About Dissolving a Corporation After Death
The first thing to understand about corporations is that they are separate legal entities, apart from their shareholders, who are the owners. Because of this, corporations have “perpetual existence.” A corporation’s existence goes on after a shareholder, even a majority shareholder, dies or otherwise leaves the company.
If your corporation has lost a key shareholder, or you are involved in any type of shareholder dispute, or you need further information regarding the dissolution of a corporation, contact a Florida and Palm Beach County estate planning attorney at Comiter, Singer, Baseman & Braun for help. We understand how corporations work in Florida and can guide you through a dissolution or the loss of a key shareholder, even if there are disputes involved.
The Corporate Dissolution Process
Officially ending a corporation’s existence as a state-registered business entity begins with a formal process called “dissolution.” Dissolution may be involuntary, caused by various types of non-conformance, such as a court-ordered dissolution or certain types of administrative non-conformity like failing to file an annual report.
Dissolution may also be voluntary. Under Florida law, voluntary dissolution can be made at a shareholder meeting by a shareholder vote. The Board of Directors must submit a proposal and give all shareholders ten days of advance notice of the proposed meeting to consider dissolution. Unless the corporation’s governing documents state otherwise, a majority of votes is all that is necessary to approve the dissolution.
After dissolution has been approved, a series of additional issues are triggered. Articles of dissolution should be filed with the Department of State’s Division of Corporations (although not strictly required). Nonetheless, the corporation immediately enters what is known as the “winding up” period, during which the corporation continues to exist for the sole purpose of collectively handling certain final matters. Notice to creditors should be given, although again not strictly required. This notice allows any creditor disputes to be resolved, which means that the corporation can more safely make its final distribution to shareholders with a small risk of being challenged.
The Importance of Documentation
One of the reasons corporations are so popular is that there are a number of various options for handling ownership shares if a shareholder dies, or, for that matter, leaves or becomes incapacitated. Shareholders can transfer their shares in the corporation to someone else through selling, bequeathment, or other mechanisms designed to give their ownership of shares to someone else.
However, there are certain eventualities that otherwise business-savvy shareholders feel uncomfortable addressing. No one likes to discuss what happens if things don’t go as planned, especially at formation when everybody is confident and optimistic. Issues like shareholder disputes, differences of opinion on key issues, or the death of a key shareholder are sometimes avoided or ignored at formation, which often leads to disputes when these issues arise at a later time.
The key to making sure everyone is in agreement regarding future problems is to have the corporation’s agreed-upon rules, processes, and steps for dealing with all potential eventualities formally documented in the corporation’s governing documents, such as a shareholders’ agreement, a buy-sell agreement, or the corporation’s bylaws. Without this formal documentation, disagreements almost certainly will arise at some point, creating stress, damage to relationships, and potential litigation.
What to Do When a Key Shareholder Dies
If the corporation does not specifically address what happens when a shareholder dies in its formal governing documents, then the shares pass to the shareholder’s heirs. This can be problematic if the inheriting heirs do not have the business acumen, the same specialized talent or experience that the deceased shareholder possessed, or shared good intentions and dedication. Furthermore, if the deceased shareholder was a director or officer, additional conflicts may arise unnecessarily. Also, if the deceased shareholder was a majority shareholder, the corporation may be facing dissolution or other crisis.
Many corporations have someone business-oriented to address this eventuality in the corporation’s governing documents. Commonly, a buy-sell or buyout agreement is used to guarantee that the ownership and control of the corporation will remain with other key shareholders. Buy-sell agreements specifically detail, with some flexibility, what will happen if a key shareholder dies. Typically, the buy-sell agreement specifies that remaining shareholders have rights of first refusal of the deceased shareholder’s ownership shares or other similar mechanisms.
A corporation can also purchase a key shareholder insurance policy that covers lost revenue due to the loss of the key shareholder, the costs of replacing the key shareholder, and other associated costs.
One of the primary concerns of newly-formed corporations that commonly can’t afford the appropriate insurance is how to anticipate all potential eventualities so that they may be addressed at formation and documented in the corporation’s governing documents, especially if the primary shareholders do not have previous corporation experience.
This is where a Florida and Palm Beach County estate planning attorney at Comiter, Singer, Baseman & Braun can help. We have the knowledge of corporate law and the corporate experience necessary to help you with your formation and set your corporation up for a successful future, allowing you to focus on the corporation’s business.
Comiter, Singer, Baseman & Braun Can Help You With All of Your Corporate Dissolution Issues
As discussed above, the crucial aspect for dealing with the death of a key shareholder and all potential disputes within your corporation is to formally document how each eventuality should be handled in the corporation’s governing documents. If the death of a key shareholder is properly anticipated and documented, dissolution need not be the corporation’s only option.
At Comiter, Singer, Baseman & Braun, we have the kind of corporate experience needed to handle any corporate matter, including dissolution. We also offer assistance in all manner of professional matters, such as asset protection planning, estate administration, estate litigation, trust administration, probate, guardianship, and mediation.
For help with any corporate issues in Florida, contact a Palm Beach County estate planning attorney at Comiter, Singer, Baseman & Braun. We can be reached either online or by phone at 561-626-2101 or toll-free at 800-226-1484. We work with clients throughout the state of Florida, including Palm Beach County, Boca Raton, and Palm Beach Gardens.