So the company isn’t working out the way you had hoped and it’s time to start considering turning off the lights and disposing of what is left. But while it is easier to dissolve a corporation than it is to make one successful, that doesn’t mean that it’s not without its own challenges.
There are accounts to close and taxes to file to ensure payroll is up-to-date. There may be contractual obligations that you have to deal with like leases. If any court action has been started then it should be settled. This is important to note because they won’t go away just because you dissolve the corporation.
To understand how to best dissolve a corporation in Ontario, we will first look at the steps it takes to do so. This will map out the necessary steps for filing but it wouldn’t address issues like those mentioned above, those will be addressed in the following section. Then, to close out, we’ll look at how long it may take to dissolve your corporation so you have a sense of what to expect from the process and can plan accordingly.
What Steps Does it Take to Dissolve a Corporation in Ontario?
It’s important to take a moment to understand what we mean by dissolving a corporation. A corporation may cease business operations and therefore no longer function, yet it would continue to exist as a corporation because the Articles of Incorporation continue to remain active. So dissolving a corporation isn’t the same as no longer being an active business; there are additional steps that must be taken.
What this means is that dissolving a corporation is something that you have to actively set out to do. It is not possible to dissolve a corporation by accident.
The first step to dissolving a corporation used to be to file an application to the Ministry of Finance seeking consent. However, an October 2021 change now wraps the consent to dissolve into the Articles of Dissolution. A request for a Letter of Consent to Dissolve Corporation has to be sent to the Client Services Branch of the Ministry of Finance. This request must include:
- The full corporate name
- The Ontario incorporation number
- The federal business number
- And it must be signed by an authorized director of the corporation in question
Upon receiving the Consent to Dissolve from the Ministry, you now have sixty days to get your application for dissolution to the Ministry of Government and Consumer Services. The request for dissolution used to have to be mailed in, though now you are able to submit your application online. But regardless of which method you choose, it must include the following:
- The letter of Consent to Dissolve Corporation
- Two different sets of Articles of Dissolution, which must include original signatures
- A small governmental fee paid to the Ministry of Finance
- A cover letter that includes contact name, telephone number, and return address
- Optional: The Service Ontario acknowledgement of your received application form, which allows you to provide an email address to receive a receipt confirming your request.
Upon approval you will be sent a copy of the Articles of Dissolution certificate, stamped and dated with the date of your dissolution. From the day listed and on, your corporation is legally dissolved.
What Should You Do Before Filing for Dissolution?
There are a number of actions that you should take prior to filing for dissolution. These might seem rather straightforward and obvious to some people but time and time again people try to move too quickly to dissolve before taking care of the business that remained.
Things to do before filing for dissolution include:
- Contact Shareholders: Depending on the size and structure of your business, there may be a lot to this step. There may be shareholders who have to be consulted throughout the process of terminating the business. You may need to get a majority vote from the shareholders or come to a consensus with co-founders. What actions need to be taken here may vary widely but they should be outlined in your initial agreement.
- Notify Employees: There are set rules about how employees can and cannot be terminated. You could be held liable for damages suffered should you break these rules. It’s important to notify your employees about the company’s dissolution, but you should do some with enough time to legally let them go and remember that severance pay is owed to any employee who has been with the company for five or more years prior to the dissolution.
- Distribute Assets: You don’t want to let debts go unpaid, they take the first priority. But once those are paid off you should distribute any of the company’s remaining assets to shareholders, investors, and co-founders based on the percentage they own the business.
- Close Accounts: Bank accounts are the most obvious type of account that needs to be closed. But there are also tax accounts, accounts on record with suppliers, and any number of unique accounts depending on the business and requirements of the company.
These may sound like time-consuming steps. That’s because they are. However, they are necessary. A business attorney may be able to help speed up the process by offering a helping hand and their knowledge of the process.
How Long Does it Take to Dissolve a Corporation in Ontario?
The process can be a little difficult to determine exactly how long it will take. The longest part of dissolving a corporation is often the work that comes before the actual filing for dissolution. For example, contacting shareholders and distributing assets could take only a couple of weeks for a smaller company but it could take months for a larger one that has many different agreements to consider. In general, it’s always better to assume it will take longer. A typical dissolution tends to take between a month to three months, so it’s always best to assume it will take you three months.
Should I Work With a Business Attorney?
Working with an attorney is recommended. There are many legal considerations you need to keep in mind. End up making the wrong move and it could cost you. It’s best to work with a professional business lawyer that’ll ensure you do everything by the book.