Does my Ontario corporation have to prepare financial statements every year?

Yes. Under the Ontario Business Corporations Act, a corporation must place financial statements before its shareholders at each annual meeting or with each annual resolution in writing. These financial statements must include a balance sheet as at the end of the fiscal year, a statement of retained earnings, an income statement, and a statement of changes in financial position (or a cash flow statement).

For most private corporations, these financial statements are prepared by an accountant, either as a compilation, a review engagement, or a full audit. The level of assurance required depends on your corporation's circumstances and any requirements set by lenders or investors. Shareholders of private corporations can agree to waive the formal audit, but the statements must still be prepared and presented.

The financial statements presented at the annual meeting must be approved by the board of directors before they are shown to shareholders. Directors typically approve the statements by passing a resolution, which is documented in the minute book. Keeping financial statements current is also important for tax compliance, and the CRA requires a copy when you file your T2 corporate tax return. If your corporation has not been filing, addressing arrears sooner rather than later typically results in better outcomes.