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Dissolution of Business Operations

Businesses encountering perpetual disagreement, poor profit returns, difficult operations, or simple disinterest may dissolve according to Minnesota law. Proper procedure depends on the type of business, the timing, and the reasons for dissolution. Laws may prevent dissolution in some cases, in which case the businesses find alternative resolution.

Dissolution before commencement of business is a straightforward process that dissolves a business before it opens its doors. The incorporators or board of directors can file a notice of dissolution to end the business before it even begins. The Articles of Dissolution must be signed by every incorporator or director.

Voluntary dissolution means the board of directors approves the dissolution and a defined number of shareholders vote to ratify the action. The applicable law may require a simple majority of the shareholders, or a larger percentage. This form parallels the procedure required for most corporate changes, such as acquisitions.

Involuntary dissolution can happen when dissent and stalemate cannot be overcome and no buyout agreement can be negotiated. Shareholders may bring a dissolution petition to court for a judicial decree to dissolve the company. The petitioner must show that the dissolution is based on legal grounds, such as fraudulent action by the board, irreparable harm to the business, injury to the shareholders, or misappropriation or waste of corporate resources. Involuntary dissolution can occur without judicial action by order of the Secretary of State or other State official if the corporation fails to pay taxes, file reports, or follow other statutory requirements.

If the dissolution would be unfair to minority shareholders, the State may prevent action. If the majority shareholders oppress the minority interests in the dissolution decision, the courts may strike down the action.

When a business has decided to dissolve, the State imposes certain requirements. Corporations and partnerships are treated slightly differently. Because partners are personally liable for debts and obligations, the partnership is not required to satisfy outstanding obligations before disassociating. Liability continues on with the former partners. Corporations must settle debts and obligations and return capital contributions to investors. The corporation must enact Articles of Dissolution to dissolve.

Contact Patrick K. Oden, a Minneapolis and St. Paul business lawyer, for help and advice on dissolving your business operations. Proceeding properly can save you headaches in the future.

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