Terminating Corporate Existence

Chapter 12

Introduction

• Businesses terminate for a wide variety of reasons, but when a corporation seeks to end its legal existence, there are special rules with which it must comply.

Perpetual Existence of Corporations

• In most situations, corporations do not exist for a set time period. Instead, corporations can exist for centuries, long outliving the individuals who created them.

Perpetual Existence of Corporations

• When the corporation does cease to exist, the corporate charter, the articles of incorporation, and any other document related to the corporation’s existence cease to have any legal significance.

Dissolving a Corporation

• Dissolving a corporation can take months or even years.

• During this time, all of the corporation’s assets will be distributed to creditors and shareholders.

Dissolving a Corporation

• Shareholders must agree, usually by simple majority vote, to dissolve the corporation.

Dissolving a Corporation

• When a corporation is considering dissolution, it must notify its creditors of its intention.

Dissolving a Corporation

• Statutes require that creditors receive higher priority than corporate shareholders when it comes to distributing assets. In fact, only after all corporate creditors are paid will shareholders be entitled to receive any remaining corporate assets.

Dissolving a Corporation

• For corporations that function in several different states, which state has authority to dissolve the corporate structure? The answer is in whatever state the corporation is domiciled.

Liquidation of Corporate Assets

• The purpose of liquidating a corporation is to distribute all of the company’s assets to those individuals and businesses that have claims against the corporation.

Liquidation of Corporate Assets

• Priority is an important issue when it comes to liquidating corporate assets. When we say that someone has priority, it means that he or she has the right to receive payment before others.

Liquidation of Corporate Assets

• Shareholders are entitled to whatever corporate assets are left over after corporate creditors have been paid.

“Winding Up” Corporate Affairs

• Liquidation and winding up are two terms closely intertwined. Liquidation refers to the process of divesting all corporate assets while winding up refers to the process of concluding all corporate business.