April 2016
PFD | Business

Requirement to file audited financial statements

By Richard Gendron

In a unanimous decision handed down on January 15, 2016, the Québec Court of Appeal ruled that the shareholders of a company incorporated under the Business Corporations Act (CQLR, c.S-31.1) must appoint an auditor every year, unless they choose to waive the right to do so (Sabourin c. Kaycan Ltée, 2016, QCCA 21).

The Court of Appeal noted that the renunciation is only in effect until the following annual meeting.

The Court based its conclusions on sections 231 and 239 of the Business Corporations Act, which stipulate:

"231. The shareholders of a corporation appoint an auditor at each annual shareholders meeting.

239. The shareholders of a corporation other than a reporting issuer may decide not to appoint an auditor.

The decision must be made by unanimous resolution of the shareholders of the corporation, including shareholders not otherwise entitled to vote." (our emphasis)

The decision of the shareholders has effect only until the next annual shareholders meeting. It terminates the term of any auditor in office.

It is therefore very important for company administrators and shareholders?regardless of whether the organization falls under Canadian or Québec jurisdiction?to adopt a unanimous annual resolution by all shareholders, including those without voting rights, to decide whether or not to appoint an auditor and file audited financial statements.

Without this type of resolution, a shareholder may seek an order requiring that the company produce audited financial statements for the period during which all of the shareholders in attendance at the annual general meeting did not renounce the right to obtain audited financial statements.

In practice, for most SMEs, financial statements are neither required nor necessary and are often costly.

At every annual meeting, a resolution must be adopted to waive the appointment of an auditor and file audited financial statements.

Experts in our corporate law group can help you ensure the conformity of the resolutions that are adopted within your company and regularize company ledgers.