Corporate Windups
by Lake from Bookkeeping Essentials
(Northern BC)
Research Results On Corporate Windups
Winding up a corporation through corporate dissolution creates a deemed dividend for its shareholders. This also applies if the company was struck from the corporate registry. If done properly, you can eliminate or at least defer tax.
This is one area where you should not "do-it-yourself". Speak with your tax accountant!
In some provinces lawyers are the only ones who can handle certain types of transactions like Articles of Dissolution ... with rules prohibiting other professionals to act as lawyer.
So bookkeepers, tread carefully here. Find out the laws in your province.
A mistake can have negative consequences for yourself and for your client. Have your clients hire a lawyer experienced in corporate windups ... or a CA firm that has tax specialists who specialize in tax windups with access to a legal department.
I have come across two articles on dissolution of a corporation I thought to pass along.
FIRST ARTICLE -- Dissolution of a Corporation-How do you "Close" your Corporation?
A white paper titled Dissolution of a Corporation
How do you "Close" your Corporation? explains the steps that must be done.
This paper talks more about the legal aspects and not the accounting aspects of winding up a corporation.
You can locate the paper at www.nebs.ca/pdf/legal/Dissolution_Corporation.pdf
SECOND ARTICLE -- Winding Up A Corporation
The second article I found is by JA Smith & Associates INC, CGA written in December 2009. It explains the tax consequences of a windup and some of your options.
You can locate the article at www.jasmith.com/winding-up-a-corporation .
Corporation Dissolution - Final Transactions
by Alex
(Vancouver)
Hopefully visitors to the site who have experience with dissolving a corporation will be able to respond to this post.
I probably could find answers somewhere else, but I really like this site.
The major part is pretty much done: fixed assets and inventory are sold; liabilities are paid.
The only things remaining are petty cash, cash in the bank and retained earnings.
I need to somehow distribute all these between two shareholders (50/50 common shares).
What are the proper bookkeping entries I need to make in the Quickbooks?
Many thanks.
Hello Alex,
I'm delighted that you like my site! :0)
With regards the bookkeeping entries for dissolution of a corporation ... I think you need personal, professional advice from a CA or CGA.
The reason I say this is because I think there could be tax issues with regards retained dividends on hand and paid up capital ... capital dividend account and its affect on capital gains. Both of these allow for tax free distributions. It could be costly tax wise if it isn't done properly.
In addition, I have only had to book entries of this type once ten years ago ... and I had the help of a CA.
I am hoping other bookkeepers / accountants visiting this site will be able to provide you a more comprehensive response.
Click here to read or post comments
Winding Up a Corporation
by Robert
(Toronto, ON Canada)
How To Remove Funds From a Corporation
I own a small corporation, with a partner, as a side venture. The business has pretty much run its course and we will most likely wind it down shortly.
My question pertains to roughly $20,000 still sitting in the account. My plan was to give ourselves $10,000 each and then turn around and purchase RRSP's with the funds. How would all of this be recorded - both on the corporation side and the personal side?
I know on the personal side its income but under what "category" for instance ...
Any help would be greatly appreciated!
Robert, winding up a corporation and removing the funds can be a COMPLEX matter.
I think you need to seek a consultation with a chartered accountant to determine if you can, in fact, remove any or all of the funds tax free, or if tax must be paid on any or all of the funds removed.
There are no "do-overs" with these types of transactions, so you have to do it properly the first time.
P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.