Shareholders And Dissolved Companies

Published: 28th November 2016
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Copyright (c) 2014 Mark Shapiro

Dissolved corporations cease to (legally and/or properly) exist, and the effect it will have on its shareholders depends on the way the corporation was dissolved.

One of my many judgment articles: I'm a Judgment Broker, not a lawyer, and this article is my opinion based on my experiences in California, please consult with a lawyer when you require legal advice.

Bypassing bad financial results to the the company shareholders, depends mostly on proper and quick dissolution of the corporation, that can be accomplished using either voluntary, involuntary, or suspending procedures.

Voluntary Dissolution can be the case if a company is no longer serving its purposes. If the corporation is voluntarily dissolved and its remaining assets get distributed to the shareholders, without paying all its corporate debts, shareholders might become liable for the debts. When this should happen, the shareholders should think about quickly and voluntarily dissolve the company, to avoid further expenses. It requires three steps:

1) Filing with the state, the correct documents.

2) Winding up the business's operations. An important prerequisite to winding up the business operations is by resolving all the outstanding debts and claims, and fees and taxes owed to government agencies.

3) Selling off any remaining corporate assets and giving the assets, if any, to all shareholdersby how many shares they own. Even with a voluntary dissolution of the corporation, it might have an adverse effect on all shareholders, particularly when the business operations are not completely concluded.

State laws usually provide for a period of time after a corporate dissolution, so that creditors can sue shareholders for failing to pay the corporate debt and/or wrongfully distributing company assets. For example, California has a 4-year time limits for such claims, and Delaware has a three-year time limits.

Usually, a shareholder's liability for all debts of a company is only the amount the company already distributed previously to them. However, payroll and tax debts might result in the shareholder owing more, especially if the shareholder was formerly an officer or director in the company.

Involuntary Dissolution is when a company gets a court order instructing them to dissolve, when a least one of the company's shareholders files a lawsuit asking for a dissolution. One example of the way that situation might occur is when the communication between one or more shareholders is hostile and prevents operation of the business.

An involuntary dissolution can be financially negative for all shareholders. Besides incurring legal fees and court costs for the lawsuit, liquifying the corporation's assets with a court-endorsed auction will most likely cause the assets that are left to be auctioned off for a steep discount.

When the corporation is involuntarily dissolved either administratively by the state, or by the court, the shareholders might still incur additional liabilities and expenses.

In certain states, a corporation may be dissolved administratively if it fails to fulfill with all state filing or tax requirements. For example, most states can dissolve a corporation when the company does not file their annual report. This kind of dissolution means that the company ceases to exist, and sometimes without the shareholders' knowing.

In administratively dissolved company situations, negative results can happen, including all shareholders might become personally responsible for all liabilities and debts from the continuing operations of the company's business.

The IRS treats dissolutions as being an asset distribution to the shareholders; even if the assets aren't liquid, and despite the fact that the shareholders did not want to dissolve the company and make the distribution. This can cause tax problems the shareholders.

When a corporation is suspended, someone, maybe the shareholders, will then have to properly close the company. Shareholders might have additional liabilities when they do not take all steps necessary for dissolving the corporation, to avoid future annual filing fees and paying fees to the state.

In some states, for example, California, do not administratively dissolve companies for not making these filings and payments, the company becomes suspended, but still exists.

In California, a suspended company stills exists and needs to maintain their yearly obligations, that will continue to accrue with penalties and interest every year that goes by without dissolution articles being filed. Shareholders won't be able to file any corporate articles unless all prior fees, penalties, and/or interest charges are paid.


Mark D. Shapiro - Judgment Referral Expert - - where Judgments go and are quickly Collected! Bypassing bad financial results for the shareholders, depends mostly on proper and quick dissolution of the corporation, that can be accomplished with either involuntary, voluntary, or suspending procedures.

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