Legal Question in Business Law in California

Re: When a corporation dissolves,

You should have someone review your corporate records to make sure they are in order. Assuming that they are, you will not be personally responsible for any corporate debts unless you personally guaranteed those debts when they were originally incurred. Generally, you will be protected by the corporate shell, however, with small corporations it is common that banks and other creditors require the personal guarantee of one or more principals before they will extend credit to a new business so you need to examine your records carefully.

Re: When a corporation dissolves, who pays

Assuming that you and your partner both incorporated the organization properly and that you have followed the required formalities, neither of you should be personally liable for ordinary debts of the corporation (this is NOT true for malpractice liability or liability for other tortious conduct, for which one or both of you may be personally liable depending upon the bylaws of your corporation). If the debts are more than the corporation can pay, you should try to negotiate them down. If you still can't stay above water, the corporation should be able to seek bankruptcy protection without directly impacting your personal finances.

However, if you have not followed all of the requirements of the corporate form, you may be in trouble -- especially if you and/or your partner mingled personal finances with those of the corporation. Creditors may file suits seeking to "pierce the corprate veil" by alleging that the corporation was never really a separate entity from your individual selves, and the bankruptcy court might reach the same conclusion and pool your personal assets with those of the corporation.

None of this is likely to be affected by your partner's decision to cede his interest to you. If he was personally liable for any of the corporation's debts, he cannot escape this liability by simply writing you a note. In fact, because he evidently did not give you his stock certificates, it is arguable that he never gave anything at all. However this issue might be decided, though, he can't simply transfer his debts to you without your consent.

The precise method of dealing with the departure (whether through resignation, retirement, death, incapacity or otherwise) of a principal should be spelled out in your bylaws. This procedure may include a buyout requirement. You will need to consult the bylaws carefully to see what must be done here.

Depending on the sepcifics of your situation, you will probably need a lawyer's help. Please feel free to contact me if you you wish.