Wilson Law Firm, A Professional Corporation, represents corporations and shareholder groups in corporate dissolution actions. Because there are a variety of dissolution actions that shareholders may file, as well as multiple responses a corporation or rival group of shareholders may make to such suits, we will discuss the topic of corporate dissolution in a series of blogs. This initial article focuses on the basics of resisting corporate dissolutions under Section 2000(a) of California’s Corporations Code.
Section 2000(a) provides a way for shareholders (known as the “purchasing parties”) facing the filing of either a suit for involuntary dissolution (a subsequent article discusses grounds for an involuntary dissolution) or a suit for voluntary dissolution initiated by shareholders of the corporation who own only 50% of the voting power to preserve the corporation by buying out the other shareholders.. Those initiating such a dissolution are known as the “moving parties”.
If the purchasing shareholders seek to buy out the moving shareholders per Corporations Code section 2000 and follow the required steps, the court hearing the case appoints three appraisers to value the corporation. Their cost to purchase will depend on the “fair value” of the shares being purchased on the “valuation date.”
“Fair value” is different from “fair market value,” which represents the value of shares as agreed to in an arms-length transaction between two or more parties who are not under unusual pressure to make the transaction. Fair value, by contrast, represents the liquidation value of the shares. This fair value shall, however, take into consideration the possibility of the corporation continuing to be a going concern during the liquidation process.
Determination of the fair value shall be as of the “valuation date.” This date is the date that the involuntary dissolution lawsuit under Section 1800 of the Corporations Code is initiated or the date, in the context of a voluntary dissolution, that the moving parties filed the voluntary dissolution action in court.
The net amount the purchasing parties must pay can be reduced by the amount of any damages that the moving parties incur if the court finds that the action for dissolution constitutes a breach of the moving parties’ shareholders’ agreement with the purchasing parties. We will discuss this topic, as well in a subsequent post that will also point out an exception to this particular rule.
The Wilson Law Firm, a Professional Corporation, at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation. Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: (916) 608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at wilsonlawfirmca.com.