Involuntary Dissolution to Resolve Shareholder Disputes

Involuntary Dissolution: How Courts Will Resolves Disputes By Shareholders

Partners and shareholders are similar to married couples in one very distinct way… they fight! It doesn’t matter if the argument is between equal partners that are deadlocked or by the majority and minority shareholders. In either case, the partners and shareholders need to get divorced.

Involuntary dissolution is the final resolution; it’s the judicial process in which the court divides the two parties by forcing the sale of ownership from one person to the other person or the entire business. This process can be used when everything else tried has failed for co-owners in a California corporation or LLC.

1 – Look Into The Buy-Sell Agreement

Before anything else gets done, be sure you check out the shareholders’ agreement to ensure that it’s got provisions regarding the control of a dispute. It’s the reason all businesses need to have buy-sell agreements so shareholder disputes have some control to them.

2 – Settle The Dispute

It’s important to settle the dispute before you head into court… if you can. The parties involved should negotiate the divorce; maybe one shareholder can buy out the other or the business can be sold. However, mediation is a good tool to use when you need to negotiate a settlement. The only time you could consider going to court for involuntary dissolution is when everything else doesn’t work. Litigation can be quite costly and, after payment has been made to a lawyer, everybody comes out smelling like a loser.

3 – Involuntary Dissolution

As you have already read, you get an involuntary dissolution through the court system. Who is able to sue for involuntary dissolution under California law? Half the directors or shareholders who own one-third or more of stock can sue for the involuntary dissolution.

In the state of California, the judge, not the jury, will decide the involuntary dissolution. The judge has the option of deciding the matter early on, even before the trial. Once he/she decides to dissolve the company, its board of directors will wind up the company’s affairs and liquidate its assets… with the court supervising the process. The court can order the business sale as an as is entity or as a by little by little liquidation. Once this process is complete, the court rules the corporation dissolute and the copy of the judge’s order is filed with the Secretary of State in California.

Buy-Out Rights

If shareholders hold less than half the shares begin the involuntary dissolution case, the majority shareholders or corporation have the option to buy-out the minority. However, it must be an all-cash deal. By doing this, the company can stay intact. The court will determine the price using three appraisers, which set the price at its liquidation value as of the complaint filing date.

A big reason to settle early on is the appraisers themselves. After all, you’ll be stuck with whatever value they place on the business and you must pay the appraisal fees, regardless of how ridiculous it is.

Additional Claims For Damages

While the involuntary dissolution process is fairly simple, it’s the warring partners who make it much more complicated… than it needs to be. After all, each partner has a similar claim in damages against the other partner such as embezzlement, fraud, etc.

It’s these additional claims for damages that bring rick and pressure to the entire process. Why?

1 – The claim requires additional legal procedures, money and time.
2 – A jury can decide the case (not just a judge). Nobody is able to predict how the jury with swing.
3 – Everything that the parties are feeling is tied to the additional claims.

For other legal related news and information, go to Legal Documents Online site, and you will find many free legal forms that can be downloaded for free, including Family Forms, Promissory Note Forms that can be used for many people at any time.