When incorporating a new business, budget-conscious entrepreneurs typically have a primary focus on minimizing costs. While many free or low-cost online legal resources promise bargain prices, bypassing qualified and tailored legal guidance can lead to problems down the line, including expenses that could have been avoided by getting proper legal guidance at the outset.
The importance of minute books
While it may appear both easy and convenient to incorporate your business using an online service, such as government-run portals like BCOnline or OneStop Business Registry, problems can often arise for business owners down the line when they attempt to open a new bank account, prepare a tax return using an accountant, or bring additional investors into the business.
This is because online incorporations typically do not include a complete set of minute book documents. As a result, the client ends up with a "half-baked" incorporation that lacks the necessary organizational resolutions, central securities register, director/officer register, share certificates, and other material documents that are typically provided when a client incorporates their business with a corporate lawyer.
What is a minute book?
All corporations in British Columbia are required by legislation to prepare and maintain an up to date minute book pursuant to the Business Corporations Act (British Columbia) (the "Act"). A minute book is often referred to and reviewed by accountants, lawyers, banks, and other stakeholders when a transaction or filing involving the corporation occurs.
A corporation's minute book serves as the official record of the corporation's activities. Essentially, the minute book should document all material corporate transactions that affect and involve the corporation, including its creation and records of share ownership.
The documents typically generated through one of the online portals include:
- Incorporation Application
- Certificate of Incorporation
- Notice of Articles
- Articles (typically the prescribed, standard-form Articles that are provided in the Act)
The above only make up a small part of the full minute book. A complete minute book, which is what is often needed by other stakeholders, would also contain tailored documents including:
- Special Rights and Restrictions within the Articles (to create different share classes with different attributes typically used for tax and other corporate planning)
- Organizational resolutions to appoint first directors, officers, and waive auditors (an annual requirement under the Act)
- Central Securities Register (these set out the various shares issued in each class authorized by the Articles)
- Directors/Officers Register (setting out the current and past officers and directors of the corporation)
- Transparency Register (a new requirement since October 1, 2020, that requires all BC corporations to maintain at their registered office)
- Registered and Records Office Agreement (to ensure the corporation is continually maintained and kept up to date by the law firm)
- Shareholders' Agreement (optional, separate from the incorporation itself)
A failure to maintain a complete set of minute book documents can result in administrative penalties under the Act and can have other practical repercussions when attempting to make use of the corporation in any transaction.
Savings in the long run
Simply put, most online portals are not equipped to generate a full set of minute book documents required for compliance with legislation. Their focus is to register the business with a simple set of articles, without any customization or guidance. Fees on these online portals, while they may appear attractive, are priced to solely reflect the cost for registration.
A good corporate lawyer will help you understand what needs to go in a minute book for your business, and will not only customize the corporate share structure based on your particular circumstances but will also ensure that the incorporation is done properly and efficiently the first time. This can reduce unnecessary costs down the line, as the cost to review, rectify and prepare the corporation's missing minute book documents after a self-incorporation often exceeds the cost of incorporating a new company using legal counsel.
Rectifying minute books
Clients are often surprised to find that, upon consultation with a lawyer regarding their self-incorporated entity, the perceived savings merely resulted in a half-baked product and did not provide them with the fulsome documents they need to move forward.
A good business lawyer will help clients identify and understand any missing minute book documents which would be necessary before the corporation can be considered "ready" for sharing with banks, accountants, investors, and other stakeholders. Such a process typically involves a minute book rectification or reconstruction, depending on how much time has passed since the entity was originally incorporated and transactions that took place in the interim.
It is highly recommended to avoid incorporating your new business on your own, but rather to work with professionals with expertise in the area of business law to ensure your business is setup and organized as intended for your particular situation, and to ensure compliance with legislation. Starting your business on the right foot will go a long way in reducing unnecessary costs and headaches down the road!
If you already incorporated yourself using one of the online portals, we strongly recommend having the incorporation documents properly reviewed and rectified by a corporate lawyer to ensure you're not running afoul of the Act. In addition, most law firms provide registered office services to ensure your minute book is automatically kept up-to-date and in compliance with legislation.
Originally Published by Watson Goepel, November 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.