We often get push back from clients when we remind them they have an annual obligation to update their Minute Books. Many of those companies have husband and wives as shareholders and some of them just don’t understand why.
Well, the Ontario Superior Court just released a 2021 decision in Hrvoic v. Hrvoic (see the case here https://tinyurl.com/2p8d4ycs ) which very clearly illustrates why you need to make sure the Minute Books are accurate.
In the decision and husband and wife were both shareholders in a holding company. All was well and then it wasn’t and the couple divorced.
The husband took the position the wife owned 30% of the shares. However, the company paid annual dividends to them equally (they both had the same class of shares) rather than on a 70-30 basis. The Judge noted in the decision that “there was no question that the corporate records were deficient.”
The fair market value of the holding company was $ 10.8 million. Due, in part, to a failure to properly document the shareholdings as he understood them, the husband is $2.16 million poorer than he should have been.
So. Now do you think making sure your corporate records are accurate matters?
Inga B. Andriessen, Sr. Lawyer