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Voluntary Dissolution of a Company

Every year, thousands of financially troubled businesses look to the bankruptcy law to find relief. There are, however, other options available to financially distressed companies looking to shutter their businesses. Depending upon the circumstances of the business, obtaining a voluntary dissolution may offer many of the same advantages of filing for bankruptcy through a process that can be simpler, less expensive, and easier to control.

The business dissolution lawyers at Rounds & Sutter have years of experience helping small businesses in California resolve their financial difficulties. Whether the optimal solution lies in filing for bankruptcy or dissolving the company depends on the nature of the company, the liabilities at issue, and the interests of the parties involved. A seasoned business debt attorney at Rounds & Sutter can help you explore your options and find your best path toward financial relief.

What is Business Dissolution?

Business dissolution is the formal process by which you officially end the existence of your corporation as a state-registered business entity, putting it beyond the reach of creditors and other claimants. Businesses can be involuntarily dissolved through a court order, or they can be voluntarily dissolved by the business owners. Corporations can be dissolved via a vote of the shareholders, partners in a partnership can elect to dissolve the businesses, and (depending upon the language in the articles of organization and operating agreement) LLCs can be dissolved by a vote of the LLC members.

Requirements for Corporate Dissolution in California

Certain legal steps must be taken to voluntarily dissolve your business. The requirements can differ depending on the type of company being dissolved. Pursuant to California Corporate Code §1900, corporations may elect to wind up and dissolve voluntarily upon the vote of at least 50 percent of the outstanding shares. Alternatively, a corporation may elect to dissolve via approval of the board of directors if any one of the following applies:

  • The corporation has obtained a Chapter 7 bankruptcy;
  • The corporation has issued no shares; OR
  • The corporation has disposed of all assets and has not conducted any business for at least five years preceding the adoption of the resolution electing to dissolve the corporation.

Section 1900.5 allows for a short form dissolution if the corporation has issued no shares. The majority of directors or, if no directors have been named, the incorporator, can elect to dissolve the corporation if the following applies:

  • The corporation has existed for less than 12 months
  • The corporation has no debts or liabilities other than certain tax liabilities, which will be accounted for
  • The corporation has conducted no business
  • Known assets, debts, and liabilities have been accounted for
  • A final franchise tax return has or will be filed

Additional administrative steps must be taken, including filing final tax returns, sending proper notice to shareholders, as well as filing a Certificate of Dissolution and, depending on the circumstances, a Certificate of Election To Wind Up And Dissolve with the California Secretary of State. Talk to a knowledgeable California business dissolution attorney to make sure you are following all regulatory and administrative requirements in order to properly wind up your business without exposing yourself to unnecessary liability.

What Legal Issues Arise When You Dissolve Your Business?

Dissolving a business can raise a number of ancillary legal issues. At Rounds & Sutter, we will help you through your business dissolution and all related matters that arise, including:

  • Partnership disputes
  • Creditor actions
  • Corporate shareholder disputes
  • Disputes over property and asset ownership
  • Breach of contract allegations
  • Investor disputes over the distribution of profits and assets
  • Debt responsibilities
  • Disputes over spin-off organizations

Find the Right Path to Financial Relief for Your California Business

At Rounds & Sutter, we take the time to analyze your situation and listen to your needs so that we can provide you with all your options, whether that means bankruptcy or alternative resolutions such as voluntary dissolution. Our business debt attorneys are well-versed in business management, business law, and bankruptcy law; we know the options available to you. Contact Rounds & Sutter at our offices in Ventura, Santa Barbara, San Clemente and Westlake Village for a free consultation, and put yourself on the road out of debt.