All corporations must keep proper accounts and records. Records tell us what, where and when something was done and why a decision was made. They also tell us who was involved in making the decision. They can be described as ‘evidence’ for business activities.
A corporation usually keeps different types of records. A few important ones are:
- a register of current and former members and applications for membership
- a copy of all documents lodged with the Registrar of Indigenous Corporations
- the rule book of the corporation
- minutes of all general meetings (including annual general meetings) and directors’ meetings
- the assets register, or listing of all the assets owned by the corporation
- financial records.
These records belong to the corporation and should be kept up to date. It's a good idea to keep all your records in one place.
Meeting records (minutes)
Records of corporation meetings are usually the minutes of the meeting. It’s important that minutes clearly explain what decisions were made at a meeting, when it was, who was there and how the decision was made. The minutes should be signed by the chairperson to confirm they are correct.
Financial records
Directors are personally responsible for keeping proper corporation accounts and records. These records must:
- correctly record and explain its transactions (including any transactions as a trustee) and
- explain the corporation’s financial position and performance.
What financial records must be kept?
The records a corporation keeps may change depending on its size and what it does. Get professional advice from your accountant or auditor about the records your corporation needs to keep and if there are any problems or records you don’t understand.
Some of the financial records that a corporation would keep include:
- 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.
You can find useful information on financial records, along with templates, at business.gov.au/finance.
How are financial records used?
Even the smallest corporation must have financial records so that:
- the corporation, or its accountant, can prepare accurate financial statements
- financial statements can be audited if necessary
- the corporation can obey the tax laws and the laws on superannuation
- directors can meet their legal responsibility because they know what the corporation’s financial situation is.
Good financial records will tell directors:
- how much income the corporation is getting how much to expect in the future
- how much the corporation owes
- how much the corporation has spent
- if the corporation has a profit or a loss
- if the corporation can afford to pay its bills.
For how long and where are financial records kept?
Financial records must be kept for seven years after the transactions are finished.
Large corporations must keep their financial records at their registered office. Small and medium corporations must keep their financial records at their document access address.
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.
If the corporation can't pay its debts
If a corporation is unable to meet its existing debts, it must stop trading immediately. A corporation is 'insolvent' if it can't pay its debts.
Directors must prevent the corporation from taking on new debt if that would mean it could not meet that debt and its existing debts.
Directors who let the corporation trade while insolvent are breaking the law. They could be sued personally by a liquidator or creditors for their own assets, not just the assets of the corporation, and 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 it can trade out of the problem. Delay could be damaging to the corporation and to directors personally.