KerrLaw Logo JAMES D. L. KERR
TO:           Business Clients FROM:   James D.L. Kerr Lawyer
            17 – 151 Merton St.
, Ont., M4S 1A7
            Tel 416 485-4254
            Fax 416 485-8836

            Certified Specialist Civil Litigation
DATE:      November 1, 2007

Where a corporation has ceased to carry on its business or has otherwise outlived its usefulness, the shareholders may wish to terminate the corporation’s existence if for no other reason than to eliminate the cost and effort of filing annual tax and corporation returns. Terminating the existence of an Ontario corporation that is not insolvent is governed by Part XVI of the Ontario Business Corporations Act (the “Act”). Different laws apply to winding up insolvent corporations.

 Shareholders may voluntarily terminate its existence either by a “winding up” or a “dissolution”.  The principal distinction between dissolution and winding-up is the identity of the person or persons who carry out the steps required to terminate a corporation’s existence. A dissolution is handled by the existing management of the corporation. A winding-up is managed by a liquidator appointed solely for that purpose.

 Dissolution is considerably easier than winding up – see below. A winding-up, however, has advantages over a voluntary dissolution when it is desirable to remove control of the liquidation from the directors and officers of the corporation, to attempt to limit further actions against the corporation or limit further execution against its assets, or to insert the liquidator as a more neutral party than the existing management to try to reach accommodations with creditors.

Prior to dissolution, the corporation must, firstly, pay off or settle its debts, obligations or liabilities and, secondly, distribute any surplus to its shareholders. If any of its creditors cannot be found, the corporation may provide for its debts, obligations or liabilities to such persons by making a payment to the Public Trustee equal to the amount of the debt due to the creditor. If any debts, obligations or liabilities are not paid off, the unpaid creditors must consent to the dissolution.

Procedure for Dissolution:

To dissolve a corporation, the procedure under the Act is as follows:

  1. Shareholder Special Resolution: The shareholders pass a “special resolution” requiring the corporation to be dissolved. A special resolution is a resolution that is passed by a 2/3’s majority.

  2. Articles of Dissolution: File Articles of Dissolution in duplicate with the Ontario government Companies and Personal Property Security Branch.

  3. Corp Tax Consent: A letter consenting to the dissolution from the Corporations Tax Branch, Ministry of Finance, bearing an original signature must be submitted with the Articles of Dissolution to the Branch within 60 days of issuance of the letter.

  4. Covering Letter and Filing Fee: The Articles of Dissolution and Corp Tax letter must be accompanied by a covering letter giving a contact name, return address and telephone number and a filing fee of $25.00.

  5. Canada Revenue Agency (formerly “Revenue Canada”): The consent of CRA to the dissolution should also be obtained, even though it is not required in order to obtain a certificate of dissolution under the Act. Failure to obtain an appropriate certificate from CRA may result in the directors and officers of the corporation being held personally liable for the payment of amounts owing by the corporation under the Income Tax Act to the extent of the value of property distributed by the corporation by virtue of the dissolution.

Procedure for Winding Up:

To wind up an Ontario corporation, the procedure under the Act is as follows:

  1. Shareholder Special Resolution: The shareholders pass a “special resolution” requiring the corporation to be dissolved. A special resolution is a resolution that is passed by a 2/3’s majority.

  2. Appointment of Liquidator: At the same time, the shareholders must appoint one or more persons to act as liquidator; the person(s) does need any special qualifications and can be a director, officer or employee of the corporation; the resolution can also fix the liquidator’s remuneration and the costs, charges and expenses of the winding up.

  3. File Notice with Director Under the Act: Within 10 days, the corporation must file a notice with the Director under the Act.

  4. Publish Notice in the Ontario Gazette: Within 20 days, the corporation must publish a notice in The Ontario Gazette.

  5. Cease Business: The corporation must cease business other than as is necessary to effect the winding up. All the powers of the directors of the corporation cease upon the appointment of a liquidator, except in so far as the liquidator may sanction the continuance of such powers.

  6. Liquidation and Distribution of Assets: The liquidator must apply the property of the corporation in satisfaction of all its debts, obligations and liabilities and, subject thereto, distributes the property rateably among the shareholders according to their rights and interests in the corporation. In distributing the property of the corporation, debts to employees of the corporation for services performed for it due at the commencement of the winding up or within one month before, not exceeding three months’ wages and vacation pay accrued for not more than twelve months, must be paid in priority to the claims of the ordinary creditors, and such employees are entitled to rank as ordinary creditors for any unpaid balance.

  7. Shareholder Meeting – Liquidator to Account to Shareholders: When the liquidation is complete, the liquidator must call a shareholders meeting and present to the shareholders at that meeting an accounting of the liquidation.

  8. File Notice and Publish in Ontario Gazette: Within 10 days after the meeting, the liquidator must file a notice with the Director under the Act stating that the meeting was held and the date of the meeting and publish a notice in The Ontario Gazette.

  9. Dissolution: On the expiration of 3 months after the date of the notice, the corporation is dissolved.


DISCLAIMER: The foregoing is not intended to be a comprehensive guide to the applicable law. General Client Memoranda and mailings from James D.L. Kerr ● Lawyer are intended to inform clients and acquaintances with respect to current issues that may be of interest to them. Memos are current to the date shown on the Memo. The law is constantly changing, however, and for that reason a Memo may not be completely accurate after it's stated date. Where circumstances warrant, the advice of a lawyer or other qualified professional should be obtained.

2007 James D.L. Kerr