Does it matter if the seller’s corporation is not in good standing?

Good standing is shorthand for a corporation that has kept its filings current and still exists in law. The label varies by registry. A late filing is a nuisance. A dissolution means the company you are buying from, or buying, may no longer legally exist, which is why it matters to a buyer before any money moves.

How a corporation falls out of good standing

Every federal corporation must file an annual return each year, and Corporations Canada says filing it avoids potential administrative dissolution. Corporations Canada can also dissolve a corporation on its own initiative where it has been in default of required filings for a period, has no directors, or has not carried on business. It must give notice to the corporation and each director first. A company incorporated provincially answers to its own province’s registry instead.

What dissolution does to the deal

Under the Canada Business Corporations Act, a dissolved corporation ceases to exist on the date shown in its certificate of dissolution. In a share purchase you would be buying shares in a company that no longer exists. In an asset purchase the seller may not be able to sign the agreement or deliver good title. Claims can still be brought against a dissolved corporation for a period afterwards, so its debts do not simply vanish.

How revival changes the picture

Any interested person may apply to the Director to revive a dissolved federal corporation, and the Director may require reasonable conditions to be met first. On revival, subject to any terms the Director sets and to rights others acquired after dissolution, the corporation is restored to its previous position in law, and legal actions taken between dissolution and revival are valid. It is also liable for the obligations it would have had if it had never been dissolved, including those arising during the gap. Revival cures the existence problem without cleaning up the history.

Questions to put to the seller

• What status does the registry show today, and since what date?
• Which filings or fees are missing, and who will bring them up to date?
• If the corporation was dissolved, has revival been applied for, and on what conditions?
• Do the contracts, licences and bank accounts being sold sit in this corporation’s name?