In the ever-changing world of business, businesses may find themselves at a point where they are contemplating shutting down. Business owners or shareholders may find themselves considering dissolution actions. One of the most critical decisions a business owner or shareholders can make is initiating a dissolution action. In this article, we discuss what a dissolution action is and some of the common causes of dissolution actions.
In simple words, a dissolution action is the legal process of formally closing a business. It entails winding down a company’s operations, settling its financial obligations, and distributing its remaining assets.
After you decide to dissolve your company, you need to file a notice of dissolution with the secretary of the state where the company was formed. In a case where a business was registered as a foreign company qualified to do business in another state, you will also need to file the necessary paperwork to cancel such qualification.
The decision to pursue a dissolution action should not be taken lightly. Dissolution actions can have several consequences for employees, creditors, and stakeholders. Before you initiate a dissolution action, take time to understand the legal, financial, and operational implications involved. An attorney can help you understand the consequences of a dissolution action.
One vital thing to note is that, before dissolving a company, you must ensure that any debts you have are paid off to the extent possible. Assets that are being used as collateral for outstanding debts can be sold to repay the debt or turned over to the institution holding the property. Second, notices must be provided to all interested parties, including owners, shareholders, creditors, employees, and customers. Notices allow interested parties to make relevant claims against the company before it is dissolved. Additionally, the board of directors and shareholders of the company must give their consent. The percentage approval required depends on the laws of the specific state. An attorney can provide you with more guidance on this.
Several things can result in the decision to pursue a dissolution action. The following are some of the main things that lead businesses to consider dissolution;
One of the most common reasons for dissolving a company is financial challenges. If a company does not generate profits, it can strain its finances and resources, resulting in dissolution. Also, mounting debts can lead to a business being dissolved.
Dissolution is sometimes pursued when the original business purpose is no longer viable or when people want to pursue new business ventures.
If a company faces regulatory issues, such as non-compliance with industry standards, the owner or shareholders may opt for dissolution to avoid legal consequences.
If partners cannot agree on crucial things, such as financial decisions and management, it can lead to the dissolution of the company.
When disputes among shareholders become challenging to resolve, dissolution may seem like the only way to prevent further damage to the company and protect shareholders’ interests.
During a merger or acquisition, it is common to decide to dissolve a subsidiary.
If you are considering initiating a dissolution action, contact our qualified business attorneys at SAC Attorneys LLP for legal guidance.