CHAPTER 14 CORPORATE DISSOLUTION © 2010 Delmar Cengage Learning

Corporate Dissolution VOLUNTARY DISSOLUTION Most corporate dissolutions are voluntary dissolutions approved by the board of directors and shareholders of the corporation. State statutes include simplified procedures for the incorporators or initial board of directors to dissolve a corporation before it issues any shares or commences business. © 2010 Delmar Cengage Learning

Voluntary Dissolution BOARD OF DIRECTOR AND SHAREHOLDER APPROVAL Prior to the commencement of business and issuance of shares: approval of the board of directors is required. After business has commenced and shares issued: approval of at least a majority of the shareholders is required pursuant to state statute and the corporation’s articles and bylaws. © 2010 Delmar Cengage Learning

Voluntary Dissolution ARTICLES OF DISSOLUTION AND NOTICE OF INTENT TO DISSOLVE In states following the Model Business Corporation Act: the corporation is dissolved by filing articles of dissolution with the secretary of state. In other states: a notice of dissolution must first be filed by the corporation, followed by articles of dissolution when all corporate affairs are wound up. © 2010 Delmar Cengage Learning

Voluntary Dissolution WINDING UP AND LIQUIDATION 1. Collection of assets 2. Disposition of properties that will not be distributed in kind to shareholders 3. Discharging or making provision for discharge of liabilities of the corporation 4. Distribution of remaining property among shareholders according to their interests © 2010 Delmar Cengage Learning

Voluntary Dissolution REVOCATION OF DISSOLUTION The statutes of most states provide for the revocation of a dissolution after it is authorized and before its completion. Articles of revocation or some similar document is filed with the secretary of state to revoke the dissolution. © 2010 Delmar Cengage Learning

Voluntary Dissolution NOTICE TO CREDITORS Creditors of the corporation are given notice pursuant to state statutes. Creditors must submit claims to the corporation for payment of any unpaid debt within a prescribed time period. © 2010 Delmar Cengage Learning

Voluntary Dissolution NOTICE TO UNKNOWN CLAIMANTS   In some states, a statement of the corporation’s dissolution is published to give notice to potential claimants of which the corporation is unaware. Claims submitted after the published deadline will be barred. © 2010 Delmar Cengage Learning

Involuntary Dissolution ADMINISTRATIVE DISSOLUTION State authorities may commence proceedings to dissolve a corporation for: Failure to pay income taxes. Failure to file annual reports. Failure to provide registered agent or office. © 2010 Delmar Cengage Learning

Involuntary Dissolution JUDICIAL DISSOLUTION A corporation may be dissolved by a court upon petition of: State attorney general or other state authority. Minority shareholder(s). Unsatisfied creditor(s). © 2010 Delmar Cengage Learning

Corporate Dissolution and Bankruptcies CHAPTER 7 OF THE BANKRUPTCY CODE The corporation ceases all business. Assets are liquidated and used to pay off as much debt as possible. Chapter 11 under the Bankruptcy Code provides financially troubled corporations the opportunity to reorganize their business without liquidating. © 2010 Delmar Cengage Learning

© 2010 Delmar Cengage Learning The Paralegal’s Role Draft plan of dissolution and liquidation Prepare resolutions of the board of directors and shareholders approving the dissolution Draft articles of dissolution or other documents required for filing in the state of domicile Assist with preparing notices and publishing notices to the creditors of the dissolving corporation Assist with asset liquidation by drafting deeds, assignments, and other transfer documents © 2010 Delmar Cengage Learning