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Corporations • Dissolution
CORP#061
Legal Definition
Shareholders may seek dissolution on the grounds that (1) the directors are deadlocked and irreparable injury to the corporation is threatened; (2) the directors or shareholders have acted or will act fraudulently, illegally, or with oppression; (3) the shareholders are deadlocked and failed to elect one or more directors for 2 consecutive annual meetings; or (4) corporate assets are being wasted or misapplied to non-corporate purposes.
Plain English Explanation
When a corporation is dissolved, it is terminated. It dies. This may seem like an extreme thing for shareholders to want to do to their company, but it is an option in extreme circumstances. There are 4 common circumstances that may lead shareholders to want to dissolve their corporation:
(1) Corporations have a lot of moving parts that require important decisions to be made, like which contracts to sign, which employees to hire, and which budgets to approve. If the directors of a corporation fail to work together to the point that it risks causing substantial harm to the company, then shareholders may prefer to dissolve the company and sell off its assets before the worthless directors harm its value any more than they already have.
(2) If the directors of a corporation or a decent chunk of its shareholders have decided to act crazy, or fraudulently, or super shady, the remaining shareholders may prefer to try to dissolve the company than continue participating in the circus.
(3) Similar to directors being deadlocked, it is also possible for shareholders to become deadlocked and refuse to work with one another. A corporation needs directors to operate and, if shareholders refuse to fill required vacancies for more than 2 years, the shareholders can seek to dissolve the company.
(4) If shareholders discover that assets belonging to the corporation are being wasted or misused for purposes that provide no benefit to the corporation, then it may be worth it to the shareholders to salvage what they can and have the corporation dissolved.
(1) Corporations have a lot of moving parts that require important decisions to be made, like which contracts to sign, which employees to hire, and which budgets to approve. If the directors of a corporation fail to work together to the point that it risks causing substantial harm to the company, then shareholders may prefer to dissolve the company and sell off its assets before the worthless directors harm its value any more than they already have.
(2) If the directors of a corporation or a decent chunk of its shareholders have decided to act crazy, or fraudulently, or super shady, the remaining shareholders may prefer to try to dissolve the company than continue participating in the circus.
(3) Similar to directors being deadlocked, it is also possible for shareholders to become deadlocked and refuse to work with one another. A corporation needs directors to operate and, if shareholders refuse to fill required vacancies for more than 2 years, the shareholders can seek to dissolve the company.
(4) If shareholders discover that assets belonging to the corporation are being wasted or misused for purposes that provide no benefit to the corporation, then it may be worth it to the shareholders to salvage what they can and have the corporation dissolved.
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