What financial records must be kept by the corporation?
As a director together with the other directors, the law makes you personally responsible for keeping proper corporation accounts and records. Directors must ensure the corporation keeps up-to-date financial records that:
- correctly record and explain its transactions (including any transactions as a trustee) and
- explain the corporation’s financial position and performance
Even the smallest corporation must have financial records so that:
- true and fair financial statements of the corporation can be prepared if needed
- financial statements can be conveniently and properly audited, if necessary and
- the corporation can obey the tax laws and the laws on superannuation.
What are financial records?
The basic financial records that accountants might expect a corporation to keep are:
- income and expenditure information that records all the corporation’s transactions
- cash records—e.g. bank statements, deposit books, cheque butts, petty cash records
- creditor and purchases records—e.g. purchase orders, invoices and statements received and paid, unpaid invoices, a list of all purchases, a list of all creditors and their balances
- wages and superannuation records
- a register of property, plant and equipment showing transactions and balances in relation to individual items
- inventory records
- tax returns and calculations—e.g. income tax, group tax, fringe benefits tax and GST returns and statements
- deeds, contracts and agreements.
Get professional advice if you have any doubt about the content or type of financial records to keep. The list above gives examples only, because the financial records you need will vary from corporation to corporation.
You may keep some financial records electronically, but you must be able to convert them into hard copy so that you can give them to anyone entitled to inspect them.
What if your corporation can't pay its debts?
You must stop your corporation trading if it is unable to meet its existing debts. You must prevent the corporation from taking on new debt if that would mean it could not meet that debt and its existing debts. If you have reasonable grounds to suspect that the corporation cannot meet its debts, or won't be able to if you take on more debt, stop and get professional advice.
Your corporation is 'insolvent' if it can't pay its debts. You would be breaking the law if you let the corporation trade while insolvent. You could be sued personally by a liquidator or creditors for your own assets, not just the assets of your corporation, and you could face civil or criminal action.
Common signs of financial trouble are:
- insufficient cash flow
- problems paying trade suppliers and other creditors on time
- trade suppliers refusing to extend further credit to the corporation
- legal action taken, or threatened, by trade suppliers or other creditors over money owed to them.
If your corporation is having difficulties paying its debts, get professional advice quickly. Don't assume that you will be able to trade out of the problem. Delay could be damaging to the corporation and to you personally.