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Understanding The Main Causes Of An Involuntary Dissolution

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It's not something that many business partners like to think about, but sometimes it becomes necessary to dissolve a company. When it's voluntary, there are many things to consider, and if everybody's on board, it can go off without a hitch. But an involuntary solution can occur and take everybody by surprise.

What Can Cause an Involuntary Dissolution?

There are actually various reasons why an involuntary dissolution can occur. The main three reasons are

  • Court order
  • Disputes
  • Debt

Sometimes an involuntary dissolution can occur because of a combination of these things. Each one of these reasons consists of several factors that can ultimately lead to your company's dissolution.

Court ordered dissolution – The Secretary of State can order a company dissolved for several reasons. The most common reasons are surprisingly the easiest to deal with if you want to avoid an ordered dissolution.

  • Not filing corporate renewal
  • Not paying taxes
  • Not filing reports
  • Not maintaining an address on file

These are some of the basic things required to keep a corporation viable. Sometimes, they're missed completely on accident. There are more serious reasons for a court ordered dissolution as well, crime and misconduct being chief among them.

Dispute-driven dissolution – Infighting among partners can lead to an involuntary dissolution of a business. Generally, any dispute that deadlocks the partners and stalls the company can lead to dissolution. Equally, if partners simply leave the company, but don't give up their stakes, it's possible for a company to dissolve as well.

Of course, these types of involuntary dissolution don't just happen on their own. They usually occur after a partner petitions the court for a decision or seeks mediation. If nothing can break the deadlock, then the court may order the dissolution.

Dissolution due to debt – If your company owes a debt, but defaults, then involuntary dissolution will almost certainly follow. This is especially true if the creditor won't negotiate or wait any longer.

Just know that if it happens involuntarily, you will need a business lawyer on your side. Involuntary dissolution can leave a lot of loose ends that can follow you for a long time, and harm any future business prospects.

Seek the Help of a Business Attorney

In a best-case scenario, you should speak with your partners and an attorney who specializes in business law about a voluntary dissolution as soon as possible. Failing that, you will need a business attorney to help you and the business figure out what to do.

There are many options available. But the longer you and your partners wait, the less choices you will have for either rebuilding the business back to viability or letting it go cleanly.