As the owner of a growing small business in Canada, there are just a few things you need to take care on the legal side to ensure you keep yourself protected. Too often, small business owners chose to do it themselves, rather than pay a lawyer for sound advice.
We recommend using a lawyer to incorporate, and prepare your minute books. Find a lawyer that specializes in businesses like yours and have them prepare and submit your articles of incorporation, which will establish your business as a legal entity. It’s so important to get set up right!
Our Chartered Professional Accountants can provide some guidance on the share structure and tax strategies as your incorporate. The lawyer will give you advice on protecting your assets, and preparing your corporate bylaws to fit your type of business.
Minute books are all the corporate documents for your business: bylaws, director resolutions, shareholder resolutions, share certificates, share registers, and director/officers registers. These are typically in a paper binder, but it is more common these days for minute books to be digital.
You need them first and foremost because they’re required by law for every corporation. So many small business owners just go to the registries and get their articles of incorporation, but they don't do the rest of the steps required to get minute books. Here are more reasons every corporation needs a minute book:
- If you own the corporation with anyone else, the minute books will contain the legal documents with all the rights and ownership of each of the shareholders.
- The minute book are often the first things the bank will want to review if your corporation is applying for a loan - they will need to verify that the corporation is authorized to borrow.
- If you ever plan to sell your business, potential buyers will need to review the minute book.
- If Canada Revenue Agency audits your corporation, they may want to verify that the legal documents match up with what the corporation has reported on its tax returns.
Unanimous Shareholder agreements
When there are two or more arms-length parties as shareholders, the minute books and articles of incorporation will not be enough to guide how the corporation will be governed. A Unanimous Shareholder Agreement (or "USA") is a document that outlines shareholder rights, meeting cadence, buy-in and buy-out clauses, valuation, dispute resolution, decision-making rules, and profit distributions.
It's best to think about all the what-if scenarios (death, divorce, or disability) and determine how the shareholders will handle each of these scenarios. Get in touch with a lawyer if you think your business needs this document.
FILING YOUR ANNUAL RETURN AT THE REGISTRIES
You need to file a corporate annual return with Alberta Registries to maintain the good standing of your corporation with the province. (To be clear, this is different than your annual corporate tax return.) This is much like registering your car every year. You just show up and pay a fee (~$85), and you have the option to update the address, and director's info.
If you fail to file your corporate annual return for two and a half years, the province will assume you're no longer a going concern and will dissolve your corporation.
Your lawyer will take care of this if you pay them to maintain your minute books ($300 to $400 per year).
DISSOLVING YOUR CORPORATION
Your lawyer and accountant will help walk you through the process of going out of business. Before a corporation can dissolve, it can no longer own any assets or liabilities. Once the decision is made to dissolve, and property and liabilities have been disbursed and settled, you can have your lawyer prepare the articles of dissolution. This is sent to the government as application for a certificate of dissolution.
A small business needs to be dissolved properly and the CRA accounts must be closed on or prior to the dissolution date. Then final tax and GST returns need to be filed for the last year, up to the date of dissolution. A final dividend may need to be issued to the shareholders for any cash or assets disbursed to them.
If the shareholders have losses, they may be able to claim them on their personal tax returns. If the corporation has CRA debt at the time of dissolution, that debt will be transferred to the shareholders.
If you need help finding a good lawyer for your small business, give us a shout!
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