Not all businesses last forever. The process of closing your business should be managed carefully, whether it involves selling, dissolving, or even facing bankruptcy. Our team of experts are here to help guide you through the steps of closing your business.
How to close your business
There are many ways to close your business. Here are the three most common:
- Dissolving
Divesting your assets, property and liabilities and dissolving your company. - Bankruptcy
Organizing the wind up of the company with a trustee due to the inability to meet debt obligations. - Succession
Selling to a new buyer or passing your business on to a family member while keeping the company structure alive.
Dissolution
You may choose to close your business due to retirement or to take advantage of other opportunities. In this case, ensure you have completed all the obligations required provincially and federally to divest your company of its assets and liabilities. To learn more, review the list below and follow the links.
- Closing GST/HST, corporate income tax, and payroll accounts: when you close your business, you no longer need your business number, and must complete forms for the Canada Revenue Agency
- Dissolving a legal entity in Alberta: depending on your business structure, you will have to submit appropriate paperwork through a registry agent
- Ending your insurance: contact your insurance agency or agencies and work with them to cancel your policies
- Complete your final year of taxes: the Canada tax year is January 1 through December 31, which may not line up with your business’ fiscal year. Don’t forget to file.
- Closing your WCB account: To close your WCB account, submit the Closing Account Request Form
- Closing any business licensing accounts: you’ll have to close any accounts you opened with the municipal, provincial, and federal governments
Bankruptcy
Bankruptcy is a legal process that can forgive your personal or company debts if you are unable to pay them.
Learn about the basics of insolvency and bankruptcy from the Office of the Superintendent of Bankruptcy Canada (OSB).
Find out more about bankruptcy from the OSB.
Bankruptcy for sole proprietorships and partnerships:
If you own a sole proprietorship or partnership, you have unlimited liability for your company’s debts. Your personal assets (such as your house or vehicles) can be seized if your business cannot meet its financial obligations. Declaring bankruptcy for your business is effectively the same as declaring personal bankruptcy.
If you are an individual and your total debts do not exceed $250,000, you may also want to consider a consumer proposal. This is a formal, legally binding process that is administered by a Licensed Insolvency Trustee (LIT). The LIT will work with you to develop a plan for paying back your creditors. Learn more about consumer proposals from the OSB.
Bankruptcy for corporations:
When you incorporate a company, it generally shields you from personal liability for the company’s debts. This means that the corporation is responsible for its own debts, not the shareholders, directors, or officers. However, there are certain situations where personal liability can still be imposed:
- Personal Guarantees
- Loans and Credit: If you personally guarantee a loan or line of credit, you’re responsible if the corporation defaults.
- Unpaid Taxes
- Payroll Taxes: Directors can be liable for unpaid payroll taxes, including source deductions for income tax, CPP, and EI.
- GST/HST: Directors may also be liable for unpaid GST/HST.
- Fraud or Wrongdoing
- Fraudulent Activities: Engaging in fraud or misrepresentation can lead to personal liability.
- Negligence or Wrongdoing: Directors may be liable for wrongful or negligent acts.
- Wages and Vacation Pay
- Employee Wages: In some jurisdictions, directors can be liable for unpaid wages and vacation pay.
Succession
Selling your business:
Don’t rush into selling your business—take time to find the right buyer and arrangement. Do everything you can to increase the value of your company before you sell so you can maximize your sale price.
Succession planning—new ownership for your business:
Closing a business is the last thing most entrepreneurs want to do, but succession planning (or planning to leave your business) is important to do ahead of time. Think of succession as planning for the transfer of knowledge, skills, labour, management, control, and ownership between the founder (retiring owner) and the successor (new owner). Create a succession plan, just like you created a business plan when you started.
See our 5 Tips for Preparing Your Business For Sale.
Closing a business, whether it’s a sole proprietorship, partnership, or corporation, involves a complex process that includes settling debts, liquidating assets, terminating employee relationships, and fulfilling tax obligations. Each business structure has its own legal and financial intricacies that must be navigated carefully to ensure compliance with regulatory requirements and to minimize personal liability. Given these complexities, seeking legal advice from a lawyer or a Licensed Insolvency Trustee is crucial. These professionals provide essential guidance, helping to streamline the closure process, protect personal and corporate interests, and ensure all legal and financial obligations are met.
