Putting your corporate records in order before you sell

If you own an incorporated business and plan to sell its shares, the minute book is the corporation’s own record of its shares, its decisions and, under some statutes, its directors, and you may already suspect that yours is incomplete. This guide is written for the seller. It sets out what the law says the corporation must keep, how to find what is missing, how to fix it with your lawyer, and which public filings may also need to catch up. It follows the federal Act first, then Ontario’s Act as Ontario’s only.

Check first that the corporation still exists

Before you spend time on the book, look the corporation up. Corporations Canada says every federal corporation must file an annual return every year, that filing avoids potential administrative dissolution, and that you can search for a federal corporation to find out whether a return is due. For an Ontario corporation, the Ontario Business Registry says anyone can search it for free to get basic information about a business. If the search shows the corporation dissolved, or returns overdue, tell your lawyer before anything else, because the rest of the clean-up assumes a corporation that is in good standing.

What the federal Act requires the corporation to keep

Section 20 of the Canada Business Corporations Act (CBCA) requires a corporation to keep, at its registered office or another place in Canada the directors designate, records containing the articles and by-laws and all amendments, a copy of any unanimous shareholder agreement, the minutes and resolutions of shareholders, copies of all notices required by section 106 or 113, and a securities register that complies with section 50. Section 20(2) adds adequate accounting records and minutes and resolutions of directors and their committees. Section 21.1 separately requires a register of individuals with significant control. Under section 21.1(7) it does not apply to a corporation that is a reporting issuer under provincial securities law, to one whose securities are listed on a designated stock exchange, or to a prescribed class; Corporations Canada’s guidance also lists wholly-owned subsidiaries of some of these among the excluded corporations.

Ontario’s records rule, if the corporation is an Ontario one

This section applies only if the corporation was incorporated under Ontario’s Business Corporations Act (OBCA). Section 140(1) requires records of the articles, by-laws, amendments and any unanimous shareholder agreement known to the directors, minutes and resolutions of shareholders, a securities register, a register of ownership interests in land, and a register of individuals with significant control. Section 140(1) also requires a register of directors showing the names and residence addresses of everyone who is or has been a director, with the dates each became or ceased to be one. The records are kept at the registered office or another place in Ontario the directors designate. Section 140(2) adds accounting records and director and committee minutes. If the corporation was incorporated somewhere else, check the rules of that jurisdiction.

Finding the gaps

Lay the book beside the statutory list for your corporation and test each item against what actually happened. Our entry on the minute book describes what a complete one holds. These are the gaps worth looking for:

• Shareholder resolutions and minutes for decisions you remember making, such as approving financial statements, changing the articles or appointing directors.
• Share issues and transfers that happened but never reached the securities register, so that the register no longer matches who actually holds the shares.
• Changes among the directors, such as someone joining or leaving, with no record in the book and, for a federal corporation, no notice sent to Corporations Canada within the fifteen days section 113 sets.
• A register of individuals with significant control that was never started or never updated. Under CBCA section 21.1 the corporation must take reasonable steps at least once in each financial year, and at other times such as on the Director’s request, to ensure it has identified all individuals with significant control and that the register is accurate, complete and up to date, and must record new information in it within 15 days of becoming aware of it.
• Director minutes and accounting records that are missing for years you will be asked about.

Fixing the gaps with your lawyer

Do not recreate old paperwork yourself, and never sign or date a document as though it were prepared earlier than it was. Ask your lawyer how to correct records properly. Useful questions are which missing decisions can be dealt with by a new resolution, signed today, that approves what was done earlier and says so; whether an unrecorded share transfer needs more than a register entry; and who has to sign each document. Your lawyer can also tell you whether any gap affects the sale itself. The buyer-side view is in our answer on what it means when a seller cannot produce basic corporate records.

Catching up the public-record filings

The minute book is private; the registry filings are not. For a federal corporation, Corporations Canada requires an annual return every year, and section 113 of the CBCA requires a notice to the Director within fifteen days after a change among the directors. Section 21.21 also requires certain register information to be sent to the Director: annually, in the form and within the period the Director fixes, and information newly recorded under section 21.1(3) within 15 days after it is recorded. In Ontario, the Corporations Information Act section 3.1 requires an annual return each year (a class of corporations may be exempted by the regulations), and the Ontario Business Registry says it is due within 6 months of the fiscal year-end. Section 4(1) requires a notice of change within 15 days after the day a change in filed information takes place, subject to the exceptions in subsections (2.1), (3), (4) and (5); section 4(3) excuses a director’s retirement and re-election for the next term. Ask your lawyer how to file late.