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 by a court order. This guide covers dissolution, and it pertains to Ontario corporations incorporated under the Ontario Business Corporations Act (OBCA).
What is Corporate Dissolution?
Corporate dissolution is the legal process of ending a corporation’s existence. When a corporation is dissolved, the corporation ceases to exist legally. It can no longer own property, carry on business or enter into contracts. Dissolution is voluntary if the corporation itself applies to be dissolved. Dissolution is involuntary if the government dissolves the corporation for failure to maintain its annual filings, failure to comply with other legal requirements, or by a court order.
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.
Voluntary dissolution
Section 237 of OBCA: A corporation may be dissolved upon the authorization of,
(a) a special resolution passed at a meeting of the shareholders of the corporation duly called for the purpose or, in the case of a corporation that is not an offering corporation, by such other proportion of the votes cast as the articles provide, but such other proportion shall not be less than 50 per cent of the votes of all the shareholders entitled to vote at the meeting;
(b) the consent in writing of all the shareholders entitled to vote at such meeting; or
(c) all its incorporators or their personal representatives if the corporation has not commenced business and has not issued any shares.
Articles of dissolution where corporation active
To dissolve a corporation as per OBCA Section 237, permission must be obtained from the board of directors and shareholders. 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, who 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 corporation’s shareholders 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. After the government confirms the dissolution, usually by issuing a “Certificate of Dissolution,” the corporation’s minute book should be updated to reflect the dissolution.
The articles of dissolution are filed with information and confirmation below:
(a) the name of the corporation;
(b) that its dissolution has been duly authorized under clause 237 (a) or (b);
(c) 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;
(d) 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
(e) that there are no proceedings pending in any court against it.
Articles of dissolution where corporation never active
238 (1) For the purpose of bringing the dissolution authorized under clause 237 (a) or (b) into effect, articles of dissolution must set out,
(a) the name of the corporation;
(b) that its dissolution has been duly authorized under clause 237 (a) or (b);
(c) 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;
(d) 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
(e) 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.
Summary
Dissolving a corporation in Ontario is a structured process that demands careful adherence to legal procedures outlined in the Business Corporations Act. It is important to speak with a lawyer before taking any action to dissolve a corporation.
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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.
