You would be surprised at how often a minute book will be requested for review. Not every organization that wishes to see it has a right to see it but you may not be able to move forward with your company’s work if you cannot show them the proof they demand. Below are some reasons why a company needs a minute book.
Some Reasons Why a Company Needs a Minute Book
- An investor’s solicitor may wish to review the minute book to assure his client that he is investing in a valid and subsisting company and may wish to ensure the documentation required to bring the investor in is documented
- A bank may request to see the book to confirm the structure before agreeing to loan money to the company and the bank may wish to see the by-laws in order to determine what authority the directors and officers have to borrow money
- If you wish to sell the company you will definitely be required to show that you have documented all transactions from the date of incorporation to the point of sale
- Transferring the business from yourself to your family cannot be done unless the minute book is in order since ownership must be able to be approved by the family member. If there is no minute book, there is no evidence of ownership
- Real estate transactions frequently result in ownership needing to be proved and without a complete minute book this cannot be done
- Government offices such as the Workers Compensation Board may request your minute book to prove the percentage of ownership. If you cannot provide proof of the percentage of ownership between you and your spouse, then you may pay more tax
- When the company purchases a vehicle the government office may request to see the minute book before agreeing to put the vehicle in the name of the company
- If the company is audited by the government it will be requested to present its minute book
- Cases are coming up where strangers are taking over existing small private well established companies. The stranger changes the names of the directors and officers on the public record to the new person. They then gain access to tax records by providing Revenue Canada with the notice of change. Once they take over the business, they open up an office using your company’s name. Ownership is evidenced in the minute book by the preparing of resolutions to allot shares, appoint directors and officers. If you do not have a minute book proving ownership will be more difficult. Your good name and goodwill could be destroyed during the time you are fighting to get your company back.
Why a Company Needs a Minute Book – Annual Returns, Initial Returns, Notices of Change
Certain returns and filings have to be done with respect to a new incorporation, on an annual basis and when changes have occurred in addresses, directors and officers. By law these must be documented and filed with the government. The professional who sets up your company knows what these are, will file them upon incorporation as required and let you know what will need to be done in the future. If these filings and returns are not maintained properly your company may be dissolved for non-compliance of the laws.
Why a Company Needs a Minute Book – Extra Costs Will be Incurred
There are many reasons why a minute book may be requested. As you can also imagine time is usually of the essence when a minute book is requested for review and that again can increase the cost of having one set up and documented. As well, if the company has been around for many years that can increase the cost of creating a new minute book.
Setting up your minute book and maintaining it as you go along will save you money and aggravation in the long run.
If you wish to understand more about minute books refer to What Goes in a Minute Book
Partners in a Company
If you and a business associate start a company together and down the road there are problems, if there is no minute book set up and if approvals at meetings have not been documented properly, that person may be able to leave the company with more assets than he brought in because you will not be able to prove otherwise. Shareholders agreements are frequently prepared in addition to the set up of the minute book to ensure all parties are protected.
Lawsuits are in the courts every day over problems that occur amongst shareholders of companies. To protect yourself you should have a minute book set up which clearly shows ownership and it is prudent to also have a shareholders agreement prepared by a competent solicitor.
Resources for Canadian Business Owners has over 30 years’ experience in setting up, maintaining and rectifying the most complex of corporate minute books.