I was doing annual minutes for my teeny tiny corporation today, and I got to thinking:
- As a corporate lawyer for forty years, I was responsible for many thousands of sets of annual minutes being prepared, at a few hundred dollars a pop.
- As a retired owner of a small corporation, I don’t know how excited I would be about paying a lawyer or law clerk a few hundred dollars for doing my annual minutes.
I used to tell most of my clients that it was important to do their annual minutes. The law required it. CRA might come checking on things. They wanted the minute books to be up to date in the event of a dispute with other shareholders. (There were other reasons to keep minute books up to date, such as to facilitate (i) opinion letters for financings; or (ii) due diligence for a share sale. However, annual minutes did not matter all that much for those purposes.)
But for other clients with a single shareholder, director, and officer, who did not declare dividends or engage in a corporate reorganization, I would tell them:
1. The law requires that you do your annual minutes. Good boys and girls comply with the law. However, in forty years I never saw the Ministry come after anyone for not doing their annual minutes. They were unlikely to be the first.
2. If you have declared a dividend, you want to do a proper resolution so that the Canada Revenue Agency does not seize on a technicality and claim the amount paid is taxable at a higher rate.
3. Beyond that, nothing bad is going to happen to you if you just don’t bother.
Now, I have been writing about Ontario companies. The Ontario government annual return does not ask you what the date of your annual meeting was. The Federal government does. A federal corporation trying to save some money might have to lie about having held an annual meeting or signed annual resolutions. That is where I drew my line. I never told my clients to lie to the government – even to save a few dollars.
There are many differences between good lawyers and bad lawyers. One of them is that good lawyers put themselves in the shoes of their clients, evaluate risk, and make recommendations, instead of just following the usual playbook. Bad lawyers don’t bother.
Another is that good lawyers give practical advice, tailored to the client. They don’t push clients to spend money unnecessarily. Bad lawyers have the same script for everyone.
Finally, good lawyers approach the ethical line, occasionally dance on it, but never drive past it. Bad lawyers only see it in their rear-view mirror and usually don’t even recognize it then.
As for ethical principles, how you apply them to trivial things is usually an indicator of how you apply them to more consequential matters. Annual minutes may be “trivial” for many. In some circumstances, however, they can become extremely consequential. Professional ethics? They always matter.
This article was originally published by Law360 Canada, part of LexisNexis Canada.