Legal Question in Business Law in California

My California retail store/specialty school is preparing to dissolve. We previously sold gift cards to customers, some of which have not yet been fulfilled. What are my obligations to fulfill the cards during and following dissolution, and can I substitute online merchandise/products for personal teaching services that I no longer offer on site?


Asked on 4/13/11, 5:23 pm

1 Answer from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

If a gift card is presented, you can't oblige the customer to take something they don't want, but on the other hand, you aren't required to provide a service no longer offered; a cash refund would satisfy the obligation.

As to your obligation during and after dissolution, as you know, they don't expire. The proper handling probably depends upon the business's solvency upon dissolution. As I recall, the papers filed with the Secretary of State to dissolve a corporation (and perhaps those for other business entities as well) contain questions regarding, or require the officers to state, how the liabilities of the business will be addressed. Perhaps the thing to do is estimate the amount and timing of future redemptions based upon current trends and what your books show as to the amount outstanding.

The general rule of dissolving a business is that all the liabilities must be paid before the owners get their first dime back. I'm sure that in practice this seldom happens, because owners tend to grab stuff, not just bank accounts and receivables, but also trademarks, pencils, office art, the copier, etc. as the doors are closing. Things that belonged to the corporation when the business was prospering suddenly morph into "I just loaned that coffee maker to the office, it's mine" when the business folds.

I would think that in an ideal world, a stash of corporate cash should be maintained somewhere until the dissolution has been final for six to twelve months, maybe longer, with the address and phone number available for gift card holders that make some effort to find the former business. A web site, a sign on the now-closed door, or something.

As a practical matter, especially if the business is not going to be returning cash (or other assets) to the owners as a liquidating dividend or otherwise, your decision should be based on how much money is involved. If you can reasonably predict few if any will be looking to use or cash in their cards, just plan to pay those who find you out of your personal pocket. If we're talking dozens of holders and thousands of dollars, keep a corporate account until the redemption fervor dies out.

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Answered on 4/13/11, 6:04 pm


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