Resolving to keep up Annual Corporate Maintenance
Annual maintenance of a corporation's minute-book is often the last thing that a small business owner has on his or her mind when they ring in the new-year. Changes to a small business are infrequent and the owner often continues to occupy the roles of sole shareholder, director and officer. Holding meetings of the directors and shareholders are not often the priority of a small business owner, as they are focused on running the day to day operations of their company. Non-compliance can be uneventful, which can lead to the corporation's minute-book falling further and further out of date. It's also possible that annual maintenance has not been kept up because of lawyer turnover, changes to the corporation's address or contact information, or confusion as to what is required to keep the corporation's minute-book current.
What is Annual Corporate Maintenance?
All provincially and federally incorporated companies are required by law to hold a first meeting of the directors to conduct the initial business of the corporation, including the making of the corporation's by-laws, adoption of share certificates, appointment of officers, etc. Any subsequent changes to these business arrangements (e.g. change in officers, new accountant, relocation of the registered office) require the approval of a majority of directors at a validly called meeting of the directors, and occasionally, may require filing a notice of the change under the Corporations Information Act (Ontario).
In addition to the above first meeting of the board, the directors are required to approve the annual financial statements of the corporation and any funds which have been drawn from the corporation (e.g. dividends, management bonuses). The directors must also call an annual meeting of the shareholders within 18 months of incorporation and thenceforth annually, no more than 15 months after the last annual shareholder meeting. At these meetings, the shareholders are required to approve certain important decisions affecting the corporation for the most recent fiscal year and for the year to come (e.g. approve the financial statements, elect directors). Depending on the decision, resolutions must be approved by a majority (50%) or "special majority" (66.6%) of the voting shareholders.
Alternatively, and most commonly, these matters are approved in writing, annually, by way of resolutions signed by all of the directors and shareholders of the corporation. The recording of these corporate matters in the corporation's minute-book evidences that they were properly authorized and ought to have occurred, which can assist in proving matters in connection with shareholder or tax disputes.
What are the consequences of missing Annual Corporate Maintenance?
Non-compliance with annual corporate maintenance is often uneventful, which means it can easily go forgotten for years (or decades). However, failing to maintain the minute-book can result in substantial fines and/or penalties for breach of the applicable corporate law statutes (in Ontario, the Business Corporations Act; Federally, the Canada Business Corporations Act); reassessment by the Canada Revenue Agency; and missing important correspondence from government entities.
In addition to the above, failure to keep up corporate maintenance can hold-up or deter significant corporate transactions, such as the sale of shares, obtaining a loan from the bank, or bringing in new partners. It can be time consuming and costly to rectify a corporation's incomplete minute-book, and in some instances, it may be difficult if a shareholder has died, disappeared or become dissatisfied. Keeping up annual corporate maintenance ensures that corporate responsibility and authority is clearly understood by all parties involved with the corporation.
How can I bring my Corporation's Annual Corporate Maintenance up to date?
This article provides general and summary information and should not be regarded, or relied upon, as legal advice or as a legal opinion. If you do require specific legal advice, we would be pleased to assist you in the context of your own particular facts and circumstances.