Corporations under the Canada Corporations Act were required to continue under the Canada Not-for-profit Corporations Act before October 14, 2014. This process requires corporations to pass articles of continuance and file them with Corporations Canada. Corporations that have not taken these steps can be dissolved by Corporations Canada. Earlier this year Corporations Canada began issuing notices to corporations that had not continued. The notices gave these corporations a 120-day deadline to file articles of continuance, failing which the corporations would be dissolved automatically.
Any federal non-share capital corporation that has not continued should do so as soon as possible to avoid dissolution. Corporations that have not already received a notice from Corporations Canada, should expect one soon.
If a corporation has been dissolved under this procedure, it is important to understand the consequences. A dissolved corporation is no longer a legal entity. This lack of existence has repercussions.
Loss of Charitable Status
First, if the corporation is a registered charity it will lose its charitable status. The Canada Revenue Agency (“CRA”) has noted that “once a registered charity’s or registered Canadian amateur athletic association’s corporate status is dissolved, it ceases to exist as a legal entity, and the [CRA] will take steps to revoke its registration under the Income Tax Act.”
CRA will send the (former) corporation a letter stating it must provide proof that it is still a legal entity within 90 days, failing which CRA will take steps to revoke the entity’s charitable registration. In order to provide this proof, the dissolved corporation will need to obtain a certificate of revival from Corporations Canada. This process is discussed below.
A revoked charity can no longer issue official donation receipts, it no longer qualifies for an exemption from income tax and, most importantly, it must transfer all of its remaining property to an eligible donee. Failure to transfer the property results in a revocation tax equal to 100% of the charity’s net property.
Inability to Deal with Assets
Second, a dissolved corporation and its directors and officers can no longer deal with the property of the (former) corporation. As the corporation is no longer a legal entity, it no longer has directors or officers. Similarly, the dissolved corporation does not have any legal status to access its bank accounts or any other property that existed on the date it was dissolved.
Where a corporation voluntarily chooses to dissolve, it must settle liabilities and dispose of all of its assets before it winds-up. The corporation can choose to use up its assets for its activities or can transfer its assets in accordance with its dissolution clause to another entity. These actions must be completed before the corporation is dissolved.
Where a corporation is dissolved and it has not taken steps to wind-up its affairs, then the property of the corporation escheats to the government. This means that the government takes over the management of the property, and the government determines how the property will be administered. In Ontario, the property of a charity which is dissolved is administered by the Public Guardian and Trustee. This is even the case for a federally incorporated charity with assets in Ontario. Similar bodies administer charitable property in other provinces.
If a corporation has been dissolved and it wants to continue to operate or wants to distribute its assets and liabilities before dissolving, then a person, such as a director or a member, can apply to Corporations Canada for articles of revival. The government will issue a certificate of revival if there is no valid reason for refusing to issue the certificate. This will allow the corporation to become a legal entity again. It can then operate, deal with its property and retain its charitable status, if applicable.
The lawyers in Miller Thomson LLP’s Charities and Not-for-Profit group can assist people to properly dissolve or revive corporations.