Do you own a corporation? Why does your corporation need a minute book? Proving your corporation is legitimate relies heavily on your Minute Book. Learn what a Minute Book is, and how it can help your corporation.
A Minute Book is a detailed record of your corporation’s major activities and transactions, as well as management and director’s decisions during the year.
Aside from it being required by law, keeping an up-to-date minute book is important for a number of reasons! Learn more about Minute Books and why they are essential for your business.
Reasons Why Minute Books Are Important:
1) Whenever you see a bank loan, the financial institution is going to make sure the corporation is authorized to undertake a borrowing. Also, keeping an up-to-date and organized Minute Book leaves the impression that your business is organized and is more likely to meet the bank’s requirements; thereby increasing your chances of getting a loan
2) If you are selling your business, the buyer will look at the corporation’s Minute Book to understand exactly what they are buying. Poor record keeping can drive down the purchase price or put the entire sale at risk.
3) In the event of a CRA tax audit, the auditor will ask to see the Minute Book first. The auditor will look to the Minute Book to see if there is supporting documentation with regard to the subject matter being audited – otherwise your claims could be denied.
One horror story that I often come across regards to minute books and dividends.
Let’s say you pay yourself $50,000 from your corporation as a dividend. As you may know, the taxation rate of dividends is lower than bonuses and salary.
So what’s the point? The CRA will examine the Minute Book of the company to see if there is a director’s resolution authorizing the dividends paid in the year.
If such a resolution does not exist, the CRA can throw the dividends out the window and re-characterize the payment as a salary paid to you. Not only will this drive up your personal tax bill, but it will also heavily penalize your corporation for failure to withhold payroll taxes at source.
So here’s the tip!
Updating your minute book is well worth the cost because it will help you avoid pitfalls that are presented in this blog.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.