Closing a business is never a pleasant or easy task. Whether you are closing for financial, professional or personal reasons, the decision has significant ramifications. It’s vital to follow the correct administrative procedures to notify the relevant government agencies that you are ceasing your business activities.
In this article, the experts at T2inc offer their best advice to guide you through this complex process.
Reporting and justifying the closure of your business
In order to officially close your business, you will need to report the closure and the reasons behind it. There are different procedures to follow depending on the manner of closure: cessation of activities, dissolution, bankruptcy or liquidation.
The first step is to declare the closure to the provincial (Registre des Entreprises in Quebec) or federal government agency that you originally registered your business with. Government registers distinguish between the types of closure listed above. Here are the administrative procedures to follow to inform them of the conditions of your closure and settle any final fees.
Cessation of activities
If a company decides to cease its activities, it must immediately apply to have its GST and QST registration cancelled. It must also cancel any other consumption taxes it is registered for. If the company fails to do so, it may incur charges despite no longer earning income from its activities.
Depending on the industry, the company may also need to inform the relevant authorities by filing an update form or simply writing a letter containing the new information.
Dissolution
To dissolve a company, at least two-thirds of the shareholders must vote in favour of dissolution, or the board of directors or sole shareholder of the company must decide to do so. They must then submit a request to the Registre des Entreprises using the déclaration d’intention de dissolution et demande de dissolution form.
Liquidation
If a company is liquidating, it will need to file a notice of liquidation and a notice of closure of liquidation. These administrative documents serve to justify the steps you are taking to fulfill your final obligations and dispose of your assets. The notice of liquidation can be submitted electronically through the CRA’s online service. It’s advisable to ensure that the company being liquidated is still registered when the notice is submitted. Liquidating a company is subject to different obligations than selling a business.
Bankruptcy
Bankruptcy is a particularly complex case that is handled differently depending on whether the business in question is a legal entity or a sole proprietorship. Due to the legal business structure of a sole proprietorship, there is no distinction between professional and personal assets. Therefore, the bankruptcy of a sole proprietorship inevitably leads to personal bankruptcy.
We strongly recommend enlisting the services of lawyers and tax experts to help you close your bankrupt company. T2inc.ca’s accountants and tax specialists are eminently qualified to help you determine exact status of your business so that you can easily formalize your closure. Our discreet, serious team will work in your best interests so that you don’t get bogged down in administrative details and can focus on new horizons.
In addition to informing the authorities of your company’s bankruptcy, you’ll need to notify your customers, employees and suppliers. You’ll also need to think of other formalities such as resolving your corporate banking situation, which will help you cease your activities and avoid unpleasant financial surprises.
Tax requirements when closing a business
As a Canadian company, you are required to pay federal and provincial taxes based on your activity. Of course, your tax obligations cease as soon as you close your business, but you must inform them of the closure for the change to take effect.
Income tax collected by the CRA and Revenu Québec
Once you are completely up to date with your federal and provincial taxes, (once your last notices of assessment have been processed and you have no overdue taxes or outstanding debts), you can proceed to closing your business dealings with the CRA and Revenu Québec.
You will need to fill out separate forms to terminate your tax ID number with each agency. Note that business closure forms should not be filled out if your company is merging. A merger is a different situation than a company truly ceasing its activities.
When it comes to Revenu Québec, the procedure for closing a business can differ depending on the reason for the closure. Find out more online or get help from a qualified tax specialist.
Sales tax
While your business was operational, it paid taxes to the government. Now that you are closing your business, these payments will need to stop. As mentioned above, you’ll need to cancel your GST and QST registration and any other taxes your business was subject to while operational.
Once again, depending on the nature and scope of your business, it’s a good idea to check with Revenu Québec or get help from a tax expert.
T2inc can help you close your business
When closing your business, it’s important to be diligent and thorough in order to ensure that you don’t forget any steps. You need to make absolutely sure that no debts or administrative tasks are left when you finally cease your activities. If you want professional support to ensure that no detail is left behind, feel free to contact us. Our corporate tax specialists in Montreal have years of experience guiding business owners through the process of closing their company.
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
