Plenty of small corporations simply stop. The owner retires, the partnership falls apart, or the numbered company set up for a single project has nothing left to do. The bank account gets emptied, the phone line is cancelled, and everyone moves on, assuming the company will fade away by itself.
It will not, at least not cleanly. A corporation is a legal person, and it continues to exist until it is formally dissolved. Until then, tax filings remain due, annual returns remain owing, and a government or a former creditor can still come looking. A dissolved corporation can also be pursued in certain ways, which surprises many owners. Doing this correctly takes some patience, but most of the steps are straightforward for a company with few loose ends.
This article gives general information on dissolving an Ontario corporation; it is not legal or tax advice. Federal corporations under the Canada Business Corporations Act follow a different process. Insolvent companies raise separate issues as well, so anyone who cannot pay their debts should speak with a lawyer and a licensed insolvency trustee before doing anything described below.
Stop and Ask: Is Dissolving the Right Move?
Dissolution is final in practical terms, and a few situations call for a different route or at least a pause.
If the company owes money it cannot pay, the Articles of Dissolution will require a statement that cannot truthfully be made. Bankruptcy or a negotiated arrangement with creditors may be the proper path. Distributing the remaining money to shareholders while creditors go unpaid can create personal exposure.
If the company might be useful later, an inactive corporation that keeps up its filings may be simpler than starting over, although the ongoing filing obligations continue. And if a tax-driven reorganization or sale of the company is possible, dissolving first can close that door. A company with a valuable name, lease, licence, or contract may be worth more sold than wound up, in which case a purchase or sale of the business deserves a look.
Before anything else, a conversation with your accountant is worthwhile. Dissolution can trigger tax consequences for the corporation and its shareholders, including on the final distribution of retained earnings, and the timing of steps can affect the result.
Authorizing the Dissolution
The Business Corporations Act (OBCA) sets out how the decision must be made. An active corporation may be dissolved with a special resolution, which ordinarily means two-thirds of votes cast at a properly called meeting, or with the written consent of all shareholders entitled to vote at that meeting. For a private company whose articles provide for it, the required proportion can differ, though it cannot be less than 50 per cent of the votes of all voting shareholders.
If your company has one or two owners, this is a short written resolution signed by all of them, then placed in the minute book. Where there are several shareholders who do not get along, read any shareholder agreement first, since it may add consent rights or impose extra conditions. A minority shareholder who believes the process is being used to squeeze them out may have remedies, including the oppression remedy.
A narrower path exists for a corporation that never got going. Where it has not commenced business and has not issued shares, all of the incorporators or their personal representatives can authorize dissolution. Many owners of unused numbered companies qualify for this simpler route, though the other statements in the articles still have to be accurate.
What You Must Be Able to Certify
The Articles of Dissolution are not a formality. In filing them, the corporation is stating facts, and most of the work before filing is about making sure those statements are true. For an active corporation, the Act requires the articles to state that:
- The dissolution has been properly authorized
- The corporation has no debts, obligations, or liabilities, or they have been duly provided for, or the creditors or others with an interest consent to the dissolution
- After creditors are satisfied, it has no property left to distribute, or it has distributed what remains rateably among shareholders according to their rights
- If it ever owned land in Ontario as a registered owner, it no longer does
- There are no court proceedings pending against it
Each of these can catch a real business out. Debts include things that do not feel like debts, such as a guaranteed lease obligation, an unsettled employee claim, a warranty promise, or an old HST reassessment.
The land statement deserves a specific search. Companies sometimes hold title to a forgotten strip of land, an old share of a Brampton commercial unit, or a parcel that was supposed to be transferred years ago. The Director may refuse to endorse the articles on learning that the corporation is still a registered owner, so run a title search if there is any doubt.
If a creditor or shareholder cannot be found, the Act provides for arrangements with the Public Guardian and Trustee, so that their money is held in trust for them, rather than letting the missing person block the process.
Winding Up the Business Itself
Before filing, close the actual operations. A practical order for a small company looks like this:
- Give notice to customers and finish or transfer outstanding work
- Deal with employees properly, including statutory termination pay and any severance
- End or assign the commercial lease, and check for personal guarantees
- Settle with suppliers and lenders, and get payout confirmations in writing
- Have secured lenders discharge their registrations under the Personal Property Security Act
- Cancel business name registrations, City of Brampton licences, and WSIB coverage
- Sell or transfer equipment, vehicles, and other assets, and cancel insurance only after everything has been moved
- Close the bank account last, after final cheques have cleared and the tax accounts are settled
Timing around staff is important. If you are terminating people, written notice and pay rules apply regardless of the reason for closing. Permanent closure can also trigger ESA severance in some cases, even for a smaller employer, where 50 or more employees are severed within six months because the business closes.
