Closing or Selling Your Business - A Succession Plan Info-Guide

This guide is designed to help navigate through federal and provincial government programs, services and resources that may be of interest to those planning or in the process of closing down an enterprise in Ontario.

TABLE OF CONTENTS

1. Introduction
2. Selling Your Business
3. Closing Your Business
4. Dissolving Your Business Accounts
5. Succession Planning
6. Dissolving a Corporation
7. Other Resources 

1. Introduction

Throughout the life of a business there are many changes that can happen, one of the most important is the decision to no longer continue with your organization. Once you have decided that you will no longer be responsible for a business there are some choices to make, whether you plan on selling the business, passing it along to family member or partner, or just closing the business down outright. This info guide will point you towards some of the more common issues and concerns that an entrepreneur faces when their business is in transition.

For further information:
please call 1-800-567-2345 or 416-775-3456

2. Selling Your Business

When it's time to sell the business

The sale of a private business is usually a unique event in the life of a business owner. Selling a company built on hope and hard work can create a sense of loss. Therefore, it is not always easy for the owner to decide whether a sale is the correct course. A methodical analysis can help you reach a decision.

The process should begin with an overview of the most common reasons why businesses are sold. The primary motivations for sale are:

• desire for personal liquidity;
• need of expansion capital;
• partial sale;
• anxiety caused by personal liability and unreasonable risks;
• age and health; and
• need for a change.

For further information:
see the document: Selling a Business

Evaluating Your Business' Worth

The selling prices of similar businesses in your area should provide you with an indication of what you can expect to receive. Do note that we are looking at selling price not asking price: typically, small businesses sell for significantly less than the asking price. Sophisticated buyers might evaluate your business on the basis of projected cash flow for the next few years. They will then discount the value of that cash flow to reflect the amount of risk inherent in the business and the importance of their personal efforts in maintaining the success of the business.

For further information:
visit the web site: What’s your business worth?

10 Steps to a Successful Sale

Selecting Professional Services

The use of professional services is essential to a successful closing or sale of a small business. Professionals can provide knowledge and expertise in the areas where you may have little.
Professional services often used by entrepreneurs may include:

• lawyer;
• insurance broker;
• accountant; and
• banker.

Lawyers can be especially helpful. There are two areas where it is strongly suggested that you consult a lawyer when selling a business:

• when you prepare a document summarizing your business for potential buyers: if the business turns out to be less successful or easy to run than anticipated, the new buyer may assume that the business was fraudulently represented. A lawyer can review your document to avoid the risk of litigation; and
• when you prepare a purchase and sales agreement: you should have a lawyer review, if not actually prepare the purchase and sales agreement.

How do you find a lawyer?

First, try to identify the areas of law in which your problems fall so that you can find a lawyer capable with dealing with the specific area. Some of the main areas of legal practice linked to business are:

• Company / commercial / securities law;
• Labour / employment law;
• Civil litigation law;
• Real Estate law; and
• Wills and estates.

For further information:
please call 416-947-3300 or 1-800-268-8326
visit the web site:  The Law Society of Upper Canada
see the document: Selecting Professional Services

A real estate agent can also be a great help to you through the process of selling your business, for a listing of agents in Ontario please see the  Real Estate Council of Ontario - RECO  for a directory of agents in the Ontario region.

3. Closing Your Business

Another option for a business owner is to close down the business outright, and while this may be a shorter process than a sale of your business there are still a variety of steps and regulations involved in the process.

If you decide to close your business, or have already closed your business, you need to advise the Ministry of Revenue immediately. You will be required to file a final return and pay any outstanding tax amounts.

Bankruptcy

These are the three types of bankruptcy:

• Voluntary Assignment;
• Involuntary Assignment; and
• Deemed Bankruptcy.

Office of the Superintendent of Bankruptcy Canada (OSB) helps to ensure that estates in bankruptcy, commercial re-organizations, consumer proposals and receiverships are administered in a fair and orderly manner.

Business owners must upon declaring bankruptcy send copies of the court issued Assignment in Bankruptcy, the Bankruptcy Notice, or correspondence entitled First Meeting of Creditors to your a tax services office.

For further information:
visit these web sites:
Bankruptcy
Ontario Tax Office Locations

Note: Usually, the Business Number of a bankrupt client will be closed after discharge. For more information on Business Numbers, see the document Business Number - BN.

4. Dissolving Your Accounts

Once you have sold or closed your business you must now begin the process of dissolving your business accounts. For business owners, there are a variety of services that can help you through this process.

Each business account has its own procedures (remitting and filing obligations) and forms that need to be completed:

• Payroll;
• T4 slips and T4 Summaries;
• Deregistering your GST/HST accounts;
• Deregistering your EHT number; and
• Requests to close your Business Number accounts.

The Canada Revenue Agency (CRA) has services for business owners that can help them through the process of Closing Accounts . However, in Ontario there is Change of Business Information Service (COBI+). This is a free service that allows you to inform The Ministry of Government and Consumer Services, the Ontario Ministry of Revenue, as well as the Canada Revenue Agency that you are closing your accounts.

For further information:
please call 416-314-9151 or 1-800-565-1921
visit the web site: Ontario Tax Office Locations

Retail Sales Tax

If you sell or close your business, your  Retail Sales Tax  (RST) Vendor Permit becomes void and you must return it your Ontario Ministry of Revenue Tax Office within 15 days. You may not transfer your Vendor Permit to the purchaser of your business.

