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How To Dissolve Your Corporation

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    How To Dissolve Your Corporation

    What does it mean to dissolve a corporation?

    dissolve a corporation

    Dissolving a corporation is to officially close the doors of your business. It completely ceases the corporation’s operations, all assets and liabilities are distributed, paid off, and settled, and all legal obligations of the company are nearly satisfied. In other words, the corporation ceases to legally exist. It can no longer own property, carry on business or enter into contracts.

    There are two types of ways to dissolve a corporation: Voluntary and Involuntary. To voluntarily dissolve a company, is for the corporation itself to apply to the applicable government to be dissolved. In contrast, a dissolution would be involuntary if the company is dissolved by force by the government for failure to maintain its annual filings, failure to comply with other legal requirements, or in accordance with a court order.

    Steps to dissolve the corporation voluntarily

    1. First, you must request permission from the directors and shareholders of the Corporation to dissolve the business. This can only be done through a meeting with the board of directors and a shareholders meeting, in which the shareholders and directors agree to legally close the business. Once the vote to dissolve the corporation has passed, both the shareholders of the corporation and the board of directors of the corporation must sign resolutions to confirm their decision to cease all operations of the business, permanently. The shareholders and board of directors must also decide on how the assets of the corporation are to be distributed and confirm all debts of the corporations have been satisfied. Both confirmations must be signed by all the shareholders and board of directors by resolution;
    2. You must notify all creditors of the dissolution of the company and the time period they have in which to claim any outstanding debts. This also acts as a notification that you can’t incur any further debts from the creditors. When you dissolve the corporation, failing to follow proper tax procedures could end in legal troubles and penalties. If there are unpaid tax debts, the government may seize assets against the payments, penalties, and interest. You may also be held legally responsible if you try to distribute assets to avoid paying final taxes. Therefore, the next step, prior to dissolving the company is to make sure all assets are distributed and debts have been paid;
    3. Once the board of directors and shareholders of the corporation has been approved and the debts of the corporation have been dealt with, the company can proceed to file articles of dissolution with the government ministry. This stage will formally and officially dissolve the corporation.
    4. Finally, even though the company has been dissolved, and you have received your stamped Articles of Dissolution, there will be one last task remaining. The Corporation must not forget file its final T2 income tax return with the Canada Revenue Agency no more than six months after the end of your corporation’s tax year.

    Things to beware of before dissolving the corporation:

    The First is regarding the Harmonized Sales Tax (“HST”), as directors are personally responsible for this. If it is not paid and the corporation is dissolved, the CRA can and will raise a personal assessment against each of the shareholders personally.

    Finally, if a corporation has carried on business and issued shares, then before dissolution, the shareholders and directors must first pay its debts, including all tax obligatory filings, and resolve or settle any lawsuits or court judgments, before it applies for voluntary dissolution, as advised above. It is wise for the corporation to obtain an Ontario tax clearance (proving they do not owe any taxes) before they apply to dissolve voluntarily. Corporations that are being sued are generally not allowed to dissolve voluntarily and therefore they are required to make a statement indicating that there are no legal proceedings against them in court or at a tribunal. If a corporation is facing a lawsuit, the party seeking to sue the corporation can apply to have the corporation revived (after dissolution), and the lawsuit can proceed in the normal manner.


    -Vida Korhani, Associate Lawyer

    Vida’s practice is focused on corporate-commercial law, including corporate reorganizations, commercial contacts, business formations, and the purchase and sale of businesses. Vida received her Juris Doctor at Windsor Law in 2018. While studying law, Vida worked at the Community Legal Aid clinic, the Windsor Review of Legal and Social Issues Journal, and the Pro Bono Students Canada Program.  Vida is a lawyer licensed to practice law by the Law Society of Ontario and is a member of the Ontario Bar Association and Canadian Bar Association.

    © Kalfa Law 2021

    The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.

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