Business Dissolution Proceedings
If the officers or decision-makers of a business decide to terminate the entity due to unprofitability, inadequate achievement of goals, the sale of assets, or some other reason, the business can be dissolved. The dissolution proceedings will dispose of company obligations and assets, resulting in payments to creditors and shareholders. The nature of the business dissolution proceedings will depend on whether the entity is organized as a sole proprietorship, a partnership, an LLC, or a corporation. At Klapper & Fass, our New York litigation attorneys attorneys can help you initiate business dissolution proceedings or advise you on whether it may be appropriate.The Process of Dissolving a Business
Each state has its own laws that govern the dissolution of various business forms. For instance, the New York Business Corporation Law allows for voluntary dissolution by a shareholder vote, by a provision in the certificate of incorporation that permits one or more shareholders to dissolve at will or when a particular event occurs, or by the written consent of the shareholders. The first way requires a formal shareholder meeting at which a vote is taken. The board of directors should adopt a proposal to dissolve the corporation and submit it to the shareholders, giving at least 10 days’ advance notice to all shareholders of the meeting.
Usually, a majority of voting shares must approve the dissolution at the meeting, but in some cases, the certificate of incorporation may provide otherwise. The certificate may specify that the corporation can be dissolved by getting the written consent of the same number of shares that would otherwise be needed at a meeting. This consent would need to be correctly entered in the corporation records.
After the corporation is dissolved by one of the three methods, a certificate of dissolution must be filed with the Division of State. Afterward, the corporation must wind up its business, meaning that debts have to be paid, contracts have to be fulfilled, and assets have to be collected and distributed or sold.
Article 11 of the Business Corporation Law governs judicial dissolution, which is non-voluntary. A 50% shareholder can ask for a court order dissolving the corporation due to internal dissension, director deadlock, or shareholder deadlock. A 20% or greater shareholder may seek judicial dissolution if the directors or those in charge of the corporation have committed illegal, fraudulent acts or if the directors or officers have committed oppressive acts, waste, diversion, or looting of corporate assets.
The voluntary dissolution of an LLC requires you to examine the company's operating agreement. If it is properly drafted, it will specify the procedure for dissolution. Usually, the LLC members will need to vote, and the agreement will specify how many must vote in favor of a resolution to dissolve. In some cases, the agreement will specify a period of advance notice and other details. If there is no provision for dissolution in the operating agreement, New York follows the LLC Law. This law allows the vote or written consent of a majority of LLC members to dissolve this business form. When an LLC has more than one group of members, a majority of each group must vote in favor of dissolution, or there must be the written consent of at least a majority in interest of the LLC members.
A decision to approve a resolution to dissolve should be recorded in the minutes or on an official written consent form. Within 90 days of this decision, you must file articles of dissolution with the New York Department of State, signed by an authorized individual. Thereafter, the business needs to be wound up. Section 702 of the LLC Law provides for the involuntary judicial dissolution of an LLC when a business is not functioning according to the terms of the operating agreement.Discuss a Business Dispute with a New York Attorney
Whether your company is going through business dissolution proceedings voluntarily or involuntarily, it is important to get advice from an attorney. The New York business law lawyers at Klapper & Fass provide legal representation from our offices in Manhattan and White Plains. We serve all five boroughs of New York City, as well as Rockland, Orange, Suffolk, Dutchess, Nassau, and Westchester Counties. We also represent clients nationwide, including in states such as Florida, Michigan, California, and Texas. Contact our office at 914.287.6466 or use our online form to set up an appointment.