Every corporation must complete some type of Annual Filings and Resolutions. For example, all resident corporations have to file a corporation income tax (T2) return every tax year even if there is no tax payable. This includes for profit corporation, non-profit organizations, tax-exempt corporations, and inactive corporations. Federal Corporations, those incorporated under the Canada Business Corporations Act (the “CBCA“), must also file Annual Filings with Corporations Canada.
Both corporations incorporated under the Ontario Business Corporations Act (the “OBCA“), and CBCA corporations must have a series of resolutions prepared and signed by the directors and shareholders of the company. If all the Directors and shareholders are present and in agreeance, Annual Resolutions can be simply signed by all of the relevant parties. If all of the shareholders and directors are either not present or not in agreeance or the company is public, Annual Resolutions must be approved at a meeting of the directors and shareholders.
As part of the Annual Resolutions, the directors of the Corporation must approve the financial statements, approve the directors executing the financial statements; and approve the financial statements being shown to the shareholders. Once the directors have approved the financial statements they are mandated to provide the shareholders with a copy of the financial statements.
As financial statements must be finalized and incorporated into the corporate tax return for the company within six months of the end of the financial year, the annual resolutions cannot be dated prior to the financial statements being prepared which should be no later than six months after the financial year end. More information on these requirements can be found here. Draft resolutions can also be found here.
As part of their annual resolutions, the shareholders of the Corporation will elect the directors of the Corporation. Shareholders can also appoint an auditor for the next year. As retaining an auditor or accountant is expensive, most companies do not have their financial statements audited by an auditor. Rather, they either prepare their financial stations themselves or by an accountant, and exempt the Corporation from the Audited Financial Statement requirement. Such an exemption needs to be approved yearly by all the voting and non-voting shareholders. Please do not hesitate to contact us.
If you have not maintained annual resolutions for your corporation, you should address this issue immediately. Both the Business Corporations Act (Ontario) (“OBCA”) and the Canada Business Corporations Act (“CBCA”) require annual corporate resolutions to be maintained and it is an offense not to maintain corporate records. In addition to maintaining annual corporate resolutions, an CBCA Corporations must file a Form 22 – Annual Return along with the prescribed fee ($20.00) within 60 days following the corporation’s anniversary date.
All OBCA and CBCA corporations, no matter how small and inactive they are, must hold at least one annual meeting of shareholders every year. At this meeting, the shareholders are required to:
- consider the financial statements;
- consider the auditor’s report, if any;
- appoint the auditor or dispense with the requirement; and
- elect directors, if necessary.
These four points are further examined below. In addition to holding an annual meeting of shareholders, there must also be a directors meeting. As an alternative to holding meetings, an OBCA or CBCA corporation may pass an (1) unanimous shareholder resolution signed by all the shareholders of a corporation and (2) an unanimous director resolution signed by all of the directors of a corporation. If a single shareholder or director is not willing or able to sign a resolution, then the company must hold a meeting. This director resolution and shareholder resolution needs to be signed within 6 months of the corporation’s year end (Section 133 of the CBCA and Section 94 of the CBCA). For example, if the company’s year-end is December 31st, the resolutions must be signed before June 30th.
Failing to Maintain Annual Returns or Annual Resolutions
Should a CBCA company fail to file its annual returns it will be dissolved. Dissolution will prevent the corporation form having the legal capacity to conduct business. While the law allows Corporations Canada to dissolve a corporation after one year of non-filing, it is their policy to only dissolve a corporation when it has not filed its annual return for two years.
Failing to maintain corporate records is an offense. Pursuant to Section 20(6) of the CBCA and Section 258(1) of the OBCA, anyone who fails to maintain corporate records is guilty of an offense and liable on summary conviction to a fine not exceeding five thousand dollars. More importantly, maintaining proper corporate records will help ensure a corporate veil is not pierced. Limitations of personal liability is commonly considered one of the key benefits of incorporation. Failing to maintain corporate resolutions is a factor courts will consider when determining whether to not to pierce a corporate veil. The specifics of the records that must be kept for a corporation can be found in Section 139 to 147 of the OBCA and Sections Section 19 to 21 of the CBCA.
In summary, Corporations must complete annual resolutions, either at a meeting or by unanimously signing a written resolution. Failing to complete such resolutions could have severe repercussions. Pawlina Law can help ensure your corporate records are up to date. Furthermore, we have significant expertise in finding and fixing corporate deficiencies.