31 Dec 2018
Is your corporate Minute Book up to date? Do you even have a minute book?
Did you know that an accurate, up to date minute book is a very important set of documents. Many people choose to incorporate themselves using an online service to save a few dollars; the problem with this however, is many of these services do not supply you with a Minute Book and all of the other required documents, or some people choose to save a few dollars and not bother with the minute book. Without a complete and accurate minute book, you could be in for a host of problems that could cost you significantly in the long run. In general, your Minute book should contain (at a minimum):
• Bylaws of the Corporation
• Register of Directors
• Register of Shareholders
• Share Certificates
• Shareholder Resolutions
• Directors Resolutions
• Register of Shareholder Loans
Why do you need a minute book and why should you keep it up to date?
There are at least 3 solid reasons for keeping a minute book and keeping it updated:
1. It is Law; Legal Statutes in Canada impose obligations to keep and maintain corporate minute books with the information detailed above. There can also be fines and penalties imposed for failure to maintain these records (although rare).
2. Several 3rd Parties you deal with may need to review your books; these may include your accountant, lawyer, banker, CRA or other taxation authorities.
3. If you sell your business, the purchaser or they legal representatives may want to review the information and provide legal opinions. (a disorganized or incomplete minute book could reflect a lack of attention to detail on the part of the business owners).
Following are a couple of examples of how incomplete records can cost you dearly:
Let’s say you just started your business and advanced $50,000 to purchase equipment and inventory. You deposited the money in the company bank account. You did not record this in the minute book (or elsewhere) as a Shareholder Loan with terms etc.) CRA then audits the business and deems the advance to be Revenue and assesses you more than $8,000 in income tax!
In another, similar example it is again CRA that is going to cause problems for you: Let’s say that business is going well and you pay yourself and your spouse (a shareholder) dividends in the amount of $50,000 each; You fail to record this in the minute books of the corporation. CRA then audits the business and as there is no record of the payments being dividends, they deem the payments to be wages and tax them accordingly, Likely upwards of $20,000 each! Plus interest and penalties of course. Your Minute book is extremely important, keep it up to date and you can avoid a lot of problems.