“Do I really need to do annual maintenance?” is a question that we hear very often. And it’s understandable, too. Business owners are swamped with so many responsibilities, and so many things to think about. Annual maintenance is an administrative task that usually lacks the urgency and consequences that other items might have on an entrepreneur’s to-do list.
The answer is yes—if you were to ask a lawyer—annual maintenance is required by law.
In reality, the answer is much more personal. It depends on both your appetite for risk, and your appetite for dealing with messy situations in the future, rather than taking small proactive steps in the present. It’s kind of like asking, “Do I really need to get my teeth cleaned? Do I really need to change the oil in my car? Do I really need to keep my office, garage, or workshop clean and organized?” It’s very personal, and it depends on how important the business is to you, and how you want to run it.
If you don’t care much about the business, and you don’t care about dealing with messy situations down the road, then you can save yourself a bit of time and money every year by skipping annual maintenance. However, for everyone else, it’s a must—in order to keep your records up-to-date, to maintain a proper legal foundation for your company, and to sleep better at night.
You will be relieved to have good corporate records when certain events happen in the life of your company—events like: seeking financing for the business, selling the business, death or incapacity of a shareholder, dispute amongst the shareholders, an audit by the CRA, or a lawsuit. It is common for at least one of those events to occur in the course of any corporation’s lifetime. Without good corporate records in a situation like that, you risk losing a lot more money, time, and opportunities—and having a lot more headaches.
It is true that in some situations you can clean up corporate records. However, it is not always possible, and it can be challenging. Just imagine what your family would do if you, as a shareholder, were to pass away and the records were not in good shape. Or, imagine what it would be like for a sophisticated lender, investor, or purchaser to see your company books… it might not end well if they are messy. It’s always a better bet to proactively keep your ducks in a row.
The real question is, “Why shouldn’t I do annual maintenance for my corporation?”
Typically, there are two answers to that question, “I don’t really know what annual corporate maintenance is or how to do it!” and, “It’s too complicated or expensive to take care of”.
1. I don’t really know what annual corporate maintenance is or how to do it!
Luckily for you, it is part of our mission to make annual corporate maintenance easy to understand! You can check out one of our short videos on annual maintenance to get a sense of what’s involved.
In short, annual maintenance has two components. The first component is an annual return filing with the business registry where your company is incorporated, whether that is provincial, territorial, or federal. For example, Corporations Canada is the registry for federal corporations and the Ontario Business Registry is the registry for corporations incorporated under the laws of Ontario. The annual return filing is completed by submitting a form that contains all of the most up-to-date information about the corporation, including its registered office address and who the directors are. In some provinces, the annual return filing also includes details about who the officers of the corporation are and who the shareholders of the corporation are.
The second component is what we refer to as “internal maintenance”. This involves preparing director resolutions and shareholder resolutions that are required to be passed every year. Most notably, the directors are required to approve of the annual financial statements, and the shareholders are required to acknowledge receipt of those financial statements (these steps can also be carried out by in-person director meetings and shareholder meetings—sometimes referred to as annual general meetings—but it is more common to be carried out with written resolutions). In addition to preparing the resolutions, the corporation’s Minute Book also needs to be reviewed for accuracy. For example, companies incorporated under federal Canadian law and companies incorporated under the laws of most provinces now need to keep a “Transparency Register”. The Transparency Register needs to be reviewed at least once a year to make sure that it is accurate and up-to-date.
For more details on all of this, you can read one of our many articles about annual maintenance on our blog.
2. It’s too complicated or expensive to take care of.
One reason why annual maintenance is not more common is that it has previously been somewhat cumbersome and time consuming to take care of. Previously, it would have involved exchanging paperwork between your accountant and lawyer, a visit to the lawyer’s office to sign documents, and a paper filing with the corporate registry.
Now, with the development of platforms like Tobuso Corporate Support, it is much easier, faster, and more economical to keep corporate records up-to-date. With the Tobuso platform, every step is carried out digitally, and everyone who needs access can be given access in a secure way, no matter where they are.
So, that is now every reason to carry out annual corporate maintenance and to keep your corporation’s records up-to-date. It’s easy and it’s better for your company! Win-win!
We hope that this article gives a sense of whether or not you should be conducting annual maintenance for your corporation. If you would prefer to carry out the process seamlessly with good precedents and a modern cloud experience, then the Tobuso platform will help you to incorporate, organize, maintain, and store your corporate records in a secure and efficient way. It also allows you to give real-time cloud access to professionals and other trusted parties. Feel free to contact us with any questions you may have.
