Corporate Dissolution

Corporate Dissolution Attorneys

Although Florida Statutes Chapter 607 prescribes general procedures for dissolution, the process for a particular corporation will be affected by various factors unique to it. As your attorneys handling your corporate dissolution we will investigate factors that may have an unanticipated or undesired effect on the corporation and others involved.

9 Factors to Consider in a Corporate Dissolution

1. Review the corporation’s articles of incorporation and bylaws and any shareholders’ agreements to which the corporation or any of its shareholders may be a party.

The corporation may have issued classes of shares that have preferential rights on dissolution or disposition of the corporate assets other than in the ordinary course of business. The articles, bylaws, or shareholders’ agreements may provide for supermajority or other special voting requirements such as voting by classes for the approval of the dissolution. These documents may also impose unique procedural requirements relating to notice of shareholders’ or board of directors’ meetings, quorums, or proxies.

2. Review the terms of the corporation’s outstanding securities, including preferred shares, share options, and warrants.

The effect of the contemplated dissolution on these securities and the rights of securities holders in connection with the dissolution and corporate assets should be determined.

3. Review bonds and other debt instruments issued by the corporation and other corporate obligations, including leases, contracts, and security agreements.

Commencement of dissolution proceedings may trigger or accelerate rights and remedies available to holders of corporate obligations, with an unfavorable result for the corporation and its shareholders or affiliates who have guaranteed those obligations. The corporation may need to negotiate beforehand with corporate obligation holders to obtain consents, waivers, and, possibly, concessions.

4. Review other corporate obligations and contingent liabilities.

The existence of significant contingent liabilities may impede or block, at least temporarily, a planned dissolution. Depending on the nature and extent of the claims, the timing and manner of dissolution can vary significantly. If substantial portions of the corporation’s assets are subject to security interests, F.S. Chapter 679, Uniform Commercial Code: Secured Transactions, should be reviewed for possible implications.

5. Consider bankruptcy.

If the corporation is encountering significant financial problems, a Chapter 7 or Chapter 11 bankruptcy should be considered to effect an orderly dissolution and liquidation or reorganization, thereby maximizing asset values through avoidance of creditors’ sales or foreclosure. However, a bankruptcy proceeding will significantly increase administration costs and time delays. If the corporation voluntarily or involuntarily becomes involved in a bankruptcy proceeding, an additional statutory procedure will be overlaid on the dissolution process.

6. Review the corporation’s assets.

Dissolution might result in termination, complete loss of value, or substantial loss of value of certain assets such as patents, licenses, other intellectual property, contractual rights, and leasehold estates.

7. Review tax consequences.

The corporate dissolution might trigger tax liabilities for both the corporation and its shareholders. Timing of the dissolution may be an important consideration. Any tax loss carryforward may be lost unless the corporation is an S corporation for tax purposes and the shareholders’ adjusted basis in their stock in the S corporation is sufficient to absorb their individual pro rata share of the losses. Tax counsel should be consulted to assess the tax implications of the contemplated dissolution and to map out the best strategy.

8. Review securities laws.

If the corporation is publicly traded, the securities law aspects of the dissolution should be reviewed with a securities law expert. Questions may arise concerning public disclosure, insider trading, and preparation of proxy statements and other communications to shareholders, as well as reports mandated by federal securities statutes. In undertaking the dissolution of a publicly traded corporation, a comprehensive time schedule of actions to be taken should be prepared in advance. The submission of documents to the Securities and Exchange Commission and relevant state agencies, if any, and the mailing requirements for shareholder communication will necessarily complicate and lengthen the statutory dissolution process.

Consider that dissolution, like other corporate action, is subject to fiduciary standards of fairness owed by directors and majority shareholders to minority shareholders. Therefore, a dissolution and liquidation plan must be fair to minority shareholders.

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