Shutting down your business
We love to focus on profit and business growth. But sometimes (for all sorts of reasons) we still need to shut down a business. This needs to be done and planned well. It will take several months and the steps will vary based on location and situation. The following steps are designed for a Canadian incorporated business, but the general steps may be similar in other locations as well.
- Cease Trading. It's important to have all operations completed. If you’re still accepting orders or doing the odd job this will stretch out this process. Make sure that your website reflects your non-trading status (we recently had a government department challenge the non-trading request because the website still showed the client as being active).
- DO NOT close your bank accounts or move all your cash to your personal account yet. This will complicate things and may get you in trouble. If your liabilities exceed your bank balance, owners SHOULD NOT take any funds from the business. We recommend leaving some cash as there are always unexpected things to pay and taxes to file.
- Sell all remaining equipment (remember that these will be PST/GSTable Sales). If you will be keeping any assets for personal use these need to be treated as sales (and PST/GST paid).
- Collect all receivables and liquidate all your assets to cash.
- Pay all debts and loans (apart from those to shareholders - this happens last).
- Close your Payroll, PST/GST accounts once all accounts have been paid (we don't recommend closing this too soon just in case you have a late bill that you can get the GST back on - if you close the GST account too early you will not be able to get back all Input Tax Credits). This will include filing any final returns and T-slips that may be necessary in that period.
- Draft final accounts and tax returns. We recommend that you have at least one financial year-end between ceasing trading and actually dissolving the corporation.
- Make final shareholder distributions. These need to be planned properly and may need legal advice. Repayment of Shareholder loans and distribution of retained earnings and share capital all can have tax implications for you as the owner. If you’re a Sole Proprietor (not incorporated) then the residual assets are yours to keep.
- If incorporated, File Articles of Dissolution with your incorporating jurisdiction (federal or provincial). Please note that if you have residual liabilities you can not simply dissolve the corporation - you will need to go through a legal liquidation or receivership process. Please note that both dissolution and liquidation/receivership processes are legal proceedings, not accounting ones. Having debts forgiven may have tax consequences.
- File your final tax return up to the date of dissolution (yes, this is still required). If you are a Sole Proprietor (not incorporated) then you will have to report any residual taxable activity on your next personal tax return.
- Close all remaining government accounts and your bank account. Most Provinces will automatically notify CRA once your corporation is dissolved and your CRA business accounts will automatically be closed on that date, but in some cases (or if you are a Sole Proprietor) we will need to manually close your remaining accounts with CRA. Other accounts such as provincial health tax, workers compensation, etc.
There is usually little to be gained by rushing these steps. Every time a client has rushed them things have got complicated and created more work.
We recommend that you talk to your accountant BEFORE starting these steps. Shutting down a business can have significant tax implications and these should be well planned. This is especially true if you sell your business (or the business operations within the company). You should be talking to your accountant before you start to look for a buyer to ensure that you have the best tax plan in place.
Transferring your business from a Sole Proprietorship to a corporation (or vice versa) also has significant tax consequences, so again, talk to your accountant BEFORE you begin. Moving between provinces (either you or the business) is less complicated, but could still have issues that you should discuss with your accountant (and any international move is significantly more complicated).