This bulletin is to remind all business owners, directors, officers, managers and advisors of the importance of maintaining accurate and up-to-date corporate records.
Jean Chretien, former Prime Minister of Canada, would be the first to advise of the importance of maintaining accurate and up to date corporate records. Back in 1999, controversy erupted when Mr. Chretien was listed as a corporate shareholder of the golf club at Grand Mere between the years of 1996 and 1998, a period in which the prime minister had admitted lobbying the Federal Business Development Bank for a loan to the Auberge Grand Mere, the hotel next to the golf club. The Opposition screamed conflict of interest; Mr. Chretien claimed he sold his shares in the golf course a full four years before he made the controversial call to the bank. Unfortunately, the minute books and share register of the company did not show the transfer of shares. Consider the wasted time and resources that were directed to contain the damage that resulted.
THE LESSON? Maintaining accurate and up-to-date records avoids problems, costs, aggravation and embarrassment.
The Importance of Accurate Minute Books
Although corporate minute books serve as official corporate records, keeping them upto- date is sometimes a low priority. There are a number of reasons why minute books should be kept current including:
1. The minute book is the official source of documents that demonstrate share ownership of the corporation. The minute book should reflect exactly when and to whom shares of stock have been transferred. It should also contain the original stock certificates or share register of the owners.
2. A proper minute book shows the chain of decision makers (and those responsible at law for certain types of transactions) of the corporation, i.e. directors, officers and members of management committees. Equally, it records when these individuals ceased their functions.
3. The minute book leaves a trail of the decisions and transactions of a corporation. The minute book is an important audit backup. With it one can determine effective dates for tax purposes and establish justification for the accrual of expenses and fixed obligations.
4. As corporate records grant corporate directors and officers the authority to act, up-to-date records can help avoid challenges to the corporationâ€™s authority to take certain actions. These challenges might come from a number of sources including: minority shareholders, directors, employees or even taxing authorities.
5. The minute book details the official standing of the corporation and establishes the background record needed to facilitate corporate transactions including the issuance of shares and sale of the actual corporation. Having an inaccurate minute book can make even the simplest of corporate transactions into a lengthy, costly and hassle-filled experience for everybody involved.
6. The minute book is the official recording of the compensation and dividends that the corporation is required to pay. The minute book record is also effective at creating a paper trail in order to demonstrate to taxing authorities or the other various government authorities many of the payments the corporation has made.
It should be kept in mind that the failure to maintain an up-to-date minute book may be subsequently more serious (and costly) in the event parties become unwilling or unable to execute documents requiring their signature.