It is so easy to set up a corporation: all you need to do is go online, file and there you have it, a brand-new legal person. While I do not totally disagree with this approach, what is usually discounted are the matters that need to be dealt with after the corporation must have been founded. Organizing a corporation from inception gives such corporation the confidence of corporate structure from the onset.
Organizing a corporation entails establishing and maintaining its corporate records according to which a corporation will be bound. The CBCA and OBCA places emphasis on corporations taking adequate precaution to avoid false or untrue information in its record. The form in which a corporate record may be kept may range from loose-leaf book, bound book, saved as electronic data or stored in the web cloud space. Whatever form chosen by a corporation to store its corporate information, such must be accessible by specified persons within a reasonable time in an intelligible form failure of which, such corporation may be liable under the prescribed law.
Usually most of the records may be approved at the first directors’ or shareholders’ meeting. The Records that may be included in a corporate book include articles, bylaws, resolutions, minutes of meetings, registers, ledgers and securities. It is crucial to note that corporate records not only serve as the constitution according to which a corporation may be governed, it also acts as checks and balances for corporations especially offering corporations whose records may be accessed by any person upon reasonable request.
Further, a corporation may want to be organized for the following reasons:
- To keep the corporation in line with federal or provincial laws to avoid unforeseeable and preventable liabilities.
- To maintain good corporate governance practices by having a structure of keeping up with corporate formalities in relation to resolutions, registers and ledgers.
- To have a centrally located Corporate record for search by persons qualified to view same including but not limited to directors, auditors and shareholders depending on the type of corporation which may lead to an increase in public confidence in such corporation.
- To serve as a point of reference or act as precedent as to the reason a decision affecting a corporation, or its shareholders was carried or avoided. This may be contained in series of minutes or resolutions.
The above is not exhaustive on why a corporation should keep corporate records nonetheless, corporate record keeping by a corporation is not optional, it is imperative. It is not enough to organize the corporate records of a corporation, but such corporate records must be updated frequently depending on the size of the corporation for it to have the anticipated effect of usefulness.
Based on the foregoing, the benefits of organizing a corporation and maintaining its corporate records from its inception far outweighs any inconveniences and the potential liabilities that may arise from not doing so. Still, failure to organize your corporation from its inception, better to be late. However, you may still want to ask: why should you organize your corporation? Because it is vital to the long term survival of your corporation.
This article is intended for informational purpose only and does not constitute legal advice or a client-lawyer relationship.