Winding Down Your Business? Here's a Checklist of Steps You Need to Take.
Have you reached a point with your business where it's no longer desirable or feasible to continue operations? So many businesses, large and small, have faced that decision during the COVID-19 pandemic. It's very difficult to consider walking away from something that you have built with your own equity, sweat, love and passion.
But if you have reached that crossroads and there is no hope of selling it and no family members or employees willing to take it over, then your only other course of action may be to shut it down, liquidate the assets, and pay your creditors.
Dissolution (Termination) of the Corporate Body
If your business entity is incorporated, it must be dissolved in order to terminate its existence and end its obligations with respect to corporate records and governance, tax filings and other ongoing legal requirements. You can only dissolve the company after all of its property has been sold or distributed and all of its debts and liabilities have been dealt with. However, in Canada you can start the dissolution process while you're still carrying on business by filing a Certificate of Intent to Dissolve.
Once you have done this, you can only operate to the extent necessary to complete the liquidation and dissolution of the company, but you do have an opportunity to change your mind during this period.
Each U.S. state and Canadian province has its own requirements for dissolving a corporation, but the procedures in all jurisdictions are generally very much the same:
- The principals (owners) of the company must approve the dissolution.
- The business' creditors must be notified and their claims settled.
- All income, sales and other taxes that are due or coming due must be paid.
- All remaining assets must be distributed to the principals in accordance with the by-laws and the terms of the shareholder agreement (if applicable).
- The paperwork required by each of the relevant government authorities must be filed.
Checklist for Winding Up
- Review your corporate Articles (Charter) and By-laws to make sure you follow the correct procedure for the dissolution.
- Talk to your lawyer and your accountant about the legal and tax implications of winding up the business.
- Notify all of the business creditors about the impending dissolution.
- Notify your customers that the business is being wound up, and collect all outstanding receivables.
- Pay your employees for salary and overtime, unpaid expense accounts and unused holiday time, as required by law.
- Cancel all utility and service accounts, subscriptions, memberships, etc.
- File all final tax returns, pay all taxes, remittances and withholdings.
- Cancel all permits, licenses, business name, trade name and domain name registrations.
- Pay the balance of outstanding loans, mortgages, lines of credit and other debts.
- Close the business bank accounts and merchant accounts, and cancel any corporate credit cards.
- Close the business' tax accounts, payroll accounts and similar accounts, and cancel your business registration.
- You'll probably need to retain your business records for a certain period of time after the company is wound up. The principals will need to agree on where and with whom those records will be kept, and who will be responsible for destroying them when the time comes.
- Distribute the remaining assets in accordance with the bylaws, articles and shareholder agreement.
- If you've sold any business assets prior to the dissolution, file any required tax elections or other forms with respect to the sale.
If all of the above seems too overwhelming, talk to your accountant or consult a lawyer who has experience in winding up companies. These professionals can help walk you through the process and ensure that all legal requirements are met, the loose ends are tied up and nothing falls through the cracks.
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