When you own your own business there are many things to worry about and more than enough problems to deal with. However it is important you ensure corporate actions are reviewed by your lawyer and accountant, and that the proper documents are prepared, reviewed and completed. The list below provides some illustration as to why these matters should be addressed in a timely and complete manner:

1. You want to keep your company in good standing with the government. The Ontario Business Corporations Act (the “OBCA”) requires annual shareholders’ and directors’ meetings. In small closely held companies, the annual resolutions will take the place of those meetings and keep you in compliance. These resolutions will elect directors and officers and exempt the corporation from an audit that would otherwise be required by law. Any changes in officers and directors must be filed with the Ministry of Consumer and Business Services.
2. You want to pay the least amount of tax as possible. When it comes to declaring dividends and bonuses, and transferring assets and shares, your accountant will implement a tax strategy that means the least amount of taxes for you. In some instances the Canada Revenue Agency (the “CRA”) will want to make sure these transactions are documented properly and approved by the company through resolutions. If the resolutions are already in the minute book together with the transaction documentation, it will save a number of headaches when CRA comes calling and will avoid possible penalties or worse, such as disallowing the transaction altogether.
3. You want to avoid fines and other penalties. The OBCA states that anyone failing to comply with any provisions of that Act or its regulations is subject to penalties pursuant to the Act. As well, directors are personally responsible for certain liabilities of the corporation to the extent that liability occurred when they held the position of director. If you keep the government up to date with a current list of directors and officers, liability can be placed on the proper people. The OBCA also contains a provision for a corporation to be dissolved if they are not in compliance with filing and reporting requirements which may, in addition, give rise to director’s liability. Inattention to corporate records may lead to a non-existent company and possible personal liability.
4. You won’t be around forever. You know what’s happening with your business, who owns shares, who does what and when they started. If you are the sole director or sole shareholder you may approve things every day without making a record of it. What happens when you are not there one day? Others may be able to piece things together, but most of the time they are left guessing, leading to unnecessary liabilities.
5. You may want to sell your business someday and you want the best price possible. Clean, well-maintained corporate records translate into a smooth transaction. It gives the purchaser the impression that your company is well run and the corporate history is clearly set out. Untidy corporate records will give rise to unnecessary questions and suspicions. Keeping accurate records also means you will save on fees at the time of a transaction or the administration of an estate when additional costs will be incurred to rectify incorrect or missing documentation. Incomplete corporate records have on occasion resulted in sales transactions not being completed.

If you would like to review your corporate records, please contact me.

Sarah MacDonald
Business Law Group
Tel: 905.276.0416
E-mail: smacdonald@kmblaw.com

The comments in this newsletter are of a general nature and are not designed to replace professional advice in specific situations. If you would like extra copies of this newsletter, or you know of anyone who would be interested in joining our mailing list, please contact Cheryl Woolcott at (905) 276-9111.