Part Nine: Dissolution and Liquidation

Question 1

What are the three types of “Dissolution”?

Answer 1

1. Voluntary Dissolution
2. Administrative Dissolution
3. Judicial Dissolution

Question 2

What are the two types of “Voluntary Dissolution”?

Answer 2

1. Dissolution by Incorporators or Initial Directors; and

2. Dissolution by Corporate Act

Question 3

Describe the rule regarding “Dissolution by Incorporators or Initial Directors.”

Answer 3

If shares have not yet been issued or business has not yet been commenced:

A majority of the incorporators or initial directors may dissolve the corporation by delivering articles of dissolution to the state.

Note: all corporate debts must be paid before dissolution, and if shares have been issued, any assets remaining after winding up must be distributed to the SH’s

Question 4

Describe the rule regarding “Dissolution by Corporate Act”.

Answer 4

The corporation may dissolve by a corporate act approved under the fundamental change procedure.

Question 5

May a claim be asserted against a dissolved corporation, even if the claim didn’t arise until after dissolution?

Answer 5

Yes.

A claim can be asserted against a dissolved corporation, even if the claim didn’t arise until after dissolution, to the extent of the corporation’s undistributed assets.

If the assets have been distributed to the SH’s, a claim can be asserted against each SH for his pro rata share of the claim, to the extent of assets distributed to him.

Question 6

How can a dissolving corporation cut short time to file known or unknown claims agains the corporation?

Answer 6

For KNOWN claims –> Corporation can limit to no less than 120 from notice by mailing to claimant a notice of dissolution and informing them of deadline for making claims.

For UNKNOWN claims –> Corporation can limit to 3 years by publishing notice of dissolution in a newspaper in the county where the corporation’s known place of business is located.

Question 7

What is the rule regarding REVOCATION of a voluntary dissolution?

Answer 7

The corporation may revoke a voluntary dissolution by using the same procedure that was used to approve the dissolution.

Question 8

What is the effect of voluntary dissolution?

Answer 8

A corporation that has been dissolved continues its corporate existence, but is not allowed to carry on any business except that which is appropriate to winding up and liquidating its affairs.

Question 9

What is an “Administrative Dissolution”?

Answer 9

The state may bring an action to administratively dissolve a corporation for reasons such as:

1. failure to pay fees/penalties;
2. failure to file annual report;
3. failure to maintain a registered agent in the state

Question 10

What is the procedure for an “Administrative Dissolution”?

Answer 10

1. State must serve corp with written notice of their failure
2. If corp doesn’t correct within 60 days, the state effectuates dissolution by signing a “Certificate of Dissolution”

Question 11

How can an “Administratively Dissolved” corporation become “Reinstated”?

Answer 11

1. A corporation that is administratively dissolved may apply for reinstatement within 2 years after the effective date of the dissolution.
2. The application must state that the grounds for dissolution didn’t exist, or have been eliminated.

Question 12

What is the effect of “reinstatement” of an “Administratively Dissolved” corporation?

Answer 12

Reinstatement relates back to the date of dissolution, and the corp may resume carrying on business as if the dissolution never occurred.

Question 13

What are the four types of “Judicial Dissolutions”?

Answer 13

1. Action by Attorney General;
2. Action by Shareholders;
3. Action by Creditors;
4. Court Supervision of Voluntary Dissolution

Question 14

What are the TWO circumstances under which the “Attorney General” can seek “Judicial Dissolution” of a corporation?

Answer 14

The attorney general may bring a judicial action to dissolve a corporation on the grounds that:

1. corporation fraudulently obtained its articles of incorporation; OR
2. corporation exceeded or abused its authority

Question 15

What are the FIVE grounds for which SHAREHOLDERS can seek a “Judicial Dissolution”?

Answer 15

1. Directors are deadlocked, SH’s are unable to break the deadlock, and irreparable injury is threatened or corporate affairs cannot be conducted bc of the deadlock; OR
2. Directors have or will act in a manner that is ILLEGAL, OPPRESSIVE, or FRAUDULENT;
3. SH’s are deadlocked in voting power, and have failed to elect one or more directors for a period that includes at least two consecutive annual meeting dates;
4. corporate assets are being wasted, misapplied, or diverted for non-corporate purposes;
5. the corporation has abandoned its business, and failed to dissolve within a reasonable time.

Question 16

With regards to an action for “Judicial Dissolution” by SHAREHOLDERS, describe the “election to purchase in lieu of dissolution.”

Answer 16

If the corporation is not public, the corporation (or one or more SH’s) may elect to purchase the shares of petitioning SH at FMV.

Question 17

When can a CREDITOR seek “Judicial Dissolution” of a corporation?

Answer 17

Creditor may seek judicial dissolution if:

1. the creditor’s claim has been reduced to judgment, execution of the judgment has been returned unsatisfied, and the corporation is insolvent; OR
2. the corporation has admitted in writing that the creditor’s claim is due the corporation is insolvent.

Question 18

What is “Court Supervision of a Voluntary Dissolution”?

Answer 18

A corporation may petition for the court to supervise its voluntary dissolution.