Spotlight On: Dissolving and Reviving Your Corporation

Here’s what to consider if a dissolution may be on your horizon, and what to do to get a dissolved company back

Sometimes corporations are formed but cease being useful, or the business for which they were incorporated doesn’t move forward. Dissolution, which is the process of terminating a company’s existence, may be the right answer.

In the case of wholly-owned or closely-held private corporations with no significant liabilities or property that become inactive, the two main options are either to voluntarily dissolve the corporation (where the dissolution is initiated by the company’s stakeholders), or to allow the corporation to eventually be involuntarily dissolved (where the dissolution is initiated by a corporate regulator).

Once a corporation is dissolved, whether voluntarily or involuntarily, the corporation ceases to exist. The process of bringing a company back to life is called “revival” – but corporations may be revived only under specific circumstances.

Stakeholders (including incorporators, shareholders and directors) of a private corporation who are contemplating either dissolution or revival should be sure to get tax advice early on, as both courses of action can have tax consequences. Resolving issues after a dissolution has been completed can be complex.

Voluntary Dissolution

How and Why it Happens

A corporation can voluntarily apply to its government regulator to be dissolved. For corporations incorporated under the Canada Business Corporations Act (CBCA), the applicable regulator is Corporations Canada; for corporations incorporated under Ontario’s Business Corporations Act (OBCA) this is the Ministry of Government and Consumer Services.

Voluntary dissolution offers the benefits of being able to control the timing and process of the dissolution, and may avoid the need to file further annual returns and tax returns for a dormant company. Get tax advice on any applicable deadlines.

Process and Considerations

Voluntarily dissolving your corporation involves a number of steps and required approvals. If the corporation has not commenced business and shares have never been issued, the incorporators or directors can authorize the dissolution. However, if shares have been issued, you must get shareholder approval by a written resolution signed by 100% of the shareholders or by 66 ²/₃ of the votes cast at a meeting of shareholders. If your corporation becomes inactive you should be sure to maintain current contact information for all directors and shareholders to facilitate getting their approvals.

A corporation can be dissolved only once its liabilities have been discharged and its property has been distributed.  With a voluntary dissolution, the  shareholders would pass a resolution authorizing the directors to discharge any liabilities of the corporation and distribute any remaining property. If the corporation has known or unknown creditors, they will need to be dealt with prior to dissolution.

Whether the corporation is an Ontario or federal company, its minute book will need to be up-to-date in order for it to be dissolved. This includes all corporate annual return filings as well as (in the case of federal corporations) filings related to the register of individuals with significant control. See our blog about maintaining your minute book for more details.

        Tax Considerations and Timing

A key consideration of the dissolution process is timing. For Ontario corporations, once articles of dissolution are submitted to the Ministry, a request is automatically submitted to the Ontario Ministry of Finance to obtain its consent to the dissolution (which is typically only granted if the company is in good standing with the Ministry and up to date on its provincial taxes). While it is common for the Ministry to provide consent within 5-7 business days (assuming the company is in good standing), the Ministry can take up to 30 business days to grant its consent.

While there is no similar Ministry consent requirement for federal companies, it is still important to confirm that the corporation is in compliance with all tax statutes, including provincial and federal. Be sure to discuss your dissolution plans with your tax advisor well in advance.

Involuntary Dissolution

How and Why it Happens

In an involuntary dissolution, the stakeholders allow the corporation to be dissolved by the government regulator. While involuntary dissolution can involve less up-front labour, one of the most significant considerations in proceeding this way is that the timing and process of the dissolution is no longer within the stakeholders’ control. The government regulator may take months or years to initiate the dissolution process, and the corporation and its directors and shareholders will continue to have compliance obligations and may be exposed to potential liabilities in the meantime.

For example, the CRA may require your corporation to file annual tax returns in the period prior to involuntary dissolution, and the time and cost of preparing and filing those tax returns may exceed the time and cost to have voluntarily dissolved the corporation earlier.

Prolonging the existence of a corporation also provides time for other potential liabilities to arise and misunderstandings to occur. For example, stakeholders may expect the corporation to take certain actions such as holding annual meetings, or may make representations about the corporation to others.

Process and Considerations – CBCA 

Under the CBCA, the Director of Corporations Canada can issue a certificate of dissolution in any of the following three circumstances:

• The corporation has not carried on business for three years;
• The corporation is in default in filing any document required to be filed under the Act for one year; or
• The corporation has no directors, or all of the directors have resigned.

