Dissolution is the legal termination of a corporation, that is, the end of the existence of a corporation. There are a number of reasons for wanting to dissolve a nonprofit corporation. Perhaps the goals of the organization have been reached and it is no longer useful, or perhaps the members are simply no longer interested in pursuing the corporation’s mission. No matter the reason, there are steps to be followed.
Dissolving a Nonprofit Corporation
The rules for dissolving a corporation are found in the law under which it was created. In the case of federal nonprofit corporations, the applicable law is the Canada Not-for-profit Corporations Act. In the case of a corporation created under a provincial law, the steps to follow are similar but not exactly the same, and are detailed in the applicable provincial legislation. The dissolution process begins with the corporation’s members who must approve the dissolution by way of a special resolution. If the corporation does not have members, then the directors can pass a resolution to authorize its dissolution. The dissolution process then proceeds in one of two ways:If the corporation has no property or liabilities, it can immediately apply to Corporations Canada for a certificate of dissolution. If the corporation owns property and has liabilities, it must first be liquidated, which means its liabilities must all be paid and its remaining assets be distributed in accordance with its articles of incorporation and the law. If a corporation wants to notify the public that it is no longer carrying on business and is in the process of liquidation with an eventual dissolution, it can apply for a Certificate of Intent to Dissolve. When such a certificate is issued, the corporation must cease all of its activities and only proceed to its liquidation, including giving notice to its creditors of its intentions. To complete the dissolution, the company must obtain a Certificate of Dissolution from Corporations Canada. To do so, it must file Form 4017 Articles of Dissolution. There is no filing fee.
Restrictions on the Distribution of Property
During the liquidation process that is essential to the dissolution of the corporation, the distribution of property by certain nonprofit corporations is subject to important restrictions. Namely, corporations that qualify as registered charities and soliciting corporations, for example, those that are publicly funded, cannot distribute their assets to their members. They must distribute them only to qualified donees, as that term is defined in the Income Tax Act. Failure to do so can result in serious penalties and personal liabilities for the directors or anyone else who authorizes such an asset distribution. All other corporations have no restrictions on how the remaining property of the corporation is distributed on liquidation. For example, the property could be distributed among the members, as long as all of the company’s creditors have been paid in full.