Florence and Grady pool their money and talents to form Happy Home Builders, Inc. They are the firm's only shareholders, directors, and officers. After five years of declining home prices, they decide to cease business. Can they simply dissolve their corporation at will? If so, what are the steps in the process?

Question

What will be an ideal response?

Answer 1

In the problem, Florence and Grady can dissolve their corporation at will acting as directors or, in some states, as shareholders. The process will include notifying the state and the firm's creditors, liquidating the firm's assets, and making distributions. Procedures for voluntary dissolution vary in different states. Generally, the directors can vote to submit a proposal of dissolution to the shareholders for a vote at a shareholders' meeting, or in some states shareholders acting unanimously can vote to initiate dissolution proceedings for a corporation. The corporation must file articles of dissolution with the state and notify its creditors of the dissolution. Under the Revised Model Business Corporation Act, the firm must also set a date at least 120 days after the date of dissolution by which all creditors' claims must be received. The directors act as trustees of the corporate assets in winding up the firm's affairs for the benefit of the creditors and shareholders. In this problem, the directors and shareholders are the same persons, but they may be held accountable for any breach of a trustee's fiduciary duty to the creditors. The corporation's assets will be liquidated (converted into cash) and distributed among its creditors and shareholders according to the applicable rules of preference. Generally, the creditors are paid before the shareholders.