Dissolution formalities

5 myths about stock corporations
May 9, 2024

The dissolution of a company corporation signifies the end of its existence. There are a number of formalities to be complied with in order to authorize the dissolution of a company in Quebec and Canada. The rules are similar for companies incorporated in Ontario.

By consent of the directors

When the corporation (under Quebec law) has no obligations (debts), no assets and no shareholders, the Board of Directors may decide to dissolve it by simple resolution. For federal corporations, directors may dissolve the corporation only if it has not issued any shares, i.e. before it begins operations.

By consent of shareholders

If it is not possible to dissolve by consent of the Board of Directors, then shareholder consent is required. For Quebec companies, a special resolution (i.e. two-thirds of the votes) is required. For federal corporations, the rules are stricter: a special resolution is required for each class of shares, whether or not they carry voting rights.

Non-binding liquidation

In general, smaller companies want to avoid the cumbersome formalities involved in winding up a company. Instead of liquidation, shareholders can authorize the Board of Directors to pay or settle the company's debts and distribute the remaining assets among the shareholders. For provincial corporations, this authorization is given by special resolution of the shareholders entitled to participate (fully or not) in the distribution of the remaining assets, whether or not they are entitled to vote. At the federal level, a special resolution by class of shares is required.

For provincial companies, there is a simplified regime that allows the sole shareholder to dissolve the company and personally "transfer" the company's obligations and assets to himself. It is vital to ensure that the company has no obligations when opting for this dissolution regime, as the sole shareholder will be personally liable for them if they do.

Declaration or dissolution clauses

Once consent to dissolution has been given, debts paid and remaining assets divided (if any), a director or officer of the company must sign a declaration of dissolution (federal dissolution clauses) and forward it to the appropriate authority. A certificate of dissolution is then issued, indicating the date of dissolution.

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