Can an Ontario incorporated business owner collect EI if the business closes?

Employment insurance is a federal program. An owner-manager who controls more than 40% of the voting shares of the corporation is excluded from insurable employment under the Employment Insurance Act. This means EI premiums paid on salary by the owner-manager and the corporation are not required, and the owner-manager cannot collect EI benefits if the business shuts down or they leave.

Some owner-managers choose to waive EI contributions, reducing cash outflows for both the corporation and the individual. Others prefer to maintain EI coverage if they hold less than 40% of the shares and their employment is otherwise arm's-length. The rules around what constitutes insurable employment for a shareholder-employee are specific and depend on share ownership, control, and whether the employment terms are substantially similar to what would exist in an arm's-length relationship.

If you are incorporating and want EI coverage as a backstop, structuring share ownership and control to stay below the 40% threshold can preserve insurability, but this has significant corporate governance implications. The decision to opt in or out of EI is often made at incorporation — review it carefully with a lawyer before filing.