Corporate Record Keeping Requirements
So you decided to incorporate, and hopefully you used a lawyer to help you through the incorporation process. Provided that you did use a lawyer to incorporate, your lawyer will have prepared the following documentation for your corporation’s “minute book”:
- Articles and by-laws of the corporation;
- Initial set-up resolutions, which typically confirm such matters as: share subscriptions, approvals of by-laws, the corporation’s registered office, the fiscal year end, the corporation’s bank, the corporation’s accountants, the corporation’s lawyers, director elections, officer appointments, and audit exemptions;
- Your consent to act as a director of the corporation;
- Registers setting out the shareholders, directors, and officers of the corporation;
- An initial return form notifying the Ministry of Government Services of the corporation’s registered office address and all director/officer information (e.g. address for service, date elected/appointed, date ceased to hold office, officer title, etc.); and
- Share certificates evidencing the ownership of shares in the corporation.
Your lawyer went through all of this with you, you signed everything you needed to sign, and then you left.
Be advised, though, that this does not conclude your corporate record keeping obligations. They have only just begun at this point.
Pursuant to either of: (i) the Business Corporations Act (Ontario) if you incorporated provincially in Ontario; or (ii) the Canada Business Corporations Act if you incorporated federally, you are required to maintain the following records at your corporation’s registered office (or at such other location as the directors of the corporation determine):
- Articles and by-laws of the corporation, and all amendments thereto;
- Copies of any shareholder agreements between the shareholders of the corporation;
- Minutes of meetings and resolutions of the directors and the shareholders (which must be held annually at a minimum, and must address certain matters set out in the statutes – e.g. voting to be exempted from statutory audit requirements);
- Registers of directors containing each director’s name, address, and dates of resignation (if they cease to be a director at some point);
- A shareholder register containing the names of the shareholders of the corporation;
- A transfer register setting out all issuances and transfers of shares held in the corporation and the particulars of each transfer; and
- A register containing all of the corporation’s interests in any real property located within Ontario.
Any failure to comply with statutory record keeping requirements can result in the following penalties:
- For individuals – including both directors and officers – a $2,000.00 fine or to imprisonment for one year, or both; and,
- For corporations – a $25,000.00 fine.
These penalties can easily be avoided if you permit your lawyer to maintain your corporate records on your behalf, which your lawyer will gladly do. Your lawyer will also ensure that you do not include extraneous information in your minute book that could make you vulnerable in the event that the corporation is audited.
Apart from the legislative requirements, you should also keep your records up-to-date for the following reasons:
- In the event that you wish to sell your business later on, it will be easier for prospective purchasers to perform their due diligence reviews of the business. This will save you significant legal expenses in relation to the transaction. Lawyers acting for vendors are frequently required to tidy up minute books with remedial resolutions and amendments to various documents (such as articles and shareholder agreements), and the costs of having to do so could significantly diminish your sale proceeds;
- In the event that your corporation is sued, you will lose credibility where further facts are explored by the courts and you claim to recall matters that are not adequately reflected in the records (e.g. no corporate resolution exists approving a sale of shares, so how can it be argued that the sale was authorized?); and
- Failing to keep adequate records could be a violation of the fiduciary duty that you owe to the corporation as its director. The very heart of a director’s fiduciary duty is to act on an informed and reasonable basis. It will be difficult to argue that you upheld this duty if your records do not accurately reflect the information behind, and the reasons for, your actions.