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Need to kill your corporation? Here's 4-1/2 ways.

Some years ago, Paul Simon wrote the song "50 ways to leave your lover". As in love, so in business: sometimes you have to get rid of your own corporation. It won't leave; so you have to do something to it.

I'm not talking about killing your business -- about running it into the ground, deliberately or unintentionally. There's certainly 50 ways to do that. And no doubt, there's more than 50 ways. Enron itself probably added another dozen, just by itself.

What I'm talking about in this post are the legal ways in which to put a BC company to death. Here they are:

Don't File Annual Filings or Other Documents

First, the most common way is not to file, for two years, the required "annual report" or any other document that your company should have filed. If you have a BC company and don't file an annual report within 60 days of the anniversary of incorporation, for two years running, or if your company is supposed to file another document (such as a notice of change of directors), the British Columbia Corporate Registry will strike your company from the Register of Companies.

You don't have to worry about them striking your company the day after the filing period for the second annual report expires. The dissolution process takes a few months longer than the two years from the date an annual report was last filed (or from the date of incorporation if you never filed an annual report to begin with). But you can expect to lose your company by about the 2-1/2 year mark.

The benefit of dissolving your company this way is that it's free.

Voluntary Dissolution

The second way to kill your company is to ask that it be voluntarily dissolved. The benefit of this method is that it gives you control over the date of dissolution. For example, perhaps you neeed to coincide with a financial year-end. Or perhaps you don't want to wait for the Corporate Registry to get around to dissolving the company for non-filing.

Compared to the first method, with this second method you actually have to do some work: the shareholders (or directors, if there are no shares issued) have to authorize the voluntary dissolution, and the directors have to pay off all of the creditors of the company and then distribute the net assets of the company to the shareholders. (As to the debts, it is allowed that the directors make provision for payment of the company's debts, if it's going to take awhile to pay them, or if the amount of the debt is unknown (for example, calculating what the company owes on its final income tax or GST return). If you can't find a creditor or shareholder, the company can send a suitable amount of payment to the government to be dealt with under the Unclaimed Property Act. Sometimes a court order is involved for these unlocated creditors or shareholders.

Once that preparatory work is done, a director swears an affidavit which must be filed in the records office of the company and the request for voluntary dissolution must be filed at the Corporate Registry.

Voluntary Liquidation

Where the affairs of the company are too complex for the simple voluntary dissolution procedure to work, the Business Corporations Act provides for "voluntary liquidation". This is a complicated procedure that is invoked when the shareholders pass a special resolution to undergo voluntary liquidation. A liquidator, who must meet certain qualifications, is then appointed by the shareholders. The company must pay the liquidator an amount negotiated between the company and the liquidator. The liquidator is empowered to call in the assets of the company, pay or settle all the liabilities of the company, and then distribute any net assets to the shareholders. The liquidator takes over the powers of the directors and officers of the company during the liquidation.

This method of killing your company is costly and time-consuming. You wouldn't use it unless your company was of a fairly significant size.

Court-Ordered Liquidation

Sometimes a dispute arises between shareholders or directors of a company and the only suitable resolution to that dispute is for the court to kill the corporation through court-ordered liquidation. In this method, the court appoints a liquidator (usually a bankruptcy or accounting firm) for the company. The powers and duties of the liquidator are similar to those of a liquidator in the voluntary liquidation method, but in this case, the liquidator has to report to the court during and on completion of the liquidation.

Because you're looking at litigation in this method, it is terribly expensive and time-consuming, in addition to taking place in an atmosphere of contention.

Effect of Dissolution

You can kill a company, but what does that actually mean? Here's what you need to know:
 

  • On dissolution, a company ceases to exist for all purposes. That is, the company is dead. It can't file tax returns or buy or sell anthing.
  • On dissolution, any undistributed assets of the company, whether land or personal property, immediately become the property of the BC government.
  • Dissolution does not affect any lawsuit that the company is involved in before dissolution. As long as the lawsuit started before dissolution, it can be continued against the company as if the company had not dissolved.
  • And, unfortunately, after dissolution, the liabilities of any director, officer, shareholder or liquidator of a company continue and can be enforced as if the company had not dissolved. This allows, for example, directors to be sued for not paying withholding taxes on employees.
  • Shareholders who received assets of the company can be held liable for the value of those assets at the date of receiving those assets. If a lawsuit is involved, the shareholder who received assets must be added to that lawsuit within two years of the date the company was dissolved.
  • The records of the dissolved company must be kept by the person in charge of the company's records office (or other specified persons) and that person may have to file a notice with the Corporate Registry.

 

Corporate Resurrection

If your company is dissolved in any manner, all is not lost. A dissolved company can be "restored" to the Register of Companies. I won't go through all the details here. In BC, the cost of restoration is about the same as the cost of incorporating a new company. You must apply to restore your dissolved company within 10 years of dissolution. We'll have to cover the details in another post.

 

I can't kill my company! Amalgamation as an Option

I mention this last method, amalgamation of two or more companies, as method 4-1/2, because this one doesn't result in the company ceasing to exist. Instead, the companies who are amalgamating will all continue to exist, but in one big "continuing corporation" or "amalgamated corporation" instead of having separate existence. Picture two streams joining to make one river.

Amalgamation of companies means that the individual pre-amalgamation companies both continue to exist, but now they're joined. The continuing company may have the same or different share structure or name of any of the pre-amalgamation companies.

Amalgamation can be fairly straightforward in simple situations, but it does require at least one other company. If you only have the one company, amalgamation won't work.

There are some other details you'll want to know about amalgamation, but I'll put them in a separate post.

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Comments

nice very informative. When you amalgamate, what happens to your debts or any outstanding law suites?
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