Many business owners and managers have developed the notion that updating a corporate minute book is nothing but an unnecessary waste of time and expense. Typically, directors and shareholders of corporations will make decisions and take actions throughout the year, without bothering to document them at all, and what many fail to realize is that the law requires many of these decisions and actions to be recorded by way of meeting minutes or resolutions. Keeping accurate records is not only mandated by law, but can save a corporation from incurring a large amount of costs in the event that it is required to show its compliance by an authoratative body, or in the course of business dealings where the corporation’s minute book is essential. Keeping an up-to-date minute book can serve as evidence for claims made against the corporation, but also as evidence of the corporation’s legal and financial standing. Things that are pretty important if you’re dealing with tax authorities, looking to expand the company, or looking to sell.
The minute book can be held at the head office of the corporation, although it’s quite common for corporations to provide authorization for the minute book to be kept at the office of its corporate solicitor. Doing so ensures someone is keeping a record on when it needs to be updated, and helps to avoid arranging for the minute book to be delivered every time that needs to be done.
The Business Organizations Act, R.S.O 1990 (the “Act”) is Ontario legislation that regulates Ontario corporations with respect to its affairs and record keeping responsibilities. Part XI of the Act deals specifically with the requirements of keeping and maintaining corporate records. While this article deals specifically with Ontario legislation, many of the same rules and regulations apply to Canadian registered corporations. The Act requires all Ontario corporations to keep the following records:
- The articles and by-laws and all amendments;
- Any shareholder agreements;
- Minutes of meetings and resolutions of shareholders;
- A register of all directors, past and present, and their residence addresses;
- A securities register;
- A register of ownership interests in land;
- Adequate accounting records; and
- Minutes of meetings and resolutions of the directors.
In addition to the above, corporations are also required to keep a record of changes to the corporation, such as changes to directors and officers, and changes to the corporate address. Some of these changes are further required to be filed with the appropriate government agency and the director(s) of the corporation are responsible for ensuring that the records are current and accurate.
Aside from keeping these records up-to-date and organized for the purposes complying with the law, there are many other practical reasons for doing so. One such example would be if the corporation is subject to an audit. In the event of an audit, the auditing authority will require the review of the corporation’s minute book. If the director(s) failed to keep the minute book current, it is likely that the corporation will incur a larger amount of costs to ensure the minute book accurately reflects past decisions and actions of the corporation; a minute book with outdated records will undoubtedly require an extensive amount of time from lawyers and accountants. As a result, the auditing process will be at risk of being delayed and the corporation may face possible penalties and extensive costs.
A corporation may also require a current and accurate minute book when it wishes to issue shares to existing or new shareholders, obtain a loan or mortgage from a lender, or during the process of amalgamation or selling the corporation to a third-party. In these scenarios the party you wish to issue shares, sell to or borrow from will likely want to ensure that your company is in good standing and in a stable position financially. This process of due diligence for such transactions is most commonly completed by obtaining and reviewing the corporate minute book. Any misleading or missing recordings could have a negative effect on the completion of the transaction.
Your corporate minute book should also include the debt obligations of the corporation and any securities that have been registered. While this allows potential lenders and purchasers to have an understanding of the corporation’s financial state, acknowledgment of the such loans can be used as evidence to avoid a claim for payment under a loan that has become statute-barred under the Limitations Act (Ontario).
Since the House of Lords case of Salomon v. Salomon & Co., Ltd. [1895-1899], a corporation has been confirmed to be a separate legal personality from those who create and run it. The corporate minute book can be viewed as a biography of the corporation that continues to be written throughout its operation. Whether you are providing your minute book to a lender, shareholder, a potential partner, purchaser, or a lawyer, one should be able to ascertain the entire history of corporate structure and corporate affairs from its review. Finding a good corporate lawyer who is committed to your business will undoubtedly provide assurance that your corporation is operating within the law and that you will be able to conduct business without any unnecessary road blocks.