When selling or closing your business, you must advise your Ministry of Revenue Tax Office in person or by telephone. You may also close your Retail Sales Tax account online through Ontario Business Connects Change of Business Information Service .

For further information:
please call 905-433-6000 or 1-800-263-7965
see the document: Vendor Permits and the Retail Sales Tax

Employers

Make sure that your employees hear about a potential sale or closing of your business from you and not a third party. Rumours breed nervousness, some of your staff might decide to seek employment elsewhere and leave immediately.

If you decide to advertise the sale or closing of your business openly, tell your employees before the advertisements run. Explain that it could take a long time to happen to eliminate employee stress. Remain truthful but emphasize the positive.

Remember that when you dismiss your employees you are bound to follow the rules and regulations of the Employment Standards Act to ensure that they are lawful dismissals.

An employer who ceases to have employees or a permanent establishment in Ontario, or who has amalgamated, should advise the Ministry of Revenue and file an Employer Health Tax Final Return within 40 days of the business closure date.

For further information:
please call 1-800-263-7965
visit these web sites:
Employer restructuring / Succession of employers and CPP/EI
SME Direct - Succession Planning

Record of Employment

The Employment Insurance Act and its Regulations require every employer to complete a Record of Employment (ROE) when an employee stops working. This is considered an interruption of earnings. This happens when the employment ends, or an employee leaves due to pregnancy, injury, illness, adoption leave, layoff, leave without pay, or dismissal. A penalty under the Employment Insurance Act for non-compliance may apply to employers who fail to issue a ROE as required. All employees are entitled to a record of employment.

For further information:
see the document: Termination of Employment & Severance Pay

5. Succession Planning

For many entrepreneurs, the term " Succession Planning " may immediately evoke the idea of passing the torch on to a family member. However, in reality, succession planning is about finding the right exit strategy when you're ready to hand your business over to somebody else. There are many different ways to define succession planning.

One approach is to think of it as a process occurring over time during which a family plans for the transfer of knowledge, skills, labour, management, control and ownership of a business between the founder (retiring) generation and the successor (next) generation.

Your succession plan should contain the following:

1. A statement of the distribution of ownership
2. The identity of the new leader or leaders
3. How the new leaders are to be trained for their roles
4. A definition of the roles of other key members of the business during the transition
5. Mechanics for the purchase or sale of stakes in business
6. Taxation and legal considerations
7. Financial considerations
8. Retirement considerations
9. A procedure for monitoring the process and dealing with disputes and problems
10. A timetable.

For further information:
visit the web site: Succession Can Breed Success

Transition Program

The Business Development Bank of Canada (BDC) makes consulting and financing solutions available under one roof to Canadian entrepreneurs who, in unprecedented numbers, must plan the succession of their business. For further information, visit  Transition Planning - top questions

For further information:
visit the web site: Transition Planning

The Canadian Federation of Independent Business

The Canadian Federation of Independent Business acts as a voice for SME's in the public arena. They provide members with a variety of services and information resources. They also have a variety of publications that deal with issues of succession planning for both Agri-businesses as well as SME's in a variety of sectors.

For further information:
visit these web sites:
Business Succession Planning
Succession Can Breed Success

6. Dissolving Your Corporation

If your business has been incorporated there are some additional rules and regulations to follow. Listed below is some of the more general information for the closing and dissolution of a corporation

When a corporation is no longer active, the corporation may choose to voluntarily dissolve. In some cases, the Companies and Personal Property Security Branch may cancel a corporation (involuntary dissolution).

A corporation may be involuntarily dissolved for various reasons:

• the Director of the  Companies and Personal Property Security Branch  may cancel the corporation if notified by the Ministry of Revenue that the corporation is in default in complying with the provisions of the Corporations Tax Act ;
• the corporation may be cancelled if the Director of the Companies and Personal Property Security Branch is notified by the Ontario Securities Commission that the corporation has not complied with Sections 77 and 78 of the Securities Act ; or
• the corporation fails to comply with a filing requirement under the Corporations Information Act or fails to pay a fee required under this Act.

In order to voluntarily dissolve an active Ontario business corporation, the following documentation must be submitted to the Companies and Personal Property Security Branch:

• Articles of Dissolution;
• Letter consenting to the dissolution from the Corporations Tax Branch, Ministry of Revenue, must be submitted with the Articles of Dissolution to the Branch within 60 days of issuance;
• Covering letter giving a contact name, return address and telephone number; and
• Fee of $25.00.

For further information:
visit these web sites:
Corporations
Dissolving a Corporation
see these documents:
Voluntary Dissolution of Ontario Business Corporations
Involuntary Dissolution of Ontario Business Corporations

7.  Other Resources

ebiz.enable

IT succession planning: Have you started yet?

Planning for Succession: CEO Perspectives (PDF - 1.19 MB)

Mapping out the future

My project: Sell a business

Selling or Closing a business

Succession Planning Resources

Succession Planning

Need more information?

Click: Canada-Ontario Business Service Centre
Call: 1-800-567-2345
Visit:  visit our  Regional Access Program Locations page to locate an office near you

---

Some of the organizations listed above are not subject to the federal Official Languages Act or the French Language Services Act of Ontario. Their services may not be available in both official languages.

---

• Selling a Business
• Succession Planning
• List of Fact Sheets
• Problems in Managing a Family-Owned Business
• Business Guides

DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

Links Policy
Some of the hypertext links lead to non-federal government sites which are not subject to the Official Languages Act and the material is available in one language only.