Do not leave property in the company’s name. Under section 244, any property that has not been disposed of on the date of dissolution immediately forfeits to the Crown. That rule applies to a forgotten bank balance as much as to a truck or a trademark. Getting something back afterward can be slow, costly, and sometimes impossible.
Tax Accounts: The Part That Takes the Longest
Tax is generally where these files stall. The corporation must keep filing T2 returns until it is formally dissolved. The final T2 should cover the period ending on the dissolution date, and it should be marked as a final return. Beyond that, the CRA expects you to:
- Close the payroll account, after remitting source deductions and filing final T4 or T4A information
- File a final GST/HST return and pay what is owing, bearing in mind that property still held when you cease to be a registrant is generally treated as sold at fair market value
- Close any other accounts, using Form RC145 or the CRA’s online services, and provide a copy of the articles where asked
- Consider a clearance certificate, which the CRA generally calls for before property is distributed
The clearance certificate is an important protection. Without one, a director or other legal representative who distributes the corporation’s assets may be held personally responsible for tax debts, up to the value of what was distributed. Getting one requires the final notice of assessment and a distribution statement, so build in the waiting time.
Provincially, the Ontario Business Registry says that Articles of Dissolution must include the Minister of Finance’s consent where applicable, and that the system forwards the consent request automatically. Whether a consent is needed in your particular case, and how long it may take, should be confirmed when you file. Your Corporations Information Act filings must also be up to date, so bring annual returns current before you begin. Note that a company with years of missed annual returns may need to catch up first.
Filing the Articles
Filing is done online through the Ontario Business Registry. You will need the corporation’s name and Ontario Corporation Number, its company key, and the required statements. The government fee at the time of writing is $25, and service providers charge in addition. Once the Director endorses the articles, this is the certificate of dissolution, and the corporation’s existence ends as of the date on it.
Afterward, send the CRA whatever it asks for and retain your own copy of the certificate permanently. Update any remaining records that still identify the company.
Why Walking Away Is a Poor Plan
Some owners stop filing in the hope that the Province will dissolve the company for them. The Director can indeed issue an order dissolving a corporation for failing to comply with certain tax statutes or filing requirements. Relying on this is risky. Taxes and interest may accumulate in the meantime, you lose control of the timing, and any assets the company still holds forfeit to the Crown. Bank accounts and land can get caught this way, and a dissolved company in that position may need to be revived before anything can be untangled, at additional cost.
Directors do not escape by waiting either. Their responsibility for certain unpaid amounts can continue long after the business closes.
What Can Survive Dissolution
Dissolution ends the corporation’s day-to-day existence, but section 242 of the OBCA allows a proceeding started before dissolution to continue as if nothing had happened, and allows a new one to be brought against the corporation afterward. Property that would have been available to satisfy a judgment remains available, subject to some exceptions. Documents can be served on anyone last shown in the Ministry’s records as a director or officer.
Section 243 adds to this. A shareholder who received property on dissolution can be liable to someone claiming under section 242, up to the amount that shareholder received. So hypothetically, if two owners split $80,000 evenly on closing and a valid $50,000 claim later surfaces, each is exposed up to the $40,000 they received, with the court able to sort out contribution.
Directors have their own continuing exposure in several areas:
- Up to six months’ unpaid wages and 12 months’ vacation pay under corporate and employment legislation, in the circumstances those laws provide
- Unremitted source deductions and GST/HST under the federal tax statutes, typically for two years after ceasing to be a director
- Certifying a false statement in the articles
For those reasons, avoid resigning hastily or signing a statement of “no liabilities” simply because you have not heard from anyone lately.
Keep the Records
The minute book, financial statements, tax records, and employee files should outlive the company. The CRA generally expects business records to be kept for six years after the end of the year they relate to, and specific rules apply to dissolved corporations, so confirm with your accountant before destroying anything. Decide before dissolution who will hold them. A storage box in one shareholder’s Brampton basement is acceptable if everyone knows it is there and can get access.
If your company has a clean balance sheet, this process may amount to a few weeks of filings plus the wait for the tax accounts to close. If it has unpaid debts, a dispute, or land, advice earlier is worth much more than a repair later. Our corporate law team can review what you have, and you can reach Sawan Law House LLP here when you are ready to discuss it.