Closing a corporation
A corporation may be closed when it is no longer needed, financially viable, or able to operate effectively.
A corporation should not just stop operating. It doesn’t end there. A corporation should be closed properly so that all its responsibilities are completed, any debts or issues are dealt with, and it can legally cease to exist.
Reasons corporations close
There may be different reasons for closing a corporation, sometimes they overlap. They include things such as:
- circumstances change and you no longer need a corporation
- there is no one who wants to keep the corporation going
- operational challenges such as the corporation has lost key contracts or funding agreements, there is less demand for the corporation’s services, inability to attract or retain key staff
- financial challenges such as the corporation not making enough money to keep going, or it
- owes money to people that it cannot afford to pay.
Alternatives to closing
If your corporation is in financial trouble and you want to keep it going, you may consider:
These activities try to resolve the corporation’s insolvency.
Closing options
The options differ depending on whether your corporation is solvent or insolvent.
These are the options for closing your corporation if it is solvent:
- voluntary deregistration – if the corporation’s assets are worth less than $1000 and you meet some other criteria
- voluntary winding up (liquidation) – if directors resolve the corporation can pay all of its debts within 12 months, the members can decide to wind up and appoint a liquidator. This is known as a members voluntary liquidation.
These are the options for closing your corporation if it is insolvent:
- voluntary winding up (liquidation) – if directors resolve the corporation is insolvent, the members can decide to wind up and appoint a liquidator. This is known as a creditors voluntary liquidation.
- court ordered winding up – a range of people can make the application based on different reasons for wanting the wind up.
The Registrar or other parties, for example a creditor (a person or entity who is owed a debt by a corporation), can also take steps in relation to the corporation. These include:
Solvency and insolvency
Solvent means that a corporation can pay its debts, as and when they fall due. Insolvent means that a corporation cannot pay its debts, as and when they fall due.
If you think your corporation is insolvent, you must take action – do not ignore it hoping things will get better.
Read more about dealing with insolvency.
Walking away is not an option
Even if your corporation has stopped conducting business, it remains a registered legal entity until it is formally deregistered. Simply ceasing business activities does not remove the corporation’s legal obligations. Until the corporation is deregistered or otherwise legally wound up, it must continue to comply with all statutory and governance requirements.
These requirements include maintaining records, preparing annual reports, ensuring director arrangements are in place, holding directors’ and annual general meetings, and being responsible for any property or assets of the corporation.
Legal duties of directors, other officers and employees
Directors are responsible for ensuring the corporation complies with its legal and regulatory obligations.
Directors have a legal duty to understand and monitor the corporation’s financial position at all times. This helps them determine whether their corporation is solvent and able to pay its debts when they fall due.
Directors must not allow the corporation to continue trading if it is insolvent. If any one of the directors authorises a transaction or makes a decision that causes the corporation to become insolvent or allows it to incur more debt while insolvent, they may be held personally liable and face legal action.
A breach of director duties, can have serious consequences, including civil penalties, criminal penalties or personal financial liability.
Under the CATSI Act, some director duties also apply to other 'officers' of the corporation, such as chief executive officers (CEO), general manager, chief financial officers (CFO), and other employees who are involved in making decisions that affect the corporation’s business.
Read more about legal duties of directors and other officers.
Fact sheet
