Legal Question in Business Law in California

Shoud I dissolve my corporation?

My ex business partner and I had a mortgage company. He stole money from our business account. He agreed to pay back the money but has not done so. We closed the company but the corporation is still active. I found out that he as and individual (he was the mortgage broker) and the corporation, are being sued by a lender because one of our clients didn't make his mortgage payments and they want him/us to re-purchase the loan. I had no idea about any of this until recently. Now I was notified that he filed for BK to escape the lawsuit and all his other debt. I'm afraid that since he declared BK, they might come after me. Should I keep the corporation active to protect myself from this lawsuit or should I dissolve it? Also, can I still try to recover the money he owes me even if he filed for BK?

Thank you.


Asked on 7/18/07, 8:58 pm

2 Answers from Attorneys

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

Re: Shoud I dissolve my corporation?

You should go to the bankruptcy court and ask the clerk to let you look at the file. See if you can learn anything helpful to your overall picture. Then, while you have a clear picture of what the file reflects (you should be able to copy key schedules, if they've been filed), have a conversation with a bankruptcy lawyer who represents CREDITORS as a significant part of his or her practice to get an idea whether active pursuit of a claim is likely to be rewarding.

As to the corporation, numerous questions arise. Who has its records? Were you of equal voting power (50% stockholders, each one of only two directors)? Have the franchise taxes been paid? Are there minutes of meetings? And on and on.

The issues are not just whether you should dissolve the corporation, but also whether you have the power to do so.

Also, what do you mean by "active?" Do you mean it is still transacting business, even if it is business that doesn't require a broker, like servicing loans? Or by "active" do you mean it in the Secretary of State sense that it hasn't been dissolved?

Even if you lack the power to dissolve the corporation singlehandedly, you always have the alternative of filing a petition in court for a judicial order to dissolve on any of the bases provided in the Corporations Code sections 1800 to 1809.

However, dissolving the corporation is probably slightly to moderately more likely to expose its former insiders (larger shareholders, directors, and officers) to personal suit.

A final piece of advice is that if you have personally guaranteed or co-signed any corporate obligations, now is the time to start taking action to cancel those obligations or close the guaranteed accounts, if you can.

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Answered on 7/19/07, 12:42 am
Terry A. Nelson Nelson & Lawless

Re: Shoud I dissolve my corporation?

There are several things you should be doing, including filing a non-dischargeability claim against him in BK. You need counsel, get it quickly.

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Answered on 7/19/07, 1:27 pm


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