How to (Legally) Resolve Corporate Deadlock and Mismanagement: Dissolution and Liquidation (Part I)

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How to (Legally) Resolve Corporate Deadlock and Mismanagement: Dissolution and Liquidation (Part I)

February 1, 2017

Resolve Corporate Deadlock and MismanagementThe great, late entrepreneur, Steve Jobs, once said, “Great things in business are never done by one person.  They’re done by a team of people.”  But what if that team of people can’t agree on how the business should be managed?  What if one of the members of the team steals or mismanages the company’s assets, causing harm to the company?

A closely-held corporation, often referred to as a “small business,” is a company with a relatively small number of shareholders whose shares are not frequently public traded.  Because of their small number of shareholders (who almost always also serve as directors), closely-held corporations are ripest for mismanagement, waste, theft, and deadlock in their affairs.

Under Florida law, there are a variety of options available to small business owners involved in such a corporate dispute.  Many of those options are contained in the Florida Business Corporation Act, §607.0101, et seq., which allows a shareholder to initiate proceedings for the liquidation and dissolution of a corporation if it is established that:

(a) The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered; or

(b) The shareholders are deadlocked in voting power and have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors.

607.1430(2)-(3), Fla. Stat. (2016).

The same dissolution and liquidation proceeding may be initiated if the corporate assets are being misapplied or wasted, causing material injury to the corporation; or if the directors or those in control of the corporation have acted, are acting, or are reasonably expected to act in a manner that is illegal or fraudulent.  See § 607.1430(4), Fla. Stat. (2016).  But dissolution on these grounds is limited exclusively to proceedings initiated by shareholders of corporations having fewer than 35 shareholders.  Upon liquidation, all of the corporation’s just debts are paid, and any amount leftover is distributed among the shareholders in accordance with each shareholder’s percentage share in the corporation.

In the event of a corporate dispute, liquidation and dissolution of the corporation is not the only possibility.  There are other alternatives, which shall be the subject of my next blog post.

If you are involved in a business dispute, please call a Fort Lauderdale commercial litigation lawyer at (954) 4400901 to schedule a consultation.  The Carlin Law Firm, PLLC regularly provides legal advice to all kinds of business entities and regularly assist clients with litigating business disputes in Florida state and federal courts.

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