Legal Question in Business Law in California

My father and a partner inheirited the shares to a small firm when the owner passed away, with my father holding a minority share of the stock (<50%). The majority partner has withheld $20,000 after the corporate assets were liquidated and cash distributed on the basis that the lawyer and accountant recommended the funds be retained in case of actions against the corporation. But per filing with the CA Sec of State, the corporate is now dissolved. Is the retention of the funds legal, given the corporation no longer exists, there is no partnership and the funds are being maintained in a bank account in the name of the dissolved corporation?


Asked on 8/08/09, 7:26 pm

2 Answers from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Yes, it's legal. Contrary to what many believe, dissolving a business entity such as a corporation, an LLC, or a partnership does not make the entity cease to exist for all purposes. Rather, the entity continues to exist and operate for the purposes of winding up its affairs, paying creditors, collecting its debts, and orderly liquidation. Dissolved entities can sue and be sued, have bank accounts, employees, etc., but they should NOT be entering into new deals that are inconsistent with going out of business. I can't say whether what's going on in this specific case is OK; that would require having a lot more information. However, it is likely to be legal and proper.

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Answered on 8/08/09, 8:42 pm
Terry A. Nelson Nelson & Lawless

"Legal"? It's not 'illegal', merely objectionable if you want to raise the objection. Either work out a resolution or consider suing if the funds are not properly distributed at the end of any Statute of Limitations time period for actions against the corporation.

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Answered on 8/09/09, 5:59 pm


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