Incorporating your business provides many advantages such as limited liability, tax planning opportunities, and increased credibility. But many business owners are surprised to learn that incorporation also comes with many legal, financial, and administrative responsibilities.
A corporation is not just an extension of its owner—it is a separate legal entity with obligations that must be fulfilled under applicable corporate legislation. Failing to fulfill these obligations can result in compliance issues, penalties, legal disputes, and challenges when seeking financing, attracting investors, or selling your business.
At KD Professional Services, we help business owners stay compliant while focusing on growing their businesses. Here’s what every corporation owner should know about their ongoing corporate obligations.
Your Corporation Is a Separate Legal Entity
As mentioned earlier, your corporation is legally separate from you as the owner. This means your corporation owns its own assets, has its own liabilities and files its own tax returns.
And because a corporation is a separate entity, proper governance and record-keeping are essential.
Maintaining Corporate Records
All corporations are required to maintain corporate records at its registered office.
These records serve as the official legal history of the corporation and help demonstrate compliance with corporate laws.
The Corporate Minute Book
Corporations are required to maintain a corporate minute book, a centralized collection of their corporate records. The minute book is one of the most important legal documents for any corporation.
A properly maintained minute book generally includes:
- Articles of Incorporation
- Articles of Amendment
- Corporate By-Laws
- Shareholder Agreements
- Notices filed with government authorities
- Minutes of shareholder meetings
- Shareholder resolutions
- Share registers
- Securities registers
Annual Shareholders’ Meetings
Corporations are required to hold annual shareholder meetings to address important corporate matters.
At these meetings, shareholders may:
- Elect directors
- Review financial statements
- Consider auditor appointments
- Vote on resolutions
- Discuss corporate performance
These annual meetings are an essential part of maintaining proper corporate governance and shareholder communication.
Preparing Financial Statements
Corporations must maintain accurate financial records and prepare financial statements. These financial statements provide important information about the corporation’s financial health and performance.
Typically, financial statements include:
- Balance Sheet: Shows assets, liabilities and shareholders’ equity
- Income Statement: Shows revenue, expenses and profit or loss
- Cash Flow Statement: Shows cash inflows, cash outflows and changes in cash position
These financial statements help management, shareholders and other stakeholders to make informed business decisions.
Following Appropriate Accounting Standards
All financial statements must be prepared using recognized accounting standards. There are 2 accounting standards in Canada:
- CPA Canada Handbook – Accounting
- CPA Canada Public Sector Accounting Handbook (where applicable)
The use of these recognized accounting standards promotes consistency and accuracy in financial reporting. KD Professional Services can help ensure compliance with these requirements.
Providing Financial Statements to Shareholders
The corporation must keep shareholders informed about its financial performance. Financial statements must be provided to shareholders before the annual shareholders’ meeting. Providing financial statements in advance allows the shareholders to review and evaluate the corporations financial standing, its management and make informed voting decisions.
How KD Professional Services Can Help
Ensuring corporate compliance can be overwhelming and time-consuming especially when you are focused on running your business. At KD Professional Services, we help corporations across Canada maintain compliance and keep organized through our corporate and accounting services.
Our goal is to help business owners like you reduce risk, improve financial clarity and remain compliant with all your corporate obligations.