*Corporate Annual Maintenance (“Annual Maintenance”)—we sometimes compare it to an oil change: you may not always want to do it, and it can feel tedious—but it is a necessary task in order to keep your business running smoothly and avoid big problems down the road.
Every jurisdiction and corporation has different rules and regulations as to what is required of a company annually. This article aims to give you a general sense of what Annual Maintenance is, as well as who and what is involved, when to do it, and how keeping on top of it avoids large “Clean-Ups” in the future.
*Please note that this article discusses Corporate Annual Maintenance, as required by corporate statutes. It does not discuss other annual requirements, such as annual tax filings.
What is Annual Maintenance?
Annual Maintenance is a series of tasks that are required to be taken care of every year in order to ensure that the company remains compliant and in good standing with its governing jurisdiction. We like to break Annual Maintenance up into two categories: the external requirements and the internal requirements.
The External Requirements
The external requirements refer mainly to the corporate information return (often called an “Annual Return”)—which is a required filing in most jurisdictions across the country—in order to remain in good standing and let the government know that your company is still active. Federal corporations are required to file an Annual Return within 60 days of their company’s anniversary date. In contrast, Ontario corporations are required to file their Annual Return within six months of their fiscal year-end. As every jurisdiction is different, it’s important to understand the requirements in your home jurisdiction or seek assistance from a service provider (such as ourselves).
The information that you need to provide in the Annual Return varies from one jurisdiction to the next, so it’s good practice to take the time to look at what your home jurisdiction has on record and ensure that they have the correct information. If you find that something is incorrect, and the Annual Return form doesn’t allow you to change that information (for example, some jurisdictions don’t allow you to update director information when filing an Annual Return), then you will need to file the appropriate notice of change to update that information. This also applies to any other jurisdiction your company that may be registered as an extra-provincial corporation. Notices of Change usually need to be filed within 15 days of the change coming into effect—but if for some reason that was missed, taking the time once a year to review gives you an opportunity to update records as needed.
If you fail to file your Annual Return, the consequences can be quite severe. For example, the company might be dissolved involuntarily. There are ways to deal with these problems when they arise, but it can become a huge mess to clean up. We provide more details below about the consequences of not carrying out annual maintenance.
The Internal Requirements
The internal requirements refer to several items of business that need to be addressed by way of in-person meetings or paper resolutions. One of the requirements is for shareholders to hold Annual General Meetings (AGMs). AGMs (or written resolutions in lieu of) are carried out once the financial statements for the corporation are complete and approved by the directors and should be done no later than six months after the fiscal year end of a company (but timing may vary).
Below, we have broken down the roles that the directors and shareholders play when carrying out internal Annual Maintenance, as well as a list of common matters (but not necessarily all matters) that should be discussed at an AGM (or passed by a resolution):
The Director’s Role in Annual Maintenance
- Financial Statements
- Directors are responsible for approving the financial statements from the most recent financial year and then sharing them with the Shareholders once approved.
- Shareholder Meetings
- Directors are responsible for calling the annual meeting of Shareholders once the financial statements have been completed and shared with the shareholders. The notice of a meeting of shareholders must be sent to all of the shareholders, directors, and auditors (if any). The required notice varies from one jurisdiction to another and from one company to another.
- Officers
- The directors typically appoint officers (President, Secretary, etc.) at this time. In many cases, they are actually re-appointing the same people that have already been in office.
- Other General Matters
- Confirming the accountants for the next financial year.
- Approving dividend payments, if any.
- Approving management bonuses, if any.
- Discussion of any other matters as set out in the Corporation’s By-Laws or articles.
The Shareholder’s Role in Annual Maintenance
- Previous Meeting Minutes
- Approve and sign the meeting minutes from the previous AGM (if applicable).
- Financial Statements
- Acknowledgement and discussion of receiving the Financial Statements from the directors for the most recent financial year.
- Waiver requiring the financial statements to be received within a certain time period (common with smaller private companies).
- Auditors
- Acknowledgement and discussion of the auditor’s report (if applicable).
- Appointing an Auditor or resolving that an auditor will not be appointed.
- Directors
- Appointing directors until the next annual general meeting/resolution of shareholders. This is often (but not always) re-appointing the same people that have already been acting as directors.
- General Business
- Discussion of any other matter as set out in the Corporation’s By-Laws or articles or Unanimous Shareholders Agreement.
The Secretary’s Role in Annual Maintenance
The Secretary, an officer of the Corporation, is typically responsible for ensuring that all of the signed Minutes/Resolutions, filings, and any supporting documents that were accumulated while carrying out Annual Maintenance, are properly stored in the Corporation’s Minute Book and properly filed with the appropriate corporate registry. The role of the Secretary may vary from one corporation to another, as set out in the corporation’s By-Laws.
What happens if you don’t carry out Annual Maintenance?
If you don’t stay on top of changing your vehicle’s oil, it will eventually break down, cause problems, and most likely leave you with a hefty mechanic bill. Corporations aren’t so different. If Annual Returns aren’t filed and they are left too long, Corporations are at risk of being dissolved involuntarily. Likewise, if Annual Maintenance resolutions aren’t prepared or if meetings aren’t recorded, and you come to a point where you want to borrow money, sell your business, or your company is audited—you are going to be scrambling to get your company records organized—and it will likely cost you a lot more money, and take more time. It can become even more serious if there is a dispute between the shareholders or someone dies; in those cases, it can become impossible to rectify the records of a company. In those worst-case scenarios, people sometimes need to turn to the courts for a resolution, which can be terribly expensive, time-consuming, and unpredictable.
When corporations fail to keep a Minute Book for multiple years and need help organizing and updating their corporate records, we call this a “Corporate Clean-Up”. It is often messy, very expensive, and likely not as thorough. The best practice is always for corporations to carry out Annual Maintenance to avoid these hassles and expenses… just like it’s the best practice to change the oil in your car, get your teeth cleaned periodically, or get your eyes checked regularly.
That being said, if your company is in need of a “Clean-Up”, you can get help with that. And you should know that you are not alone—many companies have this happen to them over their lifetime. You can schedule a 15-minute consultation with us to discuss this.
Spending a little time and money once a year is much more efficient than spending a lot of time and money, years down the road, cleaning up your records. Not to mention that Annual Maintenance is required by law, so it is something that every corporation should prioritize. With systems—like the ones that Tobuso has established—you can put your annual maintenance on autopilot so that it can be taken care of without being tedious or expensive.
We hope this article gives you a better understanding of Annual Maintenance. We know that Corporate requirements can feel overwhelming for many—but we want to change that. If you have any questions or need assistance, please don’t hesitate to book a free 15-minute consultation here. Otherwise, click here to get started on your Annual Maintenance today!
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