Dissolution is the process of properly ending a business. The dissolution process involves winding up business activities, paying off creditors, and distributing remaining assets to the business owners.
Common Dissolution Issues
There are two types of dissolution: 1. voluntary dissolution and 2. involuntary dissolution.
Voluntary dissolution takes place when the owners of a business determine there is no longer a reason for that business to continue in existence. With the proper authorizations, the right plan to wind up the business, and the correct paperwork, dissolution can be very smooth. Difficulties may arise, however, if the business owners can no longer be easily identified, if the ownership interests of each owner is not clear, or if the company’s owners have different goals and are divided on whether to dissolve or continue to operate the business.
Involuntary dissolution usually involves a substantial fight in court. There may be fights due to shareholder oppression, disagreements over the proper method to wind-up the business, or there may have been a freeze-out (when one or more owners is involuntarily excluded from business decisions and/or compensation). When an action is brought to dissolve a business, the business will sometimes elect to purchase the interests of the complaining parties. In these circumstances, the dispute turns to the valuation of the company and the process for the court to determine that value.
Handling Dissolution Issues
Voluntary dissolution is usually just a transactional process. In a voluntary dissolution, we help clients get the necessary approval, structure a plan to wind up the business, and create the necessary documents to dissolve the business.
Involuntary dissolution usually involves litigation. The standards to force the dissolution of a company vary depending on the business entity type. Generally, involuntarily dissolution requires some sort of oppression of a minority business owner, such as a freeze-out.