Dissolved Corporations And Shareholders

Copyright (c) 2014 Mark Shapiro

A dissolved corporation ceases to (legally and/or properly) exist, and what effect this has on its shareholders is dependent on the way the company became dissolved.

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

Bypassing bad financial consequences for the shareholders, requires proper and quick corporate dissolution, which may be done with either voluntary, involuntary, or suspending procedures.

Voluntary Dissolution could be the case if a company no longer serves its intended purposes. When a company is voluntarily dissolved and their assets get distributed to the shareholders, and does not pay all its company debts, shareholders may be liable for those debts. If this should happen, the shareholders should think about voluntarily and quickly dissolve the corporation, to save money. This requires three basic steps:

1) Filing with the state, the correct documents.

2) Winding up the business operations. An important prerequisite to winding up the business operations is by resolving all remaining debts and claims, including fees and taxes owed to any government agency.

3) Liquidating any corporate assets that are left and distributing them, if any, to the shareholdersby how many shares they own. Even with a voluntary corporate dissolution, it may have an adverse effect on all shareholders, especially if the business operations are not properly concluded.

State laws generally provide for a period of time after a company dissolution, for creditors to sue shareholders for not paying a company debt and/or wrongfully transferring corporate assets. As an example, California has a 4-year statute of limitation for such claims, and Delaware has a three-year time limits.

Generally, a shareholder's responsibility for any remaining debts of the corporation is limited to the amount of corporate assets distributed to them. But, payroll and tax debts might result in the shareholder owing more, particularly when the shareholder was a director or an officer in the company.

An Involuntary Dissolution is when a corporation gets a court order instructing them to dissolve, when a least one of the corporation's shareholders files a lawsuit at court asking for the dissolution. One example of the way that situation can happen is if the relationship between one or more shareholders is hostile and interferes with the company business.

Involuntary dissolutions can be negative financially for the shareholders. In addition to paying legal fees and court costs for the suit, liquidation of the company's assets using a court-ordered auction will most likely mean that the assets that are left to be sold at a sharp discount.

If the company is dissolved involuntary by the court, or administratively by the state, the shareholders might still pay more expenses and liabilities.

In some states, a company can become dissolved administratively when it fails to fulfill with all state filing or tax obligations. As an example, most states can dissolve a corporation if it does not complete its yearly report. Such a dissolution means the company ceases to exist, and sometimes with no shareholders' knowledge.

In administratively dissolved company situations, financially negative results can happen, including all shareholders might become liable for any liabilities and debts from the continuing operation of the corporation's business.

The IRS treats dissolutions as being an asset distribution to shareholders; even if those assets aren't liquid, and despite the fact that the shareholders didn't want to dissolve the corporation and make the distribution. It can create tax problems shareholders.

If a company gets suspended, someone, perhaps shareholders, will need to properly close the company. Shareholders may have more liabilities if they do not take all steps necessary for dissolving the corporation, to bypass paying fees to the state and future annual filing fees.

Within some states, such as 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 remains in existence and needs to continue with its annual responsibilities, which will keep accruing with penalties and interest each year that goes by without articles of dissolution get filed. The shareholders will not be permitted file any corporate articles until the prior penalties, fees, and interest charges are paid.

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