Maintaining a corporation

If you own a small corporation, you may be the only owner or one of two. “While it can feel ridiculous or overwhelming that a small corporation needs to produce all these documents, it is the cost of the benefits of having a corporation, namely a lower tax rate and transfer of liability,” says Marina Mavridis, Managing Director of directLEGAL.ca, which provides direct and affordable online legal services to Canadian businesses. 

Failure to meet your legal obligations can harm the corporation and subject it to fines and interest on unpaid amounts. More seriously, it can negate the whole purpose of setting up a corporation. Directors or shareholders could be held personally liable for the actions or debts of the corporation. These can include debts owed to the Canada Revenue Agency (CRA), employees, other shareholders, and in some cases banks, suppliers, and other involved parties to the business.

A corporation is a legal person, with the same tax and legal obligations as any person. However, unlike a person, a corporation can’t act on its own. It would be splendid to sit back and have your corporation handle annual obligations by itself, but this task falls to the directors and officers.

“If this is your first year as a director or officer of a corporation, annual obligations can seem daunting,” says Mavridis. “This is especially true considering that non-compliance can lead to penalties like interest on your taxes and the dissolution of your company. You want to mark your first year as a success, and part of that is handling these annual obligations before they become out-of-date or overdue and lead to complicated and expensive messes to clean up.”

All annual obligations of a corporation can be divided into two categories: financial obligations, and record-keeping and legal obligations. Although separate, each category relies on the proper completion of the other.

Cost:

• The average cost for an accountant to prepare financial statements and submit tax returns for a small business in Canada is roughly $2,500 plus tax and any bookkeeping fees.
• To explore software options, pricing, and request a quote, refer to the list of certified commercial tax software at Canada.ca Opens in a new window.

• You must pay your commercial taxes within three months after the corporation’s financial year-end
• The financial penalty for not filing your taxes is 5% interest on the amount of unpaid taxes owed, plus an additional 1% for each late month

Failure to file this document is serious. If you fail to file it for two years, the corporation is automatically dissolved and can lose many associated rights. At a bare minimum, you’ll have to pay a fee to revive it.

If you have a federal corporation, you must file two annual returns: one with the province in which you are registered and one with Corporations Canada.

When and how:

• Within 60 days of the corporation’s anniversary date
• Through a service provider that regularly assists with annual filings, or online with the corporate registry where your company is incorporated or registered

• $12 for federal corporations — online
• $40 for federal corporations — by mail)
• Average of $50 for provincial — price depends on the jurisdiction

Your annual minute book update must include this information:

• Annual resolutions: Results of the annual meeting of the shareholders and directors where you re-elect directors and ratify the financial statements and other required resolutions, all confirmed in writing
• Changes to the list of people who have significant control over the corporation, sometimes called “transparency registers”
• Changes to corporate information that were not otherwise dealt with during the year, such as change of registered office or change of directors. Changes must be filed with the registrar.
• Amendment of articles
  • Change of name
  • Change of share structure
  • Change of any provisions

• Fees depend on the jurisdiction
• Basic changes cost an average of $50
• Amendments of articles cost an average of $100