FACT PATTERN 5: FUNDAMENTAL CORPORATE CHANGE- DISSOLUTION

Question 1

What are the 2 types of dissolution?

Answer 1

1. Voluntary

2. Involuntary (by court order)

Question 2

What is required for a voluntary dissolution?

Answer 2

Board of directors action and approval by a majority of the shares entitled to vote. File notice of intent to dissolve with the Secretary of State. Corporation stays in existence to wind up. Notify creditors so they can make claims.

Question 3

Who can petition for an involuntary dissolution?

Answer 3

Shareholders and creditors

Question 4

What reasons can a SH petition for a voluntary resolution?

Answer 4

1. Director abuse, waste of assets, misconduct;
2. Director deadlock that harms the corporation; or
3. Shareholders have failed at two consecutive annual meetings to fill a vacant board position.

Question 5

As an alternative to ordering involuntary dissolution, court might do what?

Answer 5

order buyoutof the objecting shareholder

Question 6

As an alternative to ordering involuntary dissolution, court might order buyout of the objecting shareholder. When might this be especially likely?

Answer 6

In a close corporation

Question 7

Under what circumstances can a creditor petition for involuntary dissolution?

Answer 7

corporation is insolvent and

(1) he has an unsatisfied judgment or
(2) the corporation admits the debt in writing.

Question 8

Is dissolution the end of a corporation?

Answer 8

No, it is the beginning of the process of winding up the corporation.

Question 9

What does winding up consist of?

Answer 9

1. gathering all assets,
2. converting to cash,
3. pay1ing creditors, and
4. distributing remainder to shareholders, pro-rata by share unless there is a liquidation preference.

Question 10

What’s a liquidation preference?

Answer 10

It means “pay first,” (works like dividends)

Question 11

if there is a liquidation preference, where must it be listed?

Answer 11

it must be in the articles.