Getting Your ‘Duck-uments’ in a Row: Why Proper Corporate Records are More Important Than You Might Think
Incorporating a company in Newfoundland and Labrador is a fairly easy and painless process: three simple online forms and a filing fee gets you an official certificate of incorporation issued from the Registry of Companies. In an effort to be cost-conscious, many new business owners take care of this requirement themselves, never realizing (until it’s too late) that this is only one small step in the corporate set-up and organization process. Experience as a business lawyer has shown me that, most times, “do-it-yourself” incorporation is penny-wise but pound foolish.
The proper incorporation and organization process is dictated by the province’s Corporations Act, and it entails such additional steps as: subscriptions for shares by the shareholders and the issuance of the corresponding share certificates; creating and maintaining registers and ledgers of all directors, officers, shareholders, and share transactions; the passing of resolutions by the directors to confirm the Articles of Incorporation as filed with the registry, to confirm the shareholders, to appoint the officers, to establish the fiscal year, to establish the registered office and to enact the corporate by-laws; and the passing of resolutions by the shareholders to establish the board of directors, to affirm the corporate by-laws and to appoint the corporate auditor.
All these steps and documents require some careful consideration and planning and, once signed, should be organized in the corporate minute book. This is also an opportunity to consider the benefits of negotiating a unanimous shareholders agreement.
A good corporate minute book starts the business off on the right foot. It is maintained and updated annually or as changes in the business occur. It records the history of the company: the people behind it (the shareholders, directors and officers) and the decisions it has made and actions it has taken since the date of incorporation. It provides the evidence of valid, legal and authorized corporate decision-making.
But this is not just about good corporate-bookkeeping: a well-maintained and up to date minute book is essential for many corporate transactions. Businesses will be called upon to produce a minute book for inspection in a variety of situations:
- When taking in new shareholders
- When seeking equity investors
- When undertaking restructuring, reorganization or amalgamation
- As part of a sale of the business
- As a requirement for banking and bank financing
- When applying for government grants and programs
- In the event of a shareholder dispute
Not having a corporate minute book in these types of situations means it will need to be updated or retroactively built in order for the transaction to proceed. Such an undertaking creates a situation of “revisionist history” that rarely leads to an accurate result since it entails trying to piece together the corporate history, locating or recreating several years of corporate records, and tracking down former stakeholders to gather signatures.
Though not impossible to do, this can represent a significant time delay and unnecessary expense – not to mention an unwanted distraction for the corporate executives- in the middle of an important transaction. Moreover, from a corporate image and reputational perspective, poor record-keeping can create a negative impression about management and operations thereby shaking the confidence of others.
All of this can be so easily avoided with one small piece of advice: “begin as you mean to go on”. Start with good corporate records and take the time to keep good corporate records. It will save you time and money in the end.
Featured Article in NLOWE’s The Advisor (Fall Issue)