A company is a type of business structure formed by a group of individuals. These individuals are known as shareholders. Unlike other business structures, shareholders do not usually operate or manage the business by themselves. Instead, they appoint a management team to look after the company’s matters. Companies allow for a limited liability business structure that is beneficial for shareholders.
Companies are the most prevalent type of business structure around the globe. Usually, a company business structure allows for potentially unlimited capital and growth. Similarly, it allows for easier transferability of ownership compared to other business structures. Overall, companies provide shareholders with a great way to invest their capital and benefit from profits.
Companies are complex business structures. Although these provide many benefits to shareholders and other stakeholders, companies come with some administrative burden. This administrative burden usually comes in the form of additional legislation and compliance to which these companies must adhere. One of these includes business records that companies must keep and maintain.
The requirement for keeping business records may come from several sources. Usually, the jurisdiction where the company operates introduces these requirements. However, some regulatory bodies, such as the stock market, may also have business record keeping criteria. Some of the most prevalent business records that companies must maintain are as below.
Accounting records are the basis for financial statement preparation. Most companies must maintain a proper bookkeeping system to keep financial information. This information is not only necessary in financial statement preparation but can also help with business analysis. Companies can easily purchase accounting software to maintain accounting records.
Companies also have the option to outsource their accounting records maintenance process. Usually, it provides companies with the ability to obtain expert services while also achieving lower costs. Either way, accounting records can help companies with various other compliance as well. Overall, keeping and maintaining accounting records is an essential requirement for companies.
In most jurisdictions, companies are required to keep accounting and tax records for 5-10 years. This requirement signifies the importance of maintaining both accounting and tax records. Keeping tax records is essential because these allow companies to provide proof in case of tax audits. Usually, taxation records are similar to accounting records but may have some additional requirements.
Tax records may include records related to any money and taxes that a business has received or spent. These may consist of invoices, credit card receipts, bank statements, checks, vouchers, bills, etc. Usually, companies need to keep a physical record of these transactions. However, some jurisdictions may allow companies to convert them to digital copies.
Payroll records are one of the most prevalent types of documents for companies. Some companies employ hundreds or thousands of employees. It is crucial for these companies to keep records of any transactions with these employees. Usually, the requirement to maintain payroll records come from the relevant employment rights acts.
Payroll records may include payroll slips, income tax deductions documents, insurance contributions slips, applications forms, holiday information, expense accounts, medical records, etc. The requirement for which records companies must maintain may differ according to each jurisdiction. Some companies may also keep additional records not required under the rules.
Cash is one of the most vital assets for companies and businesses alike. Therefore, it is essential for companies to maintain any records related to cash spending and receipts. These records usually come in the form of payment slips or vouchers. Usually, companies may also attach the invoice or bill to the document.
Any cash that companies keep in bank accounts also constitutes a company’s cash resources. However, the recordkeeping process for that cash is relatively straightforward. Banks usually provide regular bank statements with details of any cash entering or exiting the bank account. Similarly, cheques, deposit slips, credit card slips, etc., also constitute cash records that companies must keep.
Companies also need to ensure to collect and keep insurance records. Keeping insurance records is a requirement in various jurisdictions. This requirement applies to all businesses regardless of their nature. Therefore, companies need to ensure that they maintain the insurance records required by the rules and regulations.
Insurance records may include insurance letters, certificate of insurance, insurance claim documents, etc. These documents can not only help businesses meet record maintenance requirements but also be vital in legal matters.
Sale records include any documents that companies must maintain for any revenue they generate. Usually, sale records include sale invoices, till rolls, pay-in slips, cash receipts, etc. Companies with physical products may also keep goods delivered notes and other documents related to sales. Sales records are crucial in the accounting and tax processes of companies.
Similar to sales records, companies must maintain any documents related to purchases. Usually, the purchase documents that companies receive may differ according to the type of purchase they make. Similarly, the supplier may also affect the type of records provided to the company. Companies need to include receipts, invoices, credit card slips, cheque book stubs, etc., as a part of the purchase records.
Expense records are similar to purchase records. Usually, purchase records may include specific documents such as the goods received note, which will not apply to expense records. However, most of the records involved are similar. For example, companies need to maintain bills, invoices, credit card slips as a part of their expense recordkeeping.
Why is keeping business records necessary for companies?
Proper storage of records can help companies in various matters. As mentioned, business recordkeeping is usually a part of compliance with laws and regulations. By ensuring that companies keep these records, they can decrease the chances of suffering penalties and fines. In some jurisdictions, companies also have to face legal action if they don’t keep these records.
Similarly, keeping records can also help in decision-making, forecasting and budgeting. By analyzing past records, companies can identify patterns or trends and use them as a forecasting tool. Similarly, keeping records can help in case of audits, whether external, internal or tax. Companies can also use these records to identify their strengths and weaknesses.
Keeping business records can help companies with other tax matters as well. For example, it can help them maximize the expense they can claim and reduce their tax obligations. Overall, a proper system of recordkeeping can be highly beneficial for companies despite the additional administrative burden.
How long do companies need to keep business records?
How long companies need to keep business records depends on several factors. Usually, the jurisdiction where companies operate will specify the minimum time period to keep records. However, this period may be extended if necessary. Similarly, some companies may have internal policies to keep records longer than that period.
Usually, the longer companies keep records, the higher the storage costs are. However, they must still keep records for the minimum required period. Usually, this period may range between 5-10 years. In countries such as Singapore, the requirement is for companies to keep business records for at least six years. In some other countries such as the USA, it may even go lower to 3 years.
Companies need to maintain business records to comply with rules and regulations. There are some business records which companies must keep. These include accounting, tax, payroll, cash, insurance, sale, purchase and expense records, among others. Recordkeeping can be highly beneficial. Usually, the jurisdiction where companies operate will specify the minimum period for recordkeeping.