In the 21 Questions series, I will do my best to pull back the curtain on a variety of legal concepts. This series is intended to help inform readers to become more knowledgeable and confident legal service consumers.
Whether your business is newly formed, or nearing its hundredth anniversary, if you are incorporated then you have ongoing corporate maintenance obligations. Keeping up with these obligations can feel overwhelming, and rightfully so! It’s a lot to keep track of, but by asking the right questions, we can ensure your corporation doesn’t fall behind.
Having updated corporate records is extremely important in case you are audited, your business is sold, or if your business is passed on as part of an estate. Even if you’ve never updated your corporate records before, it’s better to update them retroactively than take a risk!
First, let’s go through the main aspects of corporate maintenance. Corporate maintenance involves the filing of various documents and resolutions on a yearly basis. For the vast majority of corporations this involves three main aspects: approving financial statements, fulfilling audit requirements, and fulfilling annual general meeting requirements. There is also a yearly obligation for corporations to file an “annual return” with the appropriate government authority. The annual return lets the government know of any changes to your corporation’s structure that took place over the course of the past year.
Filing an annual return is essential or your corporation will eventually be closed down. But beyond just the annual return, there are also yearly documents to add to your minute book. Your minute book, the binder containing all of the corporation’s documents, should be updated yearly. Now let’s get to some questions, and sort through what needs to go into the book.
The first thing to ask is whether your corporation is required to conduct an audit or hold an annual general meeting (an “AGM”). According to the Ontario Business Corporations Act (the “OBCA”), a corporation does not need to hold an AGM if the shareholders sign a resolution to that effect. However, any shareholder with more than 5% of the voting shares can call for a meeting. Therefore, in most cases, you will need unanimous consent of the shareholders to skip an AGM.
When it comes to the audit, again the OBCA tells us that an audit is not required if there is unanimous consent of the shareholders. However, this exemption only applies for private corporations (corporations that aren’t traded on a stock exchange). The exemption, like with the AGM exemption, is applied by drafting a resolution confirming the consent of the shareholders, signed by all the shareholders.
The OBCA is a bit less forgiving when it comes to financial statements. The corporation must maintain records of its accounts and transactions either with its accountant or in its head office. These records must be approved by a shareholder resolution every year. The resolution is usually a one-page document, signed by the shareholders, added to the corporation’s minute book.
With your minute book freshly stocked, and annual return filed, your corporation should be good to go for the next year. Keeping up with your corporate maintenance is no easy task, but it is a good way to ensure that your corporate records stay up to date.
If you need further assistance with your company’s corporate maintenance, you can reach us at contact@smlegal.ca.