Corporate Dissolution Lawyer in Mississauga

Why dissolve properly

A corporation that stops filing will eventually be dissolved for default. That is not a clean ending. Tax obligations remain outstanding, directors remain exposed to liability for unremitted source deductions and HST, and the corporation can be revived by a creditor in order to sue it, and, through it, its directors.

A voluntary dissolution deals with liabilities in the right order and produces a defined endpoint.

The sequence

For an Ontario corporation under the OBCA, dissolution follows a defined path.

• Shareholders authorise the dissolution by special resolution
• The corporation ceases carrying on business, except as necessary to wind up
• Assets are realised and debts and liabilities discharged or adequately provided for
• Final tax returns are filed and a clearance certificate is obtained from the CRA, confirming all amounts are paid
• Consent to dissolution is obtained from the Ministry of Finance where required
• Remaining property is distributed to shareholders according to their entitlements
• Articles of dissolution are filed, and the corporation ceases to exist on endorsement

The tax clearance certificate is the step that takes the longest and the step most often skipped. Distributing assets to shareholders before obtaining it exposes the directors personally to the corporation’s unpaid tax, up to the value distributed.

Liabilities that survive

• Directors remain liable for unremitted source deductions and HST, and for up to six months of unpaid employee wages and accrued vacation pay
• Shareholders who received property on dissolution can be pursued up to the value they received
• The corporation itself can be revived, in Ontario generally within 20 years, allowing claims to proceed against it
• Personal guarantees given by directors or shareholders are unaffected by dissolution and remain fully enforceable

Dissolution, or something else?

Where a business has simply stopped trading but the corporation may be useful later, keeping it in good standing with minimal filings is sometimes cheaper than dissolving and reincorporating. Where a group has accumulated dormant subsidiaries, amalgamating them into a single entity can be simpler than dissolving each. And where the corporation is insolvent, dissolution is not the right tool at all; that is a bankruptcy or proposal question, and it should be referred to an insolvency trustee before assets are touched.