The Law of Corporations and Other Business Organizations

Chapter Review Answers

1. Suppose that Ann, Bob, and Christie are
all incorporators of the ABC Corporation.
Dan and Elaine are elected directors,
and all five are to become shareholders of
the new corporation. Before shares of
stock are actually issued, the five investors
decide to form a limited liability
company instead. Bob has taken on responsibility
for dissolving the corporation.
Who must approve the dissolution?

Pursuant to § 1401 of the Model Business
Corporation Act, dissolution of a
corporation that has not issued shares
of stock may be by a majority of the
incorporations or directors, if directors
have been appointed. In this case,
Dennis and Elaine should approve the
dissolution, although the approval of
Ann, Bob, and Christie may also be
sufficient.

What if shares of stock had been issued?

If shares of stock have been issued, the
dissolution of the corporation must be
approved by the shareholders of the
corporation. Pursuant to § 14.02 of the
Model Business Corporation Act, the
dissolution of the corporation must be
approved by a majority of all shares
entitled to vote.

2. What are the duties of the individual or
individuals who are responsible for winding
up the affairs of a dissolving corporation?

Individuals responsible for winding up
the affairs of a dissolving corporation
are responsible for the following:

1. Collecting the assets of the corporation
2. Disposing of property that will not
be distributed in kind to shareholders
3. Discharging or making provisions
for discharge of liabilities of the
corporation
4. Distributing the remaining property
among shareholders according
to their interests
5. Every other act necessary to wind
up and liquidate the business and
affairs of the corporation

3. In states following the MBCA, what documentation
must be filed with the secretary
of state to dissolve the corporation?

Articles of dissolution must be filed.

4. Does the corporate existence dissolve
upon the filing of the articles of dissolution
in states following the MBCA?

No, it does not dissolve immediately.

If not, for what purpose(s) is the corporate
existence extended?

The corporation exists for the purposes
of winding up its affairs and liquidating
its assets.

5. Under the MBCA, what notice of liquidation
must be given to the creditors of a
corporation?

If a dissolving corporation gives notice,
it must give written notice to all known
creditors and claimants that describes
the information that must be included
in a claim, provides a mailing address
where a claim may be sent, gives the
deadline for submitting claims (which
may not be fewer than 120 days from
the effective date of the written notice),
and states that the claim will be barred
if not received by the deadline. The
corporation may also publish notice of
its dissolution for the benefit of any
unknown claims against the corporation,
according to statute.

6. What possible recourse does a minority
shareholder have when the corporate
management is deadlocked?

The minority shareholder may bring a
suit for involuntary dissolution or for a
buy-out if that procedure is provided
for in the statutes of the corporation’s
state of domicile.

7. To what extent may the shareholders of a
dissolved corporation be held liable for
the debts of the corporation incurred prior
to dissolution?

If a postdissolution claim is allowed by
statute, the shareholders may be held
personally liable to the extent of the
distribution they received on the corporation’s
dissolution.

8. Suppose that the ABC Corporation is
administratively dissolved on January 1,
2012, for failure to file annual reports in
compliance with the statutes of its state
of domicile. On June 30, 2012, the ABC
Corporation eliminates the grounds for its
dissolution to the satisfaction of the secretary
of state and becomes reinstated.

Could the shareholders of the ABC Corporation
be held personally liable for obligations
incurred on behalf of the corporation
on March 15, 2012, on the grounds
that the corporation did not legally exist?

No, the administratively dissolved corporation’s
reinstatement would date
back to the date of dissolution, as if the
corporation had never been dissolved.

9. In a state following the MBCA, can a
creditor of a dissolved corporation who
has received proper notice collect on that
claim six months after the notice was received?

No—if the creditor received proper notice,
the creditor’s claim would be
barred after the expiration of the
deadline for submitting claims, as stated
in the notice.

10. Name three grounds for administrative
dissolution in states following the
MCBA.

1. The corporation does not pay franchise
taxes or penalties prescribed
by law.
2. The corporation fails to file an annual
report as required.
3. The corporation does not provide a
registered agent or registered office
as required.

Also...

4. The corporation does not notify the
secretary of state of a change in
registered agent or registered office.
5. The corporation’s period of duration
stated in its articles of incorporation
expires.