In the dynamic and often unpredictable economic landscape of California, businesses and individuals can sometimes find themselves facing overwhelming debt. While the term "bankruptcy" often conjures images of complete financial collapse, the reality is that the US Bankruptcy Code offers powerful tools for reorganization and debt management, providing a pathway toward a fresh start or a sustainable future. At KAASS LAW, we understand the complexities and anxieties in relation to financial distress, and we would like to dedicate in guiding individuals and businesses through the processes of bankruptcy reorganizations and arrangements in California.
Chapter 11 of the US Bankruptcy Code is usually falls under as a "reorganization" bankruptcy. Bankruptcy reorganization occurs when a corporation is unable to pay its outstanding debts or a company's passives exceed actives. As such, bankruptcy proceedings are likely to be initiate. These proceedings are all under the federal bankruptcy court. In the framework of bankruptcy reorganization, the insolvent corporation has a possible chance to draft and submit a reorganization plan to the court. The latter is aiming towards the financial recovery of a corporation. If the given reorganization plan is approved by the court, the corporation can continue its business activity since the payment of debts impeding corporate operations is adjourned.
The reorganization plan must include all the necessary measures deemed necessary to decrease costs and increase the income of the corporation. The measures may refer to:
If a reorganization plan is rejected by the court, the corporation is doomed to liquidation. That said, its assets will be sold to satisfy the claims of the creditors.
Pursuant to Corporation Code of California section 1400 of the trustee or trustees of a corporation appointed in the reorganization proceeding are vested the authority to exercise a reorganization plan or court orders without further consent by the corporation board or shareholders.
The powers of trustees, among other things, may include:
If the reorganization does not succeed, or the trustees have elected to dissolve, the corporation should elect to "wind up" the corporation. As such, the trustees would file a certificate of dissolution with the Secretary of State.
To start, the trustees sign and verify the certificate of dissolution when the corporation is completely up and ready. It shall state the following:
Navigating the complexities of bankruptcy reorganization and arrangements requires experienced legal counsel. At KAASS LAW, we offer:
If you are struggling with a financial hurdle that you cannot jump across, don't deal with this problem alone. As a result, with our services, we can overcome and