California law provides for the involuntary dissolution of a corporation in the state. This article discusses who can file such a petition (in the proper superior court) and upon what grounds.
There are four parties or groups of parties that, per California Corporations Code Section 1800(a), can file for an involuntary dissolution of a corporation:
(1) One-half or more of the directors of the corporation who are in office;
(2) A shareholder or group of shareholders who own 33 and 1/3rd % of either the outstanding shares, common shares, or equity in the corporation;
(3) Any single shareholder where the point of termination of the corporation has occurred; this occurrence may arise where the corporation’s founding document envisioned a termination of its existence at a stated point absent the taking of a specific action to extend the life of the corporation by appropriate authorities; and
(4) Any other person authorized by its Articles of Incorporation to take such an action at their own behest
California Corporations Code Section 1800(b) sets forth the following grounds necessary for an involuntary dissolution:
(1) The corporation has abandoned its business for more than one year;
(2) In the event the corporation has an even number of directors and those directors are so evenly deadlocked that the ability to ensure no damage to its property or business will be impaired or lost; AND the holders of the voting shares of the corporation are so deadlocked that it is unable to elect an uneven number of directors;
(3) There is such internal dissension between rival groups of shareholders that its business can no longer be conducted to the advantage of the shareholders; AND the shareholders with voting shares, at two consecutive annual meetings of the shareholders of the corporation, have failed to elect successors to the directors whose terms have expired;
(4) Those in control of the corporation have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness towards any shareholders or its property is being wasted or misapplied by its directors or officers;
(5) In the case of a corporation with 35 or fewer shareholders, where liquidation is reasonably necessary to protect the rights and interests of any complaining shareholder or shareholders; and
(6) The stated period for which the corporation was formed has terminated.
Any shareholder or director of a corporation who has reason to believe that one of these grounds may exist as the basis for an involuntary dissolution needs to consult with an attorney to see if any such grounds have merit. Also this review of the grounds does not include some exceptions which may apply to certain corporations, such as banks. So it is advisable that you consult in order to ensure that one or more of these exceptions does not so apply.
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.