The Law Office of Hutchinson, Thompson, Henderson & Mott

It’s A Real Shame, If You Believe Her.

October 18th, 2013

By: Nathan Green

This will be the first article in a series written for small and mid-sized business owners about the importance of keeping their corporate minute book up to date.  This is a task that is often ignored but can result in very serious consequences.  This series of blogs aims to explore some of the most common pitfalls from failures to keep an up to date minute book.

It is always painful to read judgments where a few dollars of legal fees would have made all the difference in the world.

In the case of Madison v. Her Majesty the Queen, a simple Form 1 might have saved Ms. Madison $43,241.88 and years of litigation with CRA.  The case was simple: Ms. Madison was on the books of the corporation as a Director and CRA took the position that certain tax liabilities owed by the company was also owed by her personally (one of the exceptions to the rule that incorporating protects the individuals running it).

Ms. Madison claimed that she resigned as a director many years before the assessment and so should not be responsible for the company’s tax debt. The problem was that Ms. Madison’s resignation was never properly recorded or reported to the government and after her resignation she kept working for the company so it appeared to CRA (and the Court) that she was a Director.

To avoid the problem would have only cost her approximately thirty minutes in legal time and postage, making the failure to report key corporate changes a potentially disastrous mistake.  It is an unfortunate object lesson for every director or officer to ensure that resignations are properly recorded in corporate and government records.

Perhaps Ms. Madison’s case may have turned out differently had she hired a litigator (at considerable cost) to help fight the CRA, but the entire dispute could likely have been avoided by an up-to-date company minute book at minimal costs.