Restrictions on where property goes on liquidation under the Canada Not-for-profit Corporations Act (NFP Act)
The Canada Not-for-profit Corporations Act (NFP Act) requires that the articles of a corporation must set out where property may go when the corporation liquidates. Certain restrictions apply to some corporations as to where this property may go.
What is liquidation?
When your corporation stops operating, you will need to dissolve it. Before a corporation can be dissolved, it must dispose of, or liquidate, its property. This involves:
- returning property to another person if the property was originally given to the corporation on the condition that it be returned when the corporation is to be dissolved
- paying any debt or other liabilities of the corporation
- distributing any remaining property according to the statement set out in the articles of the corporation.
What property is included?
- fixed property (e.g., land and buildings),
- movable property (e.g., office equipment, tools and cars)
- other assets such as cash, bonds and shares.
Are there restrictions on where property can go on liquidation?
Restrictions apply to certain types of corporations, namely:
- registered charities,
- soliciting corporations, and
- corporations that have received public donations and/or government grants in excess of $10,000 in a single financial year in any of the past five financial years
These types of corporations must provide in their articles that any property remaining on liquidation will be distributed to one or more qualified donees, as defined in the Income Tax Act. If the articles do not provide for such distribution, the corporation may have to get a court order before it can distribute any of its remaining property.
All other corporations have no restrictions on where the remaining property of the corporation is distributed on liquidation. For example, the property could be distributed among the members.
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