What is the purpose of a Minute Book for a Corporation?

6 June, 2013

The Minute Book is basically a record of the most important rules and decisions of the company.  It dictates whom holds what significant position within the company, what those people are allowed to do as well as what and often when they can do it.  Often it proves whom is, or isn’t a shareholder.  There are other legal aspects that are also important within the Minute Book which a lawyer could talk to.

From an accountants perspective, the Minute Book is significant for the following reasons:

  • If no director or officer appointed within the Minute Book then only the named first director from the Articles of Incorporation can sign anything for the company. This includes contracts, bank agreements, the balance sheet and the tax return;
  • If no shares issued per the Minutes of the Corporation, then it is impossible to pay dividends, meaning all such payments are really net payroll (*);
  • If the Minutes do not authorize a payment of dividends, then again they are considered to actually be net payroll (*);
  • Without an audit waiver exemption, signed by all shareholders, then the company MUST have an audit, it cannot have a review nor compilation done, that is per the Corporations Act (both Federal and Ontario agree on this point).  An audit costs significantly more than a compilation, which is all that most small business generally need; and
  • Often the first thing the Canada Revenue Agency looks for when they come to do a tax audit of a company is the Minute Book.

(*) If something is ‘reclassified’ by the Canada Revenue Agency to be ‘net payroll’, the tax, penalties and interest that can be charged to both the company and the receiver of the payment can often be more than double the actual tax owing, so this is something that is very negative and should be avoided wherever possible.

As an accountant, I cannot update the Minute Books for you, that would be providing legal services.  Also as an accountant,  I cannot complete my work (like preparing financial statements and tax returns) without first knowing the Minute Book is up to date and in order.

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