At Ownr, we help people start their businesses, but it’s true that sometimes folks need to move on from what they’ve started. Perhaps they’ve incorporated, but never really got your business off the ground, or maybe the business is no longer viable. It can be a change in interests, or maybe the business owner is retiring and doesn’t have a succession plan. Whatever the reason, business owners sometimes find themselves in the position of wanting to close up shop.
If you’re in this situation and your business is incorporated, you have the option to dissolve it. However, there are some good reasons to keep your corporation, even if you’re closing down your current business.
Dissolving a corporation is a legal process in which the corporation, as a legal entity, ceases to exist. An inactive corporation may just sound like a corporation that isn’t currently being used, but in legal terms, it refers to a corporation that has ceased business operations but continues to exist as a legal entity.
While there is some upkeep involved in maintaining an inactive corporation, such as continuing to file your annual return and tax return even if you aren’t generating revenue, but there are some real benefits to consider.
How do I decide if I should dissolve my corporation?
Choosing whether to dissolve the corporation or maintain it will ultimately come down to a couple of factors.
If you’re planning to start a new business or make some other pivot in your career, it might make sense to keep the corporation—you can change the name and use it for your new business. This saves you the time and money involved in incorporating a new business. There could also be tax implications to dissolving immediately rather than maintaining your current corporation—it’s best to consult an accountant for a full picture of tax implications.
If you aren’t planning on being in business again and don’t want to deal with the responsibility of keeping up with your annual filing requirements, the better choice for you may be to dissolve the corporation.
How do I Dissolve a corporation?
The Government of Canada’s guide to dissolving a corporation states that a corporation can apply to be dissolved once it has no property or liabilities. This could mean outstanding debt, loan repayment obligations, or land and office space owned by the corporation.
Before you can dissolve your corporation, you must first go through a voluntary liquidation process that is approved by directors and shareholders. In short, the directors and shareholders need to agree on a plan to sell any property and pay back any liabilities. Once all property and liabilities are dealt with, the dissolution process is quite simple and straightforward.
Your corporation’s shareholders will have to pass a resolution approving the dissolution of the company. Dissolution resolutions will typically need to be prepared by a lawyer.Once all property and liabilities are liquidated, you can submit your articles of dissolution to the government. Once the corporation is dissolved, a certificate of dissolution will be issued to confirm that the corporation no longer exists legally. Depending on your jurisdiction, this might be a physical or digital document. Regardless of the formatting, hold on to this document—it can be used to inform banks, creditors, and other stakeholders that your corporation is now dissolved.
Alternatives to dissolving a corporation
Closing your business doesn’t necessarily mean you have to dissolve your corporation. If you’re considering starting a new venture, maintaining your corporation can actually save you the time and money involved in setting up a brand new one.
Maintaining your existing corporation can also be beneficial if you’re applying for bank loans or other types of funding in the future. Many lenders will consider the age and history of your corporation when deciding on your eligibility.
If you’re a federal corporation, Ownr can help you amend the name of your corporation. If you don’t have a name for your next business yet, don’t worry—you can always change your existing name to a numbered corporation. You can also continue to complete your annual returns through your Ownr subscription to keep the legal status of your corporation active until you’re ready to start your next venture. Finally, there may be tax benefits to maintaining a corporation, as well as mitigated risk and liability in your future business activities. Having a corporation already in place makes it easier to jump into your next business activities while enjoying the risk protection, liability mitigation, and tax benefits of this business structure.
Can I incorporate again if I dissolve?
Yes, if you dissolve your corporation you still have the option to incorporate a new business in the future, so you can have access to all the benefits of incorporation again. However, it may be less costly to amend the name of your corporation. This is because there’s a fee associated with submitting your articles of dissolution, as well as with submitting new articles of incorporation to establish a new corporation.
A corporate business structure comes with many financial and legal benefits that can help a business grow. However, it also comes with more responsibility. If you’re winding down your business and want to maintain your corporation, it’s important to stay on top of filing your annual return and tax return. If you can commit to that, the perks of keeping your corporation may be well worth it. If you think it’s time to close down your corporation, you can do so by going through the dissolution process. If you’re ready to incorporate or register a new business, Ownr is here to help.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.