Why is my corporation being involuntarily dissolved?

If you’re like some of my clients, you may have received a notice from Corporations Canada or one of the Corporate Ministries in the Provinces that your business - active, thriving, in good standing with the CRA, current on its HST and payroll - is about to be voluntarily dissolved.

Why? Aren’t you doing everything correctly?

Possibly not.

It has long been the requirement that every corporation in Canada must file at least what is called an Annual Return (time and frequency based on the rules of the incorporating jurisdiction) once every year or thereabouts.

Many also require the corporation file a Notice of Change (or similar) whenever something significant occurs, such as a change in head office, hiring of a new Director or Officer, and now (with the advent of the Transparency Register in many jurisdictions) a change in significant equity ownership.

However, during the COVID pandemic - now four long years ago - many of these Ministries temporarily suspended the penalty for failing to complete these filings.

That penalty is dissolution, or the involuntary ending of a corporation. In short, the Ministry assumes that since you aren’t keeping up your filing obligations, the business isn’t operating and should therefore be dissolved.

Many people confuse filing their annul tax return with the filing of the actual Annul Return. These are not the same thing! Doing one does not fill the requirement of the other.

Involuntary dissolutions can occur at the discretion of the Ministry after a set period of time. For example, Corporations Canada can dissolve your Federal corporation after two years of non-compliance. If they send you a notice, you have 120 days to fix the problem.

Having your corporation involuntarily executed is not a great idea - even if the business isn’t active, it’s very difficult to pick up the pieces with no corporate entity to hold them. It can often require the assistance of a lawyer.

You can hire a legal professional to assist with your Annual Return each year as well for a nominal fee - consider giving this very necessary (but somewhat tedious) task off your plate to a lawyer or paralegal - and as a bonus, they will be familiar with your corporate records when it comes time to declare a dividend, sell shares or even perform an estate freeze in the future.