What is the Difference Between Voluntary and Involuntary Dissolutions of a Corporation?

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What is the Difference Between Voluntary and Involuntary Dissolutions of a Corporation?

Corporations can dissolve by the voluntary agreement of the shareholders or by the involuntary actions of a court. Corporate dissolution may be necessary due to internal conflicts that make it impossible for the corporation to continue doing business, or due to the stark financial reality of insurmountable monetary losses.  Either way, certain steps are necessary to completely dissolve a corporate entity.

There are three steps to a voluntary corporate dissolution. First, the corporation must file the appropriate documentation with the state of Arizona. Second, the corporation must wind down business operations. Third, the corporation must settle its corporate assets, which includes paying debts, liquidating assets, and distributing any remaining assets to the corporate shareholders.

On the other hand, when shareholder relations become so hostile that the corporation cannot function properly, and the shareholders cannot agree to simply dissolve the corporation, there is a procedure for a court-ordered involuntary corporate dissolution. In this situation, one or more shareholders can file a lawsuit requesting that the court dissolve the corporation. A court-ordered corporate dissolution can occur on the petition of a shareholder when one of the following events occurs:

·         The directors are deadlocked over a management issue, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or is occurring, or corporate business cannot be conducted in a manner that is advantageous to the shareholders due to the deadlock.

·         The directors or others in control of the corporation are acting or will act in an illegal, oppressive, or fraudulent manner.

·         The shareholders are deadlocked in voting power and have failed to elect one or more directors for at least two consecutive annual meeting dates.

·         Corporate assets are being wasted, misapplied, or diverts for noncorporate purposes.

Another type of involuntary dissolution of a corporation is administrative dissolution. This occurs when the Arizona Corporation Commission takes action to administratively dissolve the corporation because the corporation has failed to file its annual report as required by Arizona law. In this situation, the corporation is legally dissolved, but shareholders may unknowingly continue to operate the business, which can result in debts for which the shareholders may be personally responsible.

Whether you are involved in a voluntary or involuntary dissolution of a corporation, we are here to help. We will determine the facts and circumstances surrounding your situation, evaluate your case, and determine the best strategy for resolution. At Williams Mestaz, L.L.P., we have the experience and knowledge that you need for your corporate dissolution matter. When results matter, contact Williams Mestaz, L.L.P., at (602) 256-9400 for help.

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