What should I look for in the minute books when buying a business?

A minute book is a company’s own record of its legal life, and what a buyer should look for depends on what is being bought. In a share purchase you take the corporation exactly as it exists on paper, so the book is the evidence of what you are buying. In an asset purchase the corporation stays with the seller, and its minute book is largely the seller’s concern. For the basics, see what a minute book is.

Start with what the law expects to be there

The Canada Business Corporations Act requires a federal corporation to keep records containing its articles and by-laws with all amendments, a copy of any unanimous shareholder agreement, minutes and resolutions of shareholders’ meetings, and a securities register. It must also keep accounting records and minutes and resolutions of its directors and their committees, and, for most federal corporations, a register of individuals with significant control. A provincially incorporated company answers to its own province’s statute, so confirm which Act governs before you work from this list.

Test whether the records agree

Cross-check the securities register against the share certificates and against what the seller says about who owns what. Warning signs include annual resolutions missing for several years running, no record of a share issuance or transfer the seller describes, directors listed who the seller says have left without a resignation on record, and name changes or amalgamations mentioned but never documented. A book that looks assembled all at once is also worth a question.

Compare the book with outside records

The CRA asks businesses to make sure the incorporating authority’s registry and the CRA both hold correct directors’ names, so compare the directors in the book with what each shows. Gaps are not always fatal. Missing resolutions can sometimes be prepared to document past decisions, or the purchase agreement can make a complete, orderly book a condition of closing. Either way, ask for the whole book rather than a summary.