Chapter Fourteen

1. Chapter Fourteen Termination of Corporate Existence

2. Corporate Dissolution Dissolution: Termination of the legal status of an entity. • Voluntary dissolution: dissolution initiated by a corporation’s directors or shareholders

3. Articles of Dissolution • Articles of dissolution: final document filed with state effecting termination of an entity (also called certificate of dissolution) Articles generally set forth the following: • Name of the corporation • Date dissolution was authorized • That the dissolution was approved by the requisite shareholder vote (or that the corporation has not issued shares and therefore it is being dissolved by the incorporators) Slide 1 of 2

4. Articles of Dissolution In some states: • That all debts, obligations, and liabilities of the corporation have been paid or discharged or adequate provision has been made therefor; and • That the corporate assets have been distributed to the persons entitled thereto Slide 2 of 2

5. Grounds for Dissolution by the State • Any of the following: • Failing to pay taxes or file annual reports • Failing to have a registered agent for some period of time • Continuing to operate after the corporation’s period of duration expires • Failing to notify the state that its registered agent or office has changed • Procuring articles of incorporation through fraud • Exceeding or abusing the authority given to the corporation by the state

6. Liquidation • Liquidation: process of collecting assets, paying debts, and distributing remains to business owners (also called winding up) • Collecting assets • Disposing of properties that will not be distributed to shareholders • Discharging liabilities or making provisions for discharging liabilities • Distributing the remaining property to the shareholders according to their respective interests

7. Key Features of Corporate Dissolution and Liquidation • Corporations may dissolve voluntarily (usually by action of the directors, which is then approved by shareholders), administratively (for technical defaults such as failure to pay taxes), or involuntarily (by action by the state, shareholders, or creditors). • Dissolution usually refers to termination of the corporate entity, whereas liquidation refers to termination of the corporation’s business and affairs. • If dissolution is voluntary, articles of dissolution will be filed with the state. If dissolution is involuntary, a court will enter a decree of dissolution. Slide 1 of 4

8. Key Features of Corporate Dissolution and Liquidation • An administrative dissolution may be initiated by the state for technical reasons (such as failing to pay taxes). A corporation that is dissolved for such reasons can generally apply to be reinstated. • An involuntary dissolution may be initiated by the state if the corporation exceeds state authority or has procured its articles through fraud. Reinstatement is not generally permissible in such an event. • Shareholders may initiate a dissolution, often because of director misconduct. In lieu of ordering a dissolution, a court may allow the complaining shareholder’s shares to be purchased. Slide 2 of 4

9. Key Features of Corporate Dissolution and Liquidation • Creditors may initiate a dissolution if the corporation is insolvent and their claims are undisputed. • If dissolution is voluntary, corporate management will supervise liquidation; if dissolution is involuntary, a court will supervise liquidation. • Corporations must generally notify all known claimants and instruct them to submit their claims to the corporation within a certain period of time or be barred thereafter. As to unknown claims, corporations generally publish a notice in a newspaper, and claimants may enforce their claims within three years thereafter. Slide 3 of 4

10. Key Features of Corporate Dissolution and Liquidation • During liquidation, the expenses of liquidation will be paid, creditors will be paid, and then remaining assets will be distributed to shareholders on a pro rata basis in accordance with any preferences. Slide 4 of 4