Delaware corporation law specifies the conditions under which a corporation can be dissolved, which terminates the corporation’s existence. The optimum situation for dissolution of a corporation is one in which all of the shareholders -- who own the corporation -- agree that dissolution is appropriate and cooperate to take the necessary action to effectuate the dissolution. However, in situations where the shareholders disagree, dissolving the corporation will depend on the percentage of shareholders that agree with dissolution or the type of corporation.
General Dissolution Requirements
Section 275 of the Delaware Corporation Code sets forth the general requirements for dissolving a corporation. Subsection (a) requires the board of directors to adopt a resolution approving dissolution and setting a meeting of the shareholders to vote on the issue. Subsection (b) provides that, if a majority of the shareholders vote for dissolution, the corporation will be dissolved. However, if only a minority of shareholders are in favor of dissolution, no action can be taken to dissolve the corporation. Although some state corporation laws permit any shareholder to file a lawsuit to involuntarily dissolve a corporation, Delaware law does not.
Dissolution of Joint Venture Corporation
A different dissolution statute applies if the corporation has only two shareholders and both own 50 percent of the stock. Delaware corporation law defines such a corporation as a joint venture corporation and Section 273 of the Delaware Corporation Code provides for dissolution of the corporation even if the shareholders cannot agree on the issue. Either shareholder may file a petition with the court of chancery to dissolve the corporation.
Close Corporation Dissolution
Special dissolution rules can apply to a close corporation, if the shareholders agree to the rules at the time the corporation was formed. A close corporation is defined in Section 342 of the Delaware Corporation Code as a corporation formed under Subchapter XIV of the code; it can have no more than 30 shareholders, all stock certificates have a restriction on transfer, and the corporation can not make a public stock offering. Section 355 permits, but does not require, the certificate of incorporation for the close corporation to include a provision allowing any shareholder or a specified percentage or number of shareholders to dissolve the corporation at will. This method of dissolving the corporation is exercised by giving 30 days written notice to the shareholders that the dissolution option is being exercised.
Revocation or Forfeiture of Corporate Charter
Although Delaware corporate law does not allow a shareholder to file a lawsuit to involuntarily dissolve the corporation, the law does authorize the Delaware Attorney General to file a lawsuit in the court of chancery to request revocation or forfeiture of the corporation's charter in situations where there is an abuse, misuse or non-use of a corporation's powers. Section 284 of the Delaware Code provides that the attorney general can file the lawsuit on his own motion or "upon the relation of a proper party." This means that a minority shareholder who believes he is aggrieved or otherwise disadvantaged by the corporation's directors or other shareholders can bring the matter to the attorney general's attention and request action be taken under Section 284. If the attorney general agrees to take such action, it would have the effect of dissolving the corporation because the court can appoint a receiver to wind up the affairs of the corporation and distribute its assets.
References & Resources
- Delaware General Corporation Law: Subchapter X -- Sale of Assets, Dissolution and Winding Up
- Delaware Division of Corporations: Certificate of Corporate Dissolution Form
- Fryar Law Firm, P.C.: Delaware Shareholder Law Resources
- Delaware General Corporation Law: Subchapter XIV -- Subchapter XIV -- Close Corporations; Special Provisions
- Business Law News: Involuntary Dissolution -- The Nuclear Option