The Maryland business code contains a statute for each type of independent business entity that can be formed under state law, including corporations, limited liability companies (LLCs), partnerships, limited partnerships (LPs) and close corporations. Each business statute contains provisions that detail procedures for dissolving each type of company. Although dissolution procedures under each statute are particular to the specific entity type, there are some common factors across all of the statutes. Maryland law is designed to ensure dissolving businesses pay creditors, provide notice of the closing so people can make claims, and distribute the remaining assets equitably.
Maryland's corporations statute requires a corporation's board of directors to obtain majority support from shareholders for the decision to dissolve the company. A responsible party must manage the winding up process by paying outstanding debts and notifying existing and potential creditors of the final date to make a claim on the assets of the corporation. The corporation must file articles of dissolution with the state and pay all outstanding state taxes and assessments. Maryland requires the corporation to distribute its remaining assets to shareholders in proportion to their ownership interests. If the managers of the corporation follow the statutory procedures for dissolving the company, it protects the shareholders from claims against the company for unrecorded suits and debts filed after the company shuts its doors. Maryland's corporations statute also establishes a procedure for involuntary dissolution of a company by judicial order.
The Maryland LLC Act sets forth the procedure for dissolution if a majority of an LLC's owners, known as members, want to close down the business. These provisions mirror the procedures outlined in the corporations statute. Certain dissolution provisions of the LLC statute are unique because they specify how a minority of members can force a buyout of their ownership interests or the complete dissolution of the company through judicial action. An LLC operates under the law like a partnership; general partnership law provides that an individual cannot be forced to remain in partnership with another person. As such, LLC members have dissenter's rights that give them options to dissolve the company not available to shareholders of a corporation.
Maryland's Revised Uniform Partnership Act governs dissolution of general partnerships in the state. The statute identifies events that can trigger dissolution of a partnership and details each partner's right to dissolve the business relationship at any time. The statute specifies how assets and liabilities should be divided among partners and allows a dissolving partnership to file a statement of dissolution with the state to provide notice and prove the exact date the business partnership ceased to exist.
Limited Partnership Dissolution
Maryland's Limited Partnership Act provides for the dissolution of limited partnerships. The provisions mirror the procedures established for general partnerships, except the statute also specifies how an LP can cancel its state registration as a limited liability entity. The statute also contains additional provisions for judicial dissolution, an option that is relevant because of the grant of limited liability to partners.
Close Corporation Dissolution
There is a separate Maryland statute for close corporations. A close corporation limits the right of shareholders to freely transfer shares of stock in the company to third parties. The close corporation statute incorporates the general dissolution provisions of the corporations statute and adds special provisions specific to this entity. The statute allows shareholders of a close corporation to avoid dissolution by purchasing the stock of the withdrawing stockholder. The law also gives close corporation shareholders the same dissenter's right to force judicial dissolution of the company upon an unresolvable dispute between owners as those enjoyed by members of an LLC.
References & Resources
- Maryland Code: Corporations and Associations - Subtitle 4 - Dissolution
- Maryland Code: Limited Liability Company Act - Subtitle 9 - Dissolution, Forfeiture, and Reinstatement
- Maryland Code: Revised Uniform Partnership Act - Subtitle 8 - Winding Up Partnership Business
- Maryland Code: Limited Partnership Act - Subtitle 8 - Miscellaneous Provisions
- Maryland Code: Close Corporations - Subtitle 6 - Termination of Existence
- SBA.gov: Liquidating Assets
- FindLaw: Checklist for Dissolution and Winding Up
- Internal Revenue Service: Closing a Business