There are two types of corporations, a business corporation and a not-for-profit corporation. We have already discussed what steps you need to take to incorporate a business in Ontario. Unfortunately, not all businesses succeed. Sometimes you are forced to shut your business down and when you make that decision, the most important document you need to prepare is the Articles of dissolution. For that purpose we prepared a detailed guide on how to dissolve a corporation in Ontario.
The liquidation and dissolution of a corporation are not the same thing. The liquidation implies ending a business and its affairs. The dissolution of a corporation implies the termination of the corporation as a legal person.
What is Liquidation?
The liquidation brings one business and its affairs to an end. In the process of liquidation, corporation’s assets are realized, its liabilities are discharged, disputes are settled and accounts are made. The liquidator is obliged to realize the property of the corporation, to pay its debts, to distribute the remaining amount to its shareholders. Liquidation can be voluntary or court ordered.
Voluntary Liquidation and Court-Ordered Liquidation
The shareholders may, by special resolution, require the corporation to be liquidated or dissolved voluntarily. A liquidator of the corporation can be any person who is appointed by the court. A company’ director, officer or a shareholder of the corporation can be a liquidator.
Court-ordered liquidation means that a court orders the liquidation under condition the court is satisfied with the results of the corporation’s acts.
A corporation can be liquidated at court when it has been conducted in an unfairly way and disregards the interests of any security creditor. Also, a corporation can be liquidated if the powers of the directors have been exercised in an unfairly way that disregards interests of any security holder, creditor or officer.
If the court requests the liquidation of a corporation, the corporation continues to exist but cannot carry on business, except the business that is, in the opinion of the liquidator, required for an orderly liquidation; and the powers of the directors and shareholders stop and entrust in the liquidator, apart from the powers that are specifically authorized by the court.
If the office of the liquidator is or becomes vacant, the property of the corporation is under the control of the court until the office of liquidator is filled.
Voluntary and Involuntary Dissolution
When you decide to close the business, that is referred as a voluntary dissolution. Involuntary dissolution indicates that a corporation didn’t play by the book and that there is a cause for dissolution. For instance, when a corporation didn’t hire the required number of directors or directors of Canadian residence, it can be involuntarily closed. If a corporation violates the law defined in the Provincial Offences Act or it fails to comply with the filing requirement (the Corporations Information Act). Also, if a corporation doesn’t pay the fee that requires the Business Corporations Act, it can be dissolved.
Before you Dissolve a Corporation
Does your corporation follow the current corporate tax filings? An accountant or any other finance professional from your corporation should reach out to the Minister of Revenue and check if the tax filings are up to date.
The next thing to do is to request a consent letter. That letter confirms that you’ve got a green light and that you can dissolve your business. Once you get the consent letter issued, you have 60 days to file the Article of Dissolution.
The director can dissolve a corporation by issuing a certificate of dissolution if the corporation hasn’t commenced business within three years after the date of incorporation, if it hasn’t continued its business for 3 consecutive years; if it doesn’t have any directors; or all the directors have resigned.
If the corporation stops to exist on the date of dissolution, the director must’ dissolve it. Also if there is a notice of decision to dissolve available to the public, the director cannot dissolve a corporation.
If the corporation fails to comply with the requests of annual shareholders’ meetings, for two or more consecutive years, the director can request a company dissolution by the court order. In that case, a corporation won’t be able to continue with business. The court can order to dissolve a corporation or to liquidate it.
How to get the Articles of Dissolution?
When you file a request to receive the Articles of Dissolution, you need to cite the name of the corporation, or its number name, as well as the evidence that all shareholders agreed about dissolution of the company. Also, you need to confirm that the company hasn’t gone bankrupt and that it doesn’t have any properties or liabilities. Moreover, you need to write the name of the director, his/her address and signature and the date of dissolution.
How to Dissolve a Corporation in Ontario (Voluntary)
Voluntary dissolution is the most commonly employed method for dissolving a corporation when it has ceased to fulfill a useful purpose for its shareholders. There is also an alternate procedure accomplished by statutory winding-up procedures in which a liquidator is appointed to oversee the liquidation.
Broadly speaking, voluntary dissolution of corporation depends on the answers on these two questions:
- Has your corporation started carrying on business?
- Has your corporation issued any shares?
If you are not sure about these two questions and you don’t know in what way to dissolve a corporation, you should better consult a corporate lawyer.
Depending on the answers to these questions, you need to fill in the required form 11 or 10. Form 10 signs a director (an officer) of the corporation whereas form 11 sign all the incorporators.
Use the Articles of Dissolution, form 10 on these conditions:
– If your corporation has issued shares.
– the corporation has commenced the business.
You can use The Articles of Dissolution, form 11 under these conditions:
- the corporation has not issued shares.
- the corporation hasn’t started the business.
- All members of the corporation have agreed with the decision to dissolve a company.
Here you can search for these forms.
Note: You have to submit the Articles of dissolution in duplicate and with original signatures.
Although the Articles of dissolution document seems quite easy to fill in, you should better consult a lawyer than regret later.
After You File the Articles of Dissolution
When you complete the Articles of Dissolution you can make a payment ($25) by mail or in person, using cash, debit/credit card, cheque. The payment should be sent to the Minister of Finance 375 University Avenue (2nd floor) in Toronto, ON M5G 2M2.
You also need to pay debts that corporation had, if any. The remaining assets should be distributed to the company shareholders and investors, or co founders depending on the percent they have in the company.
If there is a criminal, civil or administrative proceeding against the corporation that is in the process of dissolution, that proceeding doesn’t stop upon dissolving. As a matter of fact, a corporation can be involved in a civil, criminal or other action within two years of dissolution.
In case you decide to revive a corporation you can do it under condition it was voluntarily dissolved. As an owner of the corporation that was dissolved, you will be able to revive it in up to twenty years and to recover the assets. If you are a shareholder you may not have any assets to recover after three years but you will be able to apply for a revival in next 20 years.
How to Dissolve a Corporation in Canada
If your corporation carries out business in other provinces than Ontario, you need to follow the federal laws. Dissolving a corporation on a federal level is different. You need to pay different fee ($50 instead of $25) and to fill in different forms of the Articles of Dissolution.
Instead of completing form 10 or 11, you need to complete a form 17 or 19. You can use Form 17 of the Articles of Dissolution in one of the following three situations:
- if your corporation hasn’t issued any shares, or
- the corporation doesn’t have any properties or liabilities, or
- the corporation has distributed/discharged all its properties/liabilities
The form 19 of the Articles of Dissolution is a statement of intent to dissolve a corporation. If you need to obtain a certificate of intent to dissolve, this is a right form for you.
When do you need a certificate of intent to dissolve?
If your corporation has properties or liabilities that are not discharged, you can start the process of liquidation before dissolving a corporation. The other option is to continue business although the corporation is in liquidation process.
In that case you need a certificate of intent to dissolve (form 19 of the Articles of Dissolution). You need to notify all the creditors and to notify every province where your corporation does business. The corporation’s property should also be collected and properties that are not to be distributed to its shareholders should be disposed. You also need to discharge all corporations’ obligations and to do all other acts required to liquidate your business; and after completing the above, you need distribute the remaining property, either in money or in kind, among company’s shareholders according to their respective rights.
When the liquidation process is finished, you can apply to dissolve a company (form 17 of the Articles of Dissolution).
Although it might seem quite complicated to dissolve a corporation, you should just follow the guidelines above and contact our lawyers for further assistance.