Reasons for Involuntary Dissolution
A company may face involuntary dissolution due to insolvency, violation of law, or shareholder disagreements.
Resolution of Deadlock
A court orders involuntary dissolution when there is deadlock between company owners and shareholders. This is the last step to resolve things when all else fails.
Actions to Take if Facing Involuntary Dissolution
Eliminate debts by refinancing or selling assets. Provide documentation to the court or Secretary of State proving insolvency issues are addressed.
After Court-Ordered Dissolution
After court-ordered dissolution, a company’s assets may be sold off to pay creditors. The company then ceases to exist legally.
Involuntary Dissolution Overview
Involuntary dissolution is the legal termination of a company by a third party. It can occur due to several reasons, like not complying with state or federal laws, engaging in illegal activity, or being unable to settle outstanding debts.
Initiation of Involuntary Dissolution
Involuntary dissolution can be initiated by a creditor, shareholder, or the government. Under involuntary dissolution are administrative and judicial dissolution.
Types of Dissolution
- Administrative Dissolution: Carried out by the state when a company fails to pay its taxes, maintain a registered agent, or doesn’t file its annual reports.
- Judicial Dissolution: Initiated by a shareholder rather than a court or creditor.
Prevention of Involuntary Dissolution
Prevent involuntary dissolution through good business practices like timely filing reports and paying taxes. However, it sometimes becomes the final option to exit bad situations.