When a corporation is dissolved, it no longer legally exists and loses the ability to own property, conduct business, or enter into contracts. Dissolution can be voluntary if the corporation initiates the process itself. Alternatively, it can be involuntary if the government dissolves the corporation due to its failure to maintain annual filings or comply with other legal requirements or in accordance with a court order. This guide only covers voluntary dissolution, and it pertains to Ontario corporations incorporated under the Ontario Business Corporations Act (OBCA).
Steps for Voluntary Dissolution
There are different authorization requirements for corporations that have issued shares compared to corporations that have not commenced business and have not issued any shares.
If the corporation has issued shares
To dissolve a corporation as per OBCA Section 237, permission must be obtained from the board of directors and shareholders through a meeting. Upon successful agreement to legally close the corporation, resolutions are to be signed to confirm the decision. Decide on asset distribution and debt confirmation through a resolution signed by all shareholders and directors.
The corporation is legally obligated to settle all its debts and commitments. To dissolve the corporation, it is advisable to consult with an accountant, as they will assist in fulfilling unpaid taxes, filing the final tax returns, and obtaining the required tax clearances. If the corporation has any assets, including cash, after fulfilling all of its liabilities, these assets should be distributed to the shareholders of the corporation based on their respective entitlements.
If the corporation has no assets or debts, it can proceed to fill out the relevant government form. Once the form is completed, along with any other mandatory documents (if applicable), it should be filed with the government. Any required filing fees should also be paid at this time. After the government confirms the dissolution, which is usually done by issuing a “Certificate of Dissolution,” the corporation’s minute book should be updated to reflect the dissolution.
The articles of dissolution must be established with:
- the name of the corporation;
- that its dissolution has been duly authorized under clause 237 (a) or (b);
- that it has no debts, obligations or liabilities or its debts, obligations or liabilities have been duly provided for in accordance with subsection (3) or its creditors or other persons having interests in its debts, obligations or liabilities consent to its dissolution;
- that after satisfying the interests of creditors in all its debts, obligations and liabilities, if any, it has no property to distribute among its shareholders or that it has distributed its remaining property rateably among its shareholders according to their rights and interests in the corporation or in accordance with subsection (4) where applicable;(d.1) if it was at any time a registered owner of land in Ontario, that it is no longer a registered owner of land in Ontario; and
- that there are no proceedings pending in any court against it.
If the corporation has not commenced business and has not issued any shares
An Ontario business corporation may be dissolved upon the authorization of all its incorporators or their personal representatives if the corporation has not commenced
business and has not issued any shares (clause 237 (c) of the BCA). The corporation must confirm in the Articles of Dissolution that the dissolution has been duly authorized under clause 237 (c) that all its incorporators or their personal representatives if the corporation has not commenced business and has not issued any shares, and that the corporation meets the requirements set out in subsection 238 (2). Specifically, the articles must also confirm the following required statements:
- that the corporation has not commenced business;
- that none of its shares has been issued;
- that it has no debts, obligations or liabilities;
- that after satisfying the interests of creditors in all its debts, obligations and liabilities, if any, it has no property to distribute or that it has distributed its remaining property
to the persons entitled thereto; - if it was at any time a registered owner of land in Ontario, that it is no longer a registered owner of land in Ontario; and
- that there are no proceedings pending in any court against it.
Involuntary Dissolution
Under certain conditions outlined in the Business Corporations Act, a corporation may be dissolved involuntarily. This can occur if the corporation does not commence business within three years of incorporation, fails to file annual returns for two consecutive years, or contravenes certain other provisions of the Act.
Tax and Legal Considerations
- Tax Clearance: In line with the Income Tax Act, it’s essential to obtain a tax clearance certificate from the Canada Revenue Agency, ensuring all corporate taxes are up-to-date.
- Notice to Creditors: It’s recommended to notify all creditors of the dissolution to settle any outstanding claims.
- Record Retention: Post-dissolution, the corporation is required to maintain its records for a certain period as mandated by law.
Summary
Dissolving a corporation in Ontario is a structured process that demands careful adherence to legal procedures as outlined in the Business Corporations Act. It involves settling all obligations, distributing assets, and completing necessary legal documentation. Given the intricacies and potential legal ramifications, it’s often advisable to consult with a legal professional to navigate this process.
If you are in search of guidance from a Toronto corporate lawyer, contact us and see how our firm can help you!
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