The first step in the process of involuntary dissolution generally involves the Director sending a notice to the corporation and to each director, using the addresses it has on file (an important reason to keep such addresses up to date).  The Director must give at least 120 days’ notice of intent to dissolve a company, and must also publish notice of that decision in a public bulletin.

Upon the expiry of that period, the Director may issue a certificate of dissolution.

Process and Considerations – OBCA 

Under the OBCA, dissolution may be ordered by the Director appointed to administer the Act where “sufficient cause” is shown.  “Sufficient cause” includes the following circumstances:

• The corporation has no directors;
• At least 25% of a corporation’s directors (or at least one director, if the corporation has fewer than four directors) are not resident Canadians; or
• The corporation has failed to comply with a filing requirement.

A company can also be dissolved for failure to file its tax returns.  Public companies can be dissolved for failure to file financial statements.

The Ontario government may either send a notice to the corporation, or publish its intent to dissolve the corporation in The Ontario Gazette unless the corporation remedies its default within 90 days.  If no remediation occurs, the Director may make an order cancelling the company’s certificate of incorporation.

Revival

A dissolved corporation may be brought “back to life” through a process known as revival. Where a corporation is revived, it is generally restored to its previous legal position as if it had not been dissolved, and regains all of its rights, liabilities, and obligations.  Any assets vesting in the Crown on dissolution may be returned to the corporation, or if property has been disposed of, a payment of money equal to the value realized by the Crown from the disposition may be made to the corporation.  A corporation is also liable for all acts taken while it was dissolved.

Revival is not always possible (for example, timing limitations may apply), and can be an arduous process.  It also may require government consents to be provided, and the fulfillment of any filings and returns that were not previously completed.  The corporation may no longer be able to use its original name if another company acquired it in the interim period.

Depending on the reason for the corporation being dissolved, revival may also require other consents or steps to be taken. Before dissolving your corporation or allowing it to be dissolved, if there is a possibility you may wish to make use of it in the future you should weigh the time and cost of revival against the time and cost of maintaining an inactive corporation.

Process – CBCA

A CBCA company that has been dissolved may be revived at any time on application by any “interested person”, which includes a shareholder, director, officer, employee or creditor of the dissolved corporation.  The application process involves filing articles of revival together with a NUANS name report confirming the availability of the company’s proposed name, and paying a fee.

Process – OBCA

An OBCA corporation that was involuntarily dissolved may be revived within 20 years by the submission of articles of revival together with all outstanding notices and returns (and the payment of any accompanying fees) required of the corporation.  As with the CBCA, a name search report and fee are also required, and in some circumstances the consent of the Minister of Finance may be necessary.

An OBCA corporation that was dissolved voluntarily, or which was involuntarily dissolved more than 20 years previously, may only be revived by a special act of the Ontario legislature.

Property forfeited to the Crown may not be returned if it has been more than three years since the date of dissolution.

Key Take-Aways for Directors of Corporations Considering Dissolution

Directors of a corporation that is considering dissolution, whether voluntary or involuntary, should keep a few things in mind:

• Get tax advice on the best course of action and any applicable timing considerations. A corporation’s tax filing responsibilities often do not end on dissolution: make sure to keep in touch with your tax advisor even after the company has been dissolved.
• Ensure that the corporation is paying its statutory liabilities, such as payroll source deductions and other taxes. Directors can have personal liability for certain unpaid taxes, even after a corporation is dissolved.
• If D&O insurance coverage is in place, ensure that the coverage is adequate for your needs and that premiums are being paid.
• Consider any actual or potential proceedings. Dissolution does not extinguish any action or proceeding commenced by or against the corporation prior to dissolution, nor prevent any action or proceeding that may be brought by or against the corporation following dissolution, subject to certain limitations.
• Ensure that financial recordkeeping and reporting systems are in order, and keep records of reports prepared by professional advisors.
• Ensure that the corporation’s minute books and registered office filings are up to date so that the right people receive any notices sent by the government, whether by mail or through the official email address of the corporation (it’s worth double-checking that the email address on file with the government is correct).
• Remember that directors owe a fiduciary duty to their corporation at all times, even while the company is inactive. Consider whether that affects any other activities you are engaging in, or gives rise to any conflicts of interest. For more information about directors’ duties, see our blog.
• Finally, consider whether and when to resign. Note that while resignation may help limit the scope of your liability for certain obligations of the corporation, if there are no directors left and you are managing the business and affairs of the corporation, you may be deemed to be a director even if you have formally resigned.