tests. If you date documentation backwards, you’ve now falsified records provided to the Agency. If discovered, you will be hit with severe penalties and potentially even criminal prosecution.
How can a lawyer help me if I do not have proper minute books and corporate records?
If your corporate minute book is not up to date, a lawyer can prepare ratifying and rectifying omnibus resolutions, which are legal documents that state that no resolutions were previously enacted. The documents further state your wishes to ratify all past acts and rectify the lack of documentation by enacting these resolutions retroactively to update your minute book.
What can I do if I do not have any minute book at all?
If you have no minute book or share certificates at all, a business lawyer can reconstruct one. Here, we will prepare a statutory declaration affirming that for whatever reason, no records exist or that all corporate documents have been lost or otherwise destroyed. We supplement the declaration with ratifying and rectifying annuals and obtain an official physical minute book.
What are annual resolutions of a corporation?
Annual resolutions are resolutions that state that the directors and shareholders have reviewed and approved the financial statements of the corporation. The financial statements are prepared by the corporation’s accountant and are used to file the corporation’s annual T2 income tax return.
Do annual resolutions of a corporation also dictate how dividends are shared among shareholders?
Annual resolutions often include resolutions that extract funds from the corporation to the shareholders personally.
These resolutions may declare capital dividends from the non-taxable portion of a corporation’s capital dividend account (CDA). They may declare eligible dividends extracted from a corporations General Rate Income Pool (GRIP). Or, they may declare non-eligible dividends drawn from the corporation’s Low Rate Income Pool (LRIP), which are the most common form of dividends for businesses subject to the Small Business Deduction (SBD). Resolutions can also declare share redemptions (taxed as deemed dividends), management bonuses, and other forms of year-end resolutions in order to extract retained earnings from the corporation in the most tax efficient manner.
