Amalgamations, Amendments, Dissolutions

Amalgamations, Amendments, Dissolutions

Amalgamations

Amalgamations are legal processes through which two or more corporations combine to form a single entity. This strategic restructuring can offer various benefits, including operational efficiency, tax advantages (as losses can be shifted and pooled), and enhanced competitiveness.

Typically, amalgamations involve the consolidation of assets, liabilities, and operations of the participating corporations into a newly formed entity or one of the existing corporations. Shareholders of the amalgamating corporations receive shares in the new entity or in the surviving corporation, ensuring continuity of ownership.

There are three types of amalgamations: a vertical short-form amalgamation, a horizontal short-form amalgamation or a long-form amalgamation.

1. A Vertical Short Form Amalgamation is an amalgamation of a holding company and its subsidiary and its probably the simplest of amalgamations. In this mechanism, all of the shares of the subsidiary corporation (held by the parentco) are cancelled, and the shareholders of the parentco entity are reissued their shares from amalco.
2. A Horizontal Short Form Amalgamation is an amalgamation of two or more subsidiaries of the same holding company or companies. The key here is that the common shareholders are corporations; a short form amalgamation is not permitted of sister companies whose shareholders are individuals. The idea of this amalgamation is the consolidation of subsidiaries within a corporate group.
3. A Long-Form Amalgamation is essentially every other type of amalgamation wherein the corporations may or may not be related to one another. Under a long form, an amalgamation agreement must be prepared which sets out certain the terms of the amalgamations and importantly, establishes the shares that each shareholder of its predecessor corporations will be receiving from amalco. The shareholders of all the predecessor corporations must be made whole and receive shares of equivalent value of amalco.  

Amendments

Filing articles of amendment is a crucial step for corporations when they need to make changes to their existing articles of incorporation. Filing for amendment typically occurs in one of four scenarios:

1. Change in Corporate Name: If a corporation decides to change its name, it must file articles of amendment to reflect the new name. This could be due to rebranding, mergers, acquisitions, or other strategic reasons. When filing the Articles of Amendment we must also submit an up to date NUANS name search to demonstrate that the new selected name is available for use by the corporation.
2. Change in Share Structure: Corporations may need to amend their articles to change the structure of their share capital by amending section 6 and section 7 of the articles to create or remove new classes of shares and attach new attributes to those shares. This could involve creating new classes of shares, altering the rights or privileges attached to existing shares, or increasing or decreasing the authorized share capital. This is the most common reason for filing for Articles of Amendment.
3. Change in number of Directors: If your Articles of Incorporation sets the number of directors at a fixed number as opposed to a range (say your Articles indicated that there should be two directors) and you wish to increase the board of directors to three directors, this will necessitate the filing of Articles of Amendment.
4. Change in Business Activities or Objects: This is the least common reason for filing for amendment, however if for some reason the business’s objectives are restricted in Section 5, one must file for amendment to remove these restrictions to enable different business operations.

Dissolutions

Corporate dissolution is the legal process through which a corporation is formally terminated, ceasing to exist as a legal entity. There are two types of dissolutions:

1. Voluntary Dissolution: Corporations may voluntarily choose to dissolve for various reasons, such as the completion of its business objectives, insolvency, or the decision of shareholders or directors to wind up the corporation’s affairs. Voluntary dissolution typically involves obtaining approval from the corporation’s shareholders and directors, filing dissolution documents with the appropriate government authorities, settling outstanding debts and liabilities, and distributing remaining assets to shareholders. It is important to note that a corporation may only file for dissolution where its assets exceed its liabilities. If its liabilities exceed its assets then it must file for bankruptcy.
2. Involuntary Dissolution: In some cases, corporations may be involuntarily dissolved by the Ontario Business Registry in Ontario or by Corporations Canada for federal corporations if the corporation fails to file its annual corporate return for a successive number of years. Involuntary dissolution typically involves legal proceedings initiated by government agencies, such as the revocation of the corporation’s charter. Once involuntary dissolved, the corporation can apply for Articles of Revival to revive the corporation, but must establish the reasons why it lapsed and convince the government that the delinquency will not occur a second time.

Upon dissolution, the corporation’s assets are liquidated, and the proceeds are used to settle any outstanding debts, liabilities, and expenses. Any remaining assets are distributed among the corporation’s creditors and shareholders according to their respective rights and priorities, as specified in the corporation’s governing documents and applicable laws.

Once the dissolution process is complete, the corporation’s legal existence is formally canceled, and its name is removed from the corporate register maintained by the government authorities. This effectively terminates the corporation’s rights, obligations, and legal capacity to conduct business activities. A final terminal T2 Income Tax Return should be filed to the date of the dissolution.