In Canada, starting a business can be a thrilling endeavor, but occasionally, things happen that necessitate business owners to make the challenging choice of dissolving their organization. Whether it’s due to financial challenges, shifts in market conditions, or personal reasons, understanding the process of business dissolution in
Canada is crucial. If your firm is discontinuing operations, has already gone out of operations, or has not been regularly utilized, then in order to officially dissolve the organization or non-profit firm, you have to file “articles of dissolution” with the governing body where your organization was founded.
In this comprehensive guide, we will lead you through the procedures and factors involved in dissolving a business in Canada.
What is the process for the dissolution of business in Canada?
If you have registered a business in Canada and want to dissolve it, then a particular resolution needs to be adopted. In case your business has stakeholders, this resolution must be approved by them in an extraordinary meeting. If there are stakeholders in the corporation who own shares in several classes, each class’s stakeholders have to approve the resolution. In the absence of stakeholders, the resolution will be approved by the directors. After that, the Articles of Dissolution need to be written.
Articles of dissolution are the manner that an organization uses when it wants to dissolve itself. The Articles of Dissolution need to be written and submitted to the Canadian Trade Register in order to dissolve a legal entity.
Preliminary Steps in the dissolution of business in Canada
- Board Meeting: Convene a gathering of the board of directors to talk about and provide approval of the intent to dissolve the company.
- Shareholders’ Approval: Depending on the corporation’s by-laws, the dissolution typically requires the consent of two-thirds of the shareholders.
- Notice to Creditors: Send out notices to all claimants, creditors, and other parties about the company’s intention to dissolve. Some jurisdictions may require you to publish a notice in a newspaper.
- Settle Debts and Obligations: Prior to dissolution, the corporation must settle all of its debts and obligations, which may include severance pay, final payroll, and taxes.
Legal and Regulatory Steps in the dissolution of business in Canada
- Articles of Dissolution: File the Articles of Dissolution with Corporations Canada. It can also be necessary to file other pertinent forms or documents.
- Tax Clearance Certificate: Request a tax clearance certificate from the Canada Revenue Agency (CRA) and any applicable provincial tax authorities to verify that all tax obligations have been satisfied.
- Other Regulatory Clearances: Obtain clearance from other regulatory bodies if applicable, such as provincial sales tax authorities.
- Distribution of Assets: After all debts and obligations are settled, the remaining assets are distributed to shareholders according to the provisions in the by-laws or the shareholder agreement.
Final Steps in the Dissolution of Business in Canada
- Closing Bank Accounts: Close all corporate bank accounts after all final transactions are completed.
- Notification to Government Agencies: Notify other relevant federal, provincial, and local government agencies about the dissolution of the business.
- Record-Keeping: Even after dissolution, the corporation is generally required to maintain its records for a certain period (usually six years).
- File Final Tax Returns: A final tax return has to be filed, and any remaining taxes must be paid.
- Certificate of Dissolution: After all the requirements have been met, a Certificate of Dissolution will be issued by Corporations Canada, formally ending the existence of the corporation.
- Notify Service Providers: Don’t forget to close out accounts with utility companies, service providers, and any other entities where the business holds an account.
- Employee Records: Make sure to keep employment records as required by law for the prescribed time period.
Information about Canadian firm dissolution
There are a few conditions that must be met in order to dissolve a Canadian corporation:
- For insolvent businesses, there must have been a minimum of three years when the trustee stopped the business’s liquidation.
- Organizations that have not yet started any economic activity may be dissolved by the shareholders two years after the contract was signed.
- Based on the jurisdiction or area, the time term for submitting accounting records to the Canadian Revenue Agency for dissolution reasons takes anywhere from 15 to 30 days.
- For six years following its dissolution, a dissolved corporation needs to choose a registered agent to maintain its business records.
Conclusion
It takes many procedures to dissolve a business in Canada, including getting board and shareholder consent, filing paperwork, getting tax clearances, and paying off debts and commitments. Properly winding down the business ensures that legal and financial obligations are fulfilled, lowering the risk of future liabilities. Failure to dissolve a company correctly can lead to financial penalties, legal repercussions, and the personal liability of directors and shareholders.
At OnDemand International, we understand that dissolving a business is a complex and often emotionally challenging process. Every step of the dissolution procedure will be assisted by our team of experts, who are familiar with Canadian business laws and requirements.
FAQ’s
Business owners typically dissolve their businesses due to financial difficulties, retirement, changing market conditions, or personal reasons.
Yes, you must inform your employees and follow legal requirements regarding notice periods and severance pay.
A company’s dissolution may have tax repercussions, including income and capital gains taxes.
To maximize asset value, consider selling assets strategically and negotiating with creditors.
Legal requirements include notifying government agencies of the dissolution of the business and terminating any licenses, permits, and tax registrations.
