After investing your time and money to start a corporation, you need to take the necessary steps to keep it afloat. One critical step is to make sure you have all the supporting documents to prove that your corporation is legitimate. We’ll get into details on why every corporation needs a minute book.
What’s a Minute Book?
When you conduct major transactions or activities in your corporation, you can record them in a minute book. This book is also ideal to record some of the major decisions that are made by the management or directors of the corporation within the year. Minute books are actually required by law. You need to have an up to date minute book with all the critical information on decisions made in your corporation.
Reasons why minute books are essential for businesses
Displays professionalism and organization
You need to show how well your corporation is organized by keeping an up to date minute book. This can actually help you to seek a loan from a financial institution. Financial institutions usually look at how good you are at keeping a record of the corporation’s main activities when making the decision of whether to approve a loan. Therefore, having an up to date minute book can actually help you to secure the financing you need for your business.
Comes in handy when it’s time to sell
Are you looking to sell your corporation in the near future? Start by keeping an up to date minute book. This important document can help buyers to understand different aspects of your corporation. It provides details on when and why certain decisions were made and showcase your business as a valuable investment. Remember that poor record keeping can actually devalue your business and make the sale appear like a high-risk investment.
It’s necessary during an audit
If by any chance your corporation needs to be audited, one of the things the auditor will ask for is a record of your major transactions and decisions. Having a minute book will really help the auditor to see that there are actually supporting documentation for your major business transactions. In fact, this simple record can help to ensure your claims are accepted by the CRA.
Payment of dividends
During an audit, the CRA may want to examine the corporation’s minute book to determine if there was a resolution whereby one of the company’s director’s authorized payment of dividends within the year. Dividends usually attract lower taxes as opposed to bonuses and salary, therefore, the tax authorities are always looking out for corporations that are taking advantage of this to reduce their taxes. When you have a minute book, you can show that such a resolution existed and so your claims will not be denied. Failure to prove that a resolution to pay dividends was made can actually cause your payment to be re-characterized as salary which eventually increases the tax bill. You may even face a penalty for failure to follow the required laws.