Introduction
Accountants and bookkeepers play a crucial role in the financial health of businesses, providing invaluable insights and ensuring compliance with regulatory standards.
However, when faced with clients with messy or missing corporate records, accountants are often presented with a unique set of challenges.
This article aims to guide accountants and bookkeepers in Canada on how to handle such situations effectively.
Why do corporate records matter?
Corporate records are very important for a business for various reasons:
- Corporate law requires that a certain minimum set of records be created and retained by each corporation in Canada. For example, every corporation needs to have a register of directors and a register of each shareholder. Typically corporations keep those records in a minute book.
- Corporate records are needed to keep accurate financial records. For example, corporate records will show the capital paid up for shares, the date that shares were issued, whether funds contributed to the company by founders were in the form of loans or were for the purchase of shares, etc. Each of those pieces of information could have important tax consequences for the company and its founders.
- If there is an audit of the company it is important that its corporate records be up to date. For example, if funds have been paid out to employee shareholders of the company as dividends, then it is important that Board authorization of those dividend payments be recorded, otherwise, the payments might be treated as employment income (which is less favourable to employee shareholders).
Educate your client
If you suspect that your client is not keeping the appropriate records, then it is important to educate them about the importance of keeping proper corporate records. Your clients will appreciate this since they likely look to you for business requirements—or insights—that they were previously unaware of.
Help your client to gather information
If you suspect that your client is not keeping the appropriate records, then you can suggest to them that they begin by gathering all of the necessary documents. It is possible that they have some (or all) of the necessary records, but they do not store them in a central place.
Once gathered, they can easily upload their records to the Tobuso platform, which will provide them with a central place to store their records in a digital minute book.
Assess gaps in client records
The client’s corporate records should, at a minimum, include:
- Certificate and Articles of incorporation
- Bylaws of the corporation
- Director and shareholder resolutions and meeting minutes
- Directors’ register
- Officers’ register
- Shareholders’ register, Securities Register, Central Securities Register, and/or Transfer register
- Share certificates or notices of shareholdings
- Annual returns and notices filed
If the client’s corporate records are missing some of those items, then it would be best for your client to work with a service provider to fill the gaps.
Put your client in touch with a service provider
You can direct your client to tobuso.ca, where the client can learn more about what is involved in cleaning up corporate records. From there, your client can use the platform to create a digital minute book and fill the gaps.
For more complicated situations, the client should speak with a trained and licensed business lawyer.
Accountant as Data Provider
When companies are cleaning up their records, it is common for them to need records from their accountants. For example, Form 50 from T2 tax returns can be very helpful for getting a snapshot in time of shareholdings. Accountants can play an active role in the clean-up process by supplying information that can be used to square away the records.
Regular upkeep
Accountants play a crucial role in the regular upkeep of corporate records for small businesses.
Every year, when accountants prepare annual financial statements for a small business client, they usually send an annual maintenance reporting letter to their clients. The annual maintenance letter contains instructions about what corporate annual maintenance needs to be undertaken. Businesses need to follow those instructions to keep their corporate records properly up to date.
Business owners can now use the Tobuso platform to easily update the company’s records once the accountant’s letter is received. As an accountant, you can make your client aware of options for keeping their records up to date, so that they do not get messy again!
