Businesses don’t last forever. The process of closing your business should be managed carefully, whether it involves selling, dissolving, or even facing bankruptcy.
No matter what your exit strategy, there are a number of steps you have to complete to legally end your involvement in the business. Almost everything you did to open your business needs to be re-examined to make sure you’ve ended it properly. Your responsibilities include:
- Legal and financial obligations of closing a business
- Closing GST/HST, corporate income tax, and payroll accounts
- Dissolving a legal entity in Alberta
- Ending your insurance
- Completing your final year of taxes
- Closing your WCB account
- Closing any business licensing accounts
- Closing your bank accounts
- And more
Check the business startup checklist and make sure that you’ve closed all the accounts and ended all the agreements you opened when you started your business.
Managing Business Bankruptcy
Bankruptcy should be your last resort. If you cannot pay off your debts any other way, bankruptcy may be your only option.
What is Bankruptcy?
Bankruptcy is a legal process that can forgive your personal or company debts if you are unable to pay them.
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
If you own a corporation, you cannot be held personally liable for the debts of your business. But declaring bankruptcy isn’t a free pass—it will still affect your credit rating and make it harder to get a loan in the future.
Types of Bankruptcy
There are three different types of bankruptcy, according to the Canada Revenue Agency:
- Voluntary Assignment: Insolvent persons voluntarily assign all of their assets for the general benefit of their creditors.
- Involuntary Assignment: A creditor files a petition in a provincial court for a receiving order against the debtor’s assets, known as being petitioned into bankruptcy.
- Deemed Bankruptcy: A debtor, who has started the insolvency process, has failed to meet the requirements for filing a Division I proposal in bankruptcy under the Bankruptcy and Insolvency Act or has failed to adhere to the provisions provided within the proposal after it has been filed and accepted by the creditors/court.
What to Do When You Need to Declare Bankruptcy
Find A Licensed Insolvency Trustee
Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses with debt problems and can help you make informed choices to deal with financial difficulties.
Explore Other Alternatives to Bankruptcy
Before you formally declare bankruptcy, work with your LIT to find out if you can satisfy your debts by any other means.
Money Mentors, an Alberta not-for-profit organization, offers credit counselling to help you explore alternative options to bankruptcy. They can also help you start an Orderly Payment of Debts debt management program to consolidate your debts, lower your interest rates, and stop collection calls.
Understand the Process for Declaring and Managing Bankruptcy
Your LIT will work with you to fill out all the necessary forms to declare bankruptcy. From then on, your LIT will handle all communication with your creditors (the people you owe money to).
There are a number of steps you must complete once you formally declare bankruptcy, including:
- Your LIT will sell all of your assets to help repay your debts
- You must attend two financial counselling sessions
- You may be required to make surplus income payments
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.
How to Sell Your Business
There are many ways to sell your business, depending on your strategy and goals:
- Convincing your competitors to buy you out
- Using business brokers to find you a buyer
- Contacting industry consolidators
- Presenting yourself as a potential acquisition target
Optimize Your Selling Price by Increasing Your Business’ Value
You can optimize your business’ selling price by doing everything you can to increase its value before it goes on the market. Yet another reason to start planning for a sale ahead of time.
Increase your business’ value by:
- Keeping retained earnings on your balance sheet (net income that hasn’t been distributed to owners or shareholders)
- Boost sales and lower expenses wherever possible
- Develop repeatable, teachable processes that new owners can adopt easily
Understand the Financial and Tax Implications of Selling Your Business
You have a number of financial and tax obligations you may have to take care of before you can sell your business:
- Cancelling your business number
- Closing your GST/HST account
- Closing your payroll account
- Contacting the tax services office
- And more
Succession Planning: New Ownership for Your Business
Ending your business is the last thing most entrepreneurs want to think about, 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.
Your Succession Options
Find the exit strategy that’s the best fit for your business and situation. Three common options for exiting a business are:
- Passing the business on to a successor
- Having managers or employees take over ownership
- Selling the business to a third party
Your Succession Plan Should Include:
- Definition of the distribution of ownership
- Profile of the new leader or leaders
- How the new leaders will be trained for their roles
- Definition of key roles of the business during the transition
- Mechanics for the change of ownership of the business
- Taxation and legal considerations
- Financial considerations
- Retirement considerations
- Procedure for monitoring the process and dealing with disputes and problems