Could Your Business be Dissolved Against Your Will?

If you have a business, it is up to you when, how, and if, that business will ever close or dissolve.

Or is it?

You may be surprised to know that there are times when your business could be ordered to close or to dissolve–even if to you, the business seems to be doing fine, and is thriving and viable.

The law does allow a court, in certain kinds of litigation, to order that a business be dissolved. As you may imagine, this is a drastic remedy and one that isn’t commonly used–but someone suing your business can ask for that, and a court does have the power to grant it.

Illegal Activity and Shareholder Disputes

A court will often order the dissolution of a business, where the business is engaging in such widespread fraud, or conducting business in a way that is so diverting company assets, that the company is no longer a viable company.

These allegations often come to light in shareholder derivative lawsuits, where a company owner or shareholder, alleges that the value of the shares are being affected by wrongdoing or illegality.

Shareholders can also ask for dissolution where the company is acting outside of its stated mission, or where the company is engaging in forms of business that it was not originally formed to handle.

Standstills and Gridlock

Another situation where dissolution can be ordered, is if the business itself is at a standstill with vital decision-making.

This is usually a result of poor prior planning by the business–corporate documents that don’t detail what happens when there is, for example, a tie vote of the board of directors, or where the documents don’t have procedures to resolve tie votes or disputes between LLC managers, partnership partners, or other co-owners.

If, in these cases, the company cannot operate because it can’t make decisions, and there is no company document (like bylaws, or a management agreement) that dictate how these situations are handled, dissolution may be the only choice.

Getting the Assets

Remember that if a court does involuntarily liquidate your business, the court then has to determine who gets what from the sale of the assets of the business. That may be creditors who might be owed money, but any other assets may have to be distributed among owners or even aggrieved shareholders.

Asking for Dissolution in Court

If you are the aggrieved party, and want to file a lawsuit to dissolve a company involuntarily, be aware that filing such a request could lead to the company starting to divert assets. Sensing they may be judicially dissolved, owners may start to sell assets, or transfer company property out of the company name, all while the underlying case is still being litigated and determined by a judge.

For this reason, emergency measures may need to be taken, like the appointment of a receiver, to marshal and handle assets, until the court can rule on the dissolution request in the lawsuit.

If your business is at risk, we can help. Call our Fort Lauderdale business litigation attorneys at Sweeney Law P.A. at 954-440-3993 for help.

Sources:

casetext.com/statute/florida-statutes/title-xxxvi-business-organizations/chapter-605-florida-revised-limited-liability-company-act/section-6050702-grounds-for-judicial-dissolution

floridabar.org/the-florida-bar-journal/anatomy-of-a-business-divorce-florida-llcs/