A judicial dissolution of a corporation, also known as involuntary dissolution, occurs when a court orders a corporation to cease operations and be dissolved. Although uncommon, judicial dissolutions do occur, and they are often the result of a severe impasse amongst the corporation’s shareholders that is negatively affecting its operations.
What are the two ways to dissolve a corporation?
A corporation may be dissolved either voluntarily or involuntarily. In a voluntary dissolution, the shareholders of a corporation all agree that the business should be dissolved, and they follow the required steps to formally do so. In Florida, this requires the cessation of all business activities, filing articles of dissolution with the Division of Corporations, liquidating all corporate assets, repaying any debts, and distributing surplus funds.
However, if the company has engaged in fraudulent activity, or the company’s shareholders are unable to make a decision regarding a serious issue, the company may be involuntarily dissolved via a judicial dissolution.
How may a corporation be judicially dissolved in Florida?
In Florida, a corporation may be judicially dissolved in one of three ways. The first way is through a proceeding by the Department of Legal Affairs. This occurs when a corporation is found to have obtained its articles of incorporation through fraud or deception, or when the corporation has abused or exceeded the authority conferred upon it.
The second way a corporation may be judicially dissolved is in a proceeding by a shareholder. This may occur in four different scenarios. First, if the directors are deadlocked in the management of corporate affairs, the shareholders are unable to break the deadlock, and either the corporation is threatened with irreparable injury, or the corporation cannot continue to be operated to the advantage of the shareholders due to the deadlock. Second, if the shareholders are deadlocked in voting power, and have been unable to elect successors to directors whose terms have expired. Third, if the corporation has suffered material injury due to corporate assets being misapplied or wasted. Fourth, if the directors or others in a position of control have committed fraudulent or otherwise illegal acts.
Lastly, a corporation may be judicially dissolved in a proceeding by a creditor. To do so, the creditor must establish that: (a) the creditor’s claim has been reduced to judgment, the execution of the judgment was not satisfied, and the corporation is insolvent; or (b) the corporation has admitted, via writing, that the creditor’s claim is due, and that the corporation is insolvent.
Florida also allows for judicial interference in voluntary dissolutions. As a result, even if all the shareholders and other interested parties agree on the corporation’s dissolution, the corporation may seek to have its dissolution continued under court supervision.