What Does the Ontario Business Corporations Act Say about Your Minute Book?
Updating Your Minute Book Makes Good Business and Financial Sense
Your business must keep a minute book if it is incorporated. It’s not only good business practice, it’s also a legal obligation. In this article, we explain the whys, whats, and hows of minute books.
What Is a Minute Book?
A minute book contains details of your business as a corporate entity. Whenever there is a change in its structure, location, directors or shareholdings, it should be updated.
From a business perspective, keeping your minute book updated makes sense. Here are a few business situations when an up-to-date minute book could be critical:
- It enables a corporation to show a prospective buyer or investor much of what they need to know about the business immediately without a pile of extra work to go back through time and update it.
- If a corporation is undergoing an audit, the auditors will need to review the minute book. It is essential the auditors can review an accurate history of the corporation, to determine the structure, decisions made, and actions taken. When the minute book is not up to date, it is likely to require work by lawyers and accountants to correct. Not only is this expensive, but the audit could also be delayed, resulting in extra costs and penalties for the corporation.
- In cases where a corporation wishes to obtain a business loan, or should it wish to issue new shares, the third party is likely to want to inspect the minute book to ensure that the corporation is in a good financial position. Missing or inaccurate information may delay deal completion or cause it to be cancelled.
However, it isn’t only such business situations that makes updating your minute book critical. Doing so is a legal obligation, set out in the Ontario Business Corporations Act (OBCA) and the Canada Business Corporations Act (CBCA).
(Read more in our article What is a Minute Book?)
Your Legal Obligation to Keep Minute Books up to Date
Section XI of the OBCA sets out your recordkeeping responsibilities. You must keep records of all the following:
- 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
- Minutes of meetings and resolutions of the directors
Also, if a corporation makes any structural changes, such as changes to directors and company officers or change of address, these must be recorded. All debt obligations of the corporation should also be included in the minute book – an important consideration should the corporation need evidence to avoid a payment on a statute barred loan (under the Limitations Act).
Who Is Responsible for the Minute Book?
Every time that a corporate event takes place, it must be recorded in the minutes book. This minute book can be a loose-leaf bound copy or an electronic copy. It must be kept at either the registered office of the corporation, or at an authorized place provided it is available for inspection during regular office hours. Many of our clients have us maintain their minute books at our offices for them.
The people entitled to inspect a company’s records are:
- Registered shareholders
- Beneficial shareholders
- Creditors of the corporation
- Agents or legal representatives of registered shareholders, beneficial shareholders, and creditors
What if You Don’t Keep Your Minute Book Updated?
For many business owners – especially small business owners – updating a minute book is a bore and a chore. Directors make decisions without documenting them, and this makes the minute book out of date and unfit for purpose. Bringing the minute book up to date after only a few months of neglect can be a time-consuming and costly process.
If you are paying yourself dividends or have loaned money to the corporation, it is likely that the Canada Revenue Agency (CRA) will wish to inspect your minute book. They may also wish to inspect it as part of their auditing process when reviewing your personal or corporate taxes.
If your minute book is not up to date, it is more likely that the CRA will consider that those dividends are in fact personal income. You’ll be taxed on it. If your minute book doesn’t show the loan made and repaid, the corporation is unlikely to be able to deduct it as an expense, and you are likely to be taxed again. And you’ll still need to complete the expensive exercise of bringing your minute book up to date. But this isn’t the end of the financial misfortune that negligence of your minute book could cause.
Keep Your Minute Book Updated to Avoid a $25,000 Fine
Section 256 of the OBCA details how corporations and directors and others could be penalized for breaching the Act and making misrepresentations. It states that misrepresentation means:
- an untrue statement of material fact, or;
- an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made. R.S.O. 1990, c. B.16, s. 256 (1).
Every person who is found guilty of an offence could be fined up to $2,000 and a term of up to one year in prison. If the guilty person is a corporation, the fine could be as much as $25,000.
Whether being reviewed by a shareholder, company buyer, lender, or the CRA, or others, it is critical that your minute book is up to date. It is the history of the corporation, allowing the reader to understand the structure of the business and how it conducts its business affairs.
Maintaining your minute book not only makes good business sense, it is also obligatory under the law. Not maintaining your minute book could be costly to the business and result in easily avoidable fines.
As a corporate lawyer committed to helping businesses, we help to ensure that corporations remain legal in all aspects of their business. Don’t let your business and busy life get in the way of maintaining your minute book. Contact us today and learn why we are the legal help you need.