We talk a lot about how to set up your business, but what happens if your company stops doing business? What is the “right way” to dissolve your corporation? If your corporation doesn’t own much, the process may seem simple — but it can still be a lot of work.
As small business accountants and advisors, we’ll help you understand the dissolution process so you can follow the proper steps along the way. Before you dissolve your corporation in Alberta, make sure you consult your lawyer and accountant.
Why dissolve your company?
Small business owners choose to end their ventures for many reasons, including:
- A change in lifestyle or retirement
- No longer needing the corporation
- A business is not profitable (and likely won’t be in the future)
Whatever the reason, the important thing to remember is that your corporation has legal rights. You need to make sure to tie up loose ends and take the right steps to officially close your business in Alberta.
What you can expect when dissolving your company
After dissolving your company, your accountant will usually have more calculations and schedules to complete than a normal year-end.
There’s a higher likelihood that the CRA will want to follow-up with you. Be ready and keep all your data and documents for seven years in case the CRA comes back asking questions.
It’s also important to understand some basic concepts about dissolution.
Bankruptcy does not equal dissolution
Bankruptcy doesn’t mean your corporation ceases to exist — and bankrupt corporations cannot apply for dissolution. You must fulfill your bankruptcy obligations before you can be discharged from bankruptcy and THEN dissolve your corporation.
It’s important to note that CRA debt owed by your corporation does not go away if you dissolve your corporation. You’re responsible for GST, payroll remittances and corporate income tax even if you dissolve your corporation.
Can you accidentally dissolve your corporation?
Each year, you need to file a corporate annual return for your company with the provincial registries. It’s similar to registering your car each year — this tells the registries your company is still active. The deadline for filing your return each year is the anniversary of incorporation.
Note: If you’re 30 months late in filing this corporate annual return, your corporation will automatically be dissolved by the registries. When this happens, you have two options. You can revive your corporation, or let it die. (But you’ll still be responsible for the final tax returns for the corporation.)
Don’t close your corporate bank account (yet)
If you’re expecting any cheques or payments to come in, you need your corporate bank account to deposit them. Also, if you’re expecting a tax refund after you file the final GST or corporate tax returns, you’ll need your corporate bank account to deposit the money.
Because of these reasons, you should wait until you’ve received your notice of assessment (up to six months after you file your final tax return) to shut down your bank account.
The corporation’s assets do not belong to you
Your corporation is a completely separate legal entity from you personally. The cash and the assets it owns do not belong to you, even though you own the corporation.
For example, if the company bought a $5,000 treadmill desk and then dissolves, it doesn’t mean you get that treadmill desk automatically. This asset was paid for with pre-tax dollars, and the government is aware of the opportunities that exist for corporate assets being used for personal benefit.
This scenario can be applied to vehicles, computers and cash. You’ll need to assign a value to and dispose of all the assets on the corporation’s balance sheet (or Schedule 8 of the T2 return). This will normally include equipment, vehicles, computers and furniture.
How to prepare your corporation for dissolution
Before you can dissolve your corporation in Alberta, you need to make sure the corporation owns no assets and has no liabilities. The corporation cannot own or owe anything when it dissolves — those assets and obligations need to be transferred to the shareholders. Here’s what you need to do to prepare your corporation for dissolution:
- Dispose of all assets on the books of the corporation. You can sell them to yourself or someone else. When you sell them, you need to show proceeds of disposition, which will have positive or negative tax implications depending on how the proceeds of disposition compare to the tax base (undepreciated capital cost, or UCC) and the actual cost of the asset.
- Pay all outstanding bills, loans, credit cards, taxes, etc.
- Keep enough cash in the bank to pay legal, accounting and final tax bills.
- Extract excess cash. Repay any shareholder loans and take what’s left (if any) as a dividend.
Keep in mind that you might personally owe tax if you received assets from the corporation, even if you didn’t get any cash to help pay that tax. This is referred to as a deemed dividend.
How to officially dissolve a corporation in Alberta
Once your corporation is prepared for dissolution, here is how to officially dissolve it:
- The lawyer prepares a shareholder resolution authorizing the dissolution of the corporation.
- The owner files the Articles of Dissolution with Alberta Registries and pays the fee.
- The owner or accountant closes your GST account and payroll account.
- The accountant files the final corporate tax return and GST return.
- The owner pays any final balances owing (if any).
- The accountant files any final T4 slips for any employees.
- The accountant files a T5 slip for the deemed dividend, if applicable.
Once you have received all notices of assessment from the final corporate tax return, payroll and GST accounts, you should be good to close the company bank account and any other accounts that are in the corporate name.
For more information on how to file your Articles of Dissolution form for your company, see our blog.
How to revive your corporation in Alberta
Decide you want to give your business another shot? Assuming you had a direct relationship with the corporation when it was dissolved or were affected financially or legally by the dissolution, you can revive the corporation.
You must revive your corporation within five years after dissolution. If your business was dissolved more than three years ago, you’ll need to provide an Alberta Name Search Report from the NUANS database to see if any corporations have been created with a similar name.
You can download the forms (Articles of Revival, Notice of Address, Notice of Directors, Annual Return) from the Alberta Registries website. You will also need to pay a fee. Once you have a Certificate of Revival, you’re ready to reopen your CRA accounts and get the ball rolling.
If you have questions about dissolving a corporation, please reach out to us — we’re always here to help! Check out our blog for other Small Business Basics topics that may be helpful to you and your business.
