Winding down a Business
There are 2 prominent initiatives driving consideration of winding down a business:
- Retirement/capitalization on investment possibly via sale to a third party; or
- While still operating, a desire to reduce complexity and possibly to merge holding companies with operating companies to result in fewer tax filings and simplification of administration.
These types of initiatives frequently arise from family maturation, change in business plans or maybe even declining business.
But regardless, many enterprises have complex structures of “tiered” corporations frequently determined by Estate planning or for the purpose of segregating potential liability. The relevance of these related corporations should be seriously considered before the desire to simplify prevails over better business structure planning.
It’s natural to think of simply “shutting down”. Simple as that may seem, that will not stop government filing requirements, costs to complete tax returns and continual notices from various levels of government, sometimes rather costly as the result of the failure to file.
So we’ve counselled clients to consider amalgamations between and among holding companies and operating entities to result in just one corporation and therefore just one set of filings. Continuing a corporate existence to take advantage of corporate tax rates/income splitting and banking relationships should be considered. It is not infrequent that corporate structures have been established in a multitude of jurisdictions necessitating the bringing of a corporation from one jurisdiction (say, for example, the federal jurisdiction) into the jurisdiction of another company (say, an Ontario company).
One must also assess the effect of an amalgamation relating to liabilities. Remember that whatever were the assets and liabilities of each pre-amalgamation corporation automatically become the assets and liabilities of the post-amalgamated corporation.
There are admittedly certain savings and tax benefits, but at the same time before simply proceeding, serious consideration should also be given to the liability component of the effect of amalgamation.
We’d be pleased to assist you in your consideration.
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This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.