Closing a BC Company: Voluntary Dissolution Step by Step

Owners close companies for many reasons: retirement, an asset sale that leaves an empty shell, or a business that never got going. Whatever the reason, a company that simply stops filing does not disappear cleanly.

BC's Business Corporations Act sets out a voluntary dissolution process for companies that have wound up their affairs. Done in the right order, it closes the company on the public record and limits the loose ends that can follow you afterwards.

Dissolution or liquidation?

The Business Corporations Act offers two voluntary routes:

• Voluntary dissolution without liquidation. For a company that has already dealt with its assets and its debts. It is the simpler route, and the focus of this article.
• Voluntary liquidation. Requires a special resolution and the appointment of a qualified liquidator, who then manages the winding up. It may suit companies with significant assets, many creditors or disputed claims.

If you are still deciding whether to wind down at all, our article on exit options when you retire from your business compares a wind-down with a sale or family transfer.

Step 1: wind up the business

Under section 314, a company may apply for voluntary dissolution only if it has no assets, and either has no liabilities or has made adequate provision for paying each of them. That means the practical work comes first:

• Contracts and leases. End or assign them, and get releases where you can.
• Employees. Deal with final pay, records of employment and any termination obligations.
• Assets. Sell or distribute equipment, inventory, vehicles, intellectual property and the bank balance.
• Debts. Pay creditors, or make adequate provision for them.

If a creditor or shareholder cannot be found, section 315 sets out what to do before applying. After reasonable efforts to find them, the company can pay the amount under a court order or, once it has gone unpaid for at least six months, pay it to the administrator under the Unclaimed Property Act. That discharges the company for the amount paid.

Step 2: deal with CRA before distributing property

Tax needs attention before any money goes out. Subsection 159(2) of the Income Tax Act requires a legal representative of a taxpayer to obtain a clearance certificate before distributing property under their control. CRA's information circular IC82-6 says anyone winding up a corporation's affairs can fall within that term, including a director or officer in a voluntary dissolution, and that you should get a clearance certificate before distributing corporate property.

The consequence of skipping it is personal. Under subsection 159(3), a legal representative who distributes property without a certificate is personally liable for the unpaid amounts, up to the value of the property distributed. The circular explains that the request is made on Form TX19 and that a T2 corporation's request includes the resolution to dissolve and the notice of assessment for the final return, so the final T2 return comes first. Speak with your accountant early about timing.

Step 3: distribute what is left to the shareholders

Once debts are paid or provided for and the tax position is settled, remaining assets can go to the shareholders according to their share rights. Check the articles and any shareholders' agreement for the order of entitlement between share classes, and keep a record of every distribution. As explained below, those records may matter for two years after dissolution.

Step 4: the resolution and the director's affidavit

Section 314 requires the dissolution to be authorized by an ordinary resolution of the shareholders. A company that has never issued shares may instead act by directors' resolution.

Under section 316, a director must swear an affidavit stating that the dissolution was properly authorized, that the company has no assets, and that it has no liabilities or has made adequate provision for each of them. The affidavit is kept in the company's records office; the application filed with the registrar states that it has been obtained and deposited. Our article on the BC company minute book explains what the records office holds.

Step 5: file the application and close the accounts

The application for dissolution is filed with the registrar through BC Registries. BC Registries' information package says the company must be in good standing when the application is filed, so overdue annual reports need to be brought up to date first. Our article on the annual report due date explains that filing.

Under section 317, the company is dissolved when the application is filed, or on a later date it specifies. The application names the person who will keep the company's records after dissolution, and the registrar then issues a certificate of dissolution and publishes notice of it.

After dissolution, CRA says to check Form RC145 to see whether you need to file it to close program accounts, and to send CRA a copy of the articles of dissolution. If CRA is not told, it treats the corporation as still existing and expects it to keep filing returns.

What survives dissolution

Dissolution is not a clean slate:

• Undistributed assets. Under section 344, any asset left in the company vests in the government, and land in BC escheats to the government.
• Lawsuits. Under section 346, a proceeding started before dissolution can continue, and a new one can be brought against the company within two years after dissolution.
• Personal liability. Section 347 says the liability of each director, officer and shareholder continues as if the company had not been dissolved, subject to limits in the Act.
• Shareholders who received assets. Under section 348, a shareholder who received company assets in connection with the dissolution can be made liable to a creditor, up to the value received, if added to a proceeding within two years.

The Act also has a process for restoring a dissolved company, but it takes time and is no substitute for doing the dissolution properly.

Closing your company? Get the order of steps right

Our business lawyers can map the wind-down, prepare the resolutions and director's affidavit, coordinate with your accountant on CRA clearance, and file the dissolution.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.