What should the corporate minute book record about the contract?

How it works

declared annually, never guaranteed

How a policy dividend is decided

1. 01A distribution from the insurer's participating account
2. 02Declared annually at the discretion of the board
3. 03Based on investment results, claims experience and expenses
4. 04It is not interest and it is not a return
5. 05It is never guaranteed, in any year of the contract

The records are the company's memory. A reviewer years later reads them to find out what the company decided and why, and where they say nothing the reviewer forms a view from the payments alone, which is rarely the view the company would have offered.

The mechanism is administrative and not legal in itself: a director resolution, drafted usually by the company's lawyer and passed at a meeting of the board, authorizes the purchase and states in plain words why the company is acquiring the contract. That resolution, along with the insurer's own confirmation of who is named as owner and beneficiary, is what goes into the minute book, kept either by the lawyer's office or the company itself depending on how the corporation organizes its own records. Nobody at the insurer checks whether this resolution exists before issuing the contract, and nobody at the accounting firm checks for it automatically either, unless the year end engagement specifically asks.

What the minute book actually needs to say varies with what the contract is for. Coverage funding a buy and sell agreement should reference that agreement by name and date. Coverage insuring a key employee should name that role and describe, in a sentence, why that person's loss would cost the company money. A contract with no stated purpose at all is not automatically improper, but it is the version of the record a reviewer has the least to work with, since the resolution that would explain it was never written down in the first place.

Ownership itself is a related but separate question from what the minute book records. The question of whether the corporation or the shareholder should own the contract in the first place is decided before any resolution is drafted, and a holding company positioned above the operating company raises its own additional recordkeeping question, since the resolution then belongs in the holding company's own minute book, not the operating company's, and the two are not interchangeable even where the same people sit on both boards.

The cost or the catch

underwriting is the part nobody controls

How long each stage takes

1. 01The discovery meetingThirty minutes. Online, with no products.
2. 02The suitability recordOne sitting. A licence requires it before advice.
3. 03The design meetingOne hour. More than one route, guarantees shown apart.
4. 04Underwriting2 to 6 weeks. Decided by the insurer, sometimes longer.
5. 05First conversation to a contract in force6 to 10 weeks. When nothing waits on a medical.

Nothing goes wrong for years, and then everything is asked at once, usually by a buyer's lawyer or on a review. Reconstructing a decision from memory in that week is expensive, and the people who made it are not always available.

Recording the decision the same month it is made, rather than reconstructing it later from memory, costs a few minutes and avoids hours of reconstruction years afterward.

Now think about that for a moment. The two most common failures are opposite in shape but identical in cost. A minute book with no resolution at all leaves a reviewer to guess at intent from the payments alone. A minute book with a resolution that was accurate the year it was written, but never updated as the shareholders, the roles or the company's own structure changed, is arguably worse, since it actively states a purpose that no longer matches the facts, and a stale document that contradicts current reality reads worse to a reviewer than an honest gap.

The record also does double duty it is not always credited for. The same resolution that explains why the company holds the contract is often the first document a reviewer testing for a shareholder benefit will ask to see, since a documented business purpose is part of what distinguishes a benefit from an ordinary business expense. A minute book kept for one reason turns out to matter for a second, entirely separate reason, and neither reason excuses skipping the other.

What to ask, and of whom

Ask the company's lawyer whether a resolution exists for every contract the company currently owns, not only the most recent one, since older contracts are the ones most likely to predate the current recordkeeping habit. Ask for a copy to be placed in the minute book the same month any new contract is acquired, and not added later during an unrelated review.

For whether a specific existing resolution still matches the company's current shareholders and structure, ask the CPA preparing this year's file to flag any contract whose stated purpose no longer fits, since the accountant is often the first person to notice the mismatch, during the ordinary course of preparing the year end statements, well before any external reviewer does. Ask, too, where the minute book is physically or electronically kept, and who has current access to it, since a record that exists somewhere but cannot actually be located when a reviewer or a buyer's lawyer asks for it provides little more protection than no record at all.

Fixing a gap already found

no legal limit, a practical one

How many contracts you may own

1. There is no legal limit on the number in Canada
2. Financial underwriting sets the practical limit
3. Total coverage in force is assessed against income
4. Insurers share this information with one another

A gap found today is not necessarily a gap that stays unfixed. A resolution can be passed now, dated as of today and not backdated to when the contract was acquired, that states the company's understanding of why the contract has been held since its purchase. A resolution dated today does not erase the years the record sat empty, but it does close the gap going forward, and going forward is the only direction a resolution can actually operate in.

What a late resolution cannot do is manufacture intent that was never actually present at the time. If the honest answer, on reflection, is that nobody at the company can say why the contract was bought or what business purpose it was meant to serve, that answer belongs in front of the CPA and the lawyer now, before a reviewer asks the same question under less friendly circumstances, and not papered over with a resolution that states a purpose invented after the fact.

Who this affects most, and who it barely touches

a leveraged strategy, described as one

What an insured retirement plan depends on

1. 01A participating contract funded heavily from the start
2. 02The contract assigned to a lender as collateral
3. 03A line of credit drawn during retirement
4. 04The death benefit repays the lender at the end
5. 05Everything depends on the lender continuing to lend

This matters most to a company that has changed shareholders, roles or structure since a contract was first acquired, since that is exactly the situation where an old resolution stops matching current facts without anyone deciding it should. It matters far less to a young, stable company with a single shareholder, one contract, and a resolution drafted recently enough to still describe exactly what exists today.

It also matters more to a company that has been through, or is approaching, a sale, a reorganization, or the addition of a new shareholder, since each of those events is exactly the moment a buyer's lawyer or a new shareholder's own advisor is most likely to ask for the record and find it wanting.

What this page will not tell you

This page does not say what your own company's resolution should say, since the correct wording depends on your own facts, your own agreement or purpose for the coverage, and your own corporate structure. That wording is drafted by your own lawyer, working from your own facts, and confirmed as still accurate by your own accountant at each year end, not by a general page describing the practice in the abstract. It also does not say how a holding company's minute book should be organized relative to an operating company's, since that structural question depends on your own corporate group and is answered by the lawyer who set that structure up in the first place. Decide it on paper before you decide it in a meeting.