If you are a dentist who has incorporated a dentistry professional corporation (a “DPC”) or are thinking of doing so, this post is for you. When starting or researching your new DPC, your lawyer or accountant will likely have told you that you need a Minute Book. But what is it, and what does it do for you? This blog post will outline what a Minute Book consists of and why it’s vital for your DPC.
What is a Minute Book?
A Minute Book is a corporate record bookphysical or digital that holds a DPC’s most important legal documents. It also serves as the official record of the corporation’s history. Whenever a significant decision is made regarding the DPC (e.g., the sale of shares or change of director), the Minute Book is updated to reflect those changes.
The specific documents within a Minute Book can vary drastically depending on the corporation and the business it carries on. For example, in the dental industry, a typical Minute Book of a DPC will contain the following:
- Articles of Incorporation
- A corporation’s Articles of Incorporation are the DNA of your company and set out the overarching rules of the corporation. Once you have filed the Articles with the government, they serve as legal proof that the DPC is established. These Articles contain the name of the DPC, the minimum/maximum number of directors, classes of shares, and more.
- Corporate By-laws
- Created upon incorporating a DPC, the corporate by-laws set out fundamental rules and regulations regarding how the corporation will be managed. For instance, by-laws will contain the DPC’s fiscal year, details of directors, officers and shareholders, and permission to borrow funds from a bank or elsewhere.
- Organizational Documents
- This section of documents consists of authorized minutes of director/shareholder meetings and corporate resolutions, which describe events carried out throughout the corporation’s life. For instance, resolutions may contain the appointment of new directors, subscription of shares, annual resolutions, special resolutions, and more.
- Directors and Officers Registers
- These registers contain a list of all directors and officers throughout the history of the DPC. It will also state whether each person is a current director/officer and the date they were elected and resigned, as applicable.
- Shareholder Register and Ledger
- The shareholder register lists all DPC’s shareholders and the date, class, and number of shares they were issued.
- The shareholder ledger lists the activity of those shares, such as share transfers. For each transaction, the ledger will note the date the shares were bought/sold, the parties involved, the share certificate number, and the balance of shares now held by the shareholders.
- Share Certificates
- Shares of a DPC are issued in exchange for a certificate. The Minute Book contains a copy of these certificates with details of the issuance.
- Forms Filed
- This section includes copies of government forms filed for the DPC, such as a Form 1 Initial Return/Notice of Change, annual tax returns, and registration under the Business Names Act.
As you can see, the documents within your Minute Books are indispensable to your corporation and must be carefully maintained.
Why do I need a Minute Book?
Under Ontario’s Business Corporations Act (the “OCBA”), a DPC must fulfill specific requirements concerning maintaining corporate records. While the OCBA legislation does not require a prescribed Minute Book, it is the best way to keep the required records together in an organized and legible manner that can be easily accessed when needed.
Proper organization and maintenance of a Minute Book will also keep track of significant company details effectively and efficiently, which you will need easy access to in many situations, such as
- Borrowing money
- Preparing tax returns
- Buying or selling a dental practice
- Communicating with shareholders
- Dealing with a CRA audit
Maintaining your corporate records within a Minute Book is not only an easy way to comply with legal recordkeeping requirements, but it can also save you time and money. The best way to see how is by reviewing the consequences of not having a Minute Book.
What if I don’t have Minute Book?
If you do not have a Minute Book or if it is inaccurate or not properly maintained, there may be negative consequences for your business. Let’s take a look at a few of them.
Cancellation of Certificate of Incorporation
The OBCA sets out that if refusal to fulfill mandatory filing and recordkeeping requirements, the government may, after giving notice, cancel the DPC’s certificate of incorporation. This cancellation would mean the corporation is no longer legally allowed to operate, and you would have to pay additional fees to revive the corporation.
Financing Delays
To authorize a business loan, bankers typically want to review corporate records. If you do not have an updated Minute Book, compiling these records upon request is a timely task and could result in the delay or possibly the denial of your loan.
Government Requests
From time to time, the Canada Revenue Agency (“CRA”) may request certain documents or records and will usually ask for documents from your Minute Book. If you do not have a properly maintained Minute Book, you would likely incur undue expenses to prepare and deliver the necessary paperwork.
- For example, suppose you receive a dividend from the corporation and on your tax return, since dividends are potentially taxed at a lower rate than salary, you addressed it as such. Then, during an audit, the CRA asks you to prove that the income was indeed from a dividend. Unfortunately, it will be tricky to provide adequate proof without updated directors’ minutes declaring a dividend. As a result, the CRA will be able to challenge your characterization of the money, and you may end up having to pay a higher tax rate.
Penalties
The risk of cancellation mentioned above is not the only penalty you need to be aware of in Ontario in relation to corporate records. Both the OBCA and Ontario’s Corporations Information Act (the “OCIA”) state failure to comply with their disclosure and recordkeeping obligations can result in significant fines or punishments. These punishments are not only for the corporation but also for individual officers and directors. Depending on the nature of the offence, the fine or penalties can be up to $200,000 and/or imprisonment of up to six months.
Barriers to Selling
If you want to sell your DPC, the purchasing dentist will want to review your DPC’s Minute Book. They almost certainly won’t go through with the transaction if it has not been properly updated. If you need to create or update your Minute Book, it will take time and extra cost, which could lead to a delay in the sale or, in the worst-case scenario, cause the deal to fall through.
While many of the above consequences occur in unique circumstances, evaluating their risk within your situation is important. Keeping your Minute Book accurate and up to date can also save you time and money. It takes much more time and effort to piece together and document past corporate proceedings and actions than maintaining your Minute Book annually.
What is Minute Book Maintenance?
While many of the documents in your Minute Book are created during the incorporation of your DPC, it does require some ongoing maintenance. For example, your Minute Book will need to be updated after making any major changes to the DPC, such as changing the office address or issuing shares. And, even if there are no major events to be recorded, annual updates are required to record the minutes of the required annual meeting with directors and shareholders.
Ensuring you have all the documents you need within your Minute Book and keeping it up to date in accordance with the law can be a lot of work. As a result, it is our experience that most people prefer to leave their Minute Book maintenance to their lawyer, eliminating the stress and headache of having to do their own updates. Beyond saving time, DMC can keep and update your Minute Book annually and in the event of any changes. Having us maintain your Minute Book can be beneficial to you because:
- the Minute Book will be safely stored, so it does not get lost or destroyed;
- all documents will be accurate and compliant with the law;
- updates will be done in a timely fashion and will not be overlooked.
If your existing Minute Book is not in order, let us know. DMC can help by reviewing your Minute Book and updating necessary documents or rectifying them if required.
Bottom Line
So, hopefully, you can now see that your DPC’s Minute Book is essential to have and maintain. Not having a Minute Book exposes you and your DPC to risk legally, financially, and transactionally.
Contact DMC today to find out more about this critical business tool by sending us an email or calling us at 1-844-443-9280. We’d be happy to help you assess your current Minute Book and help with any necessary changes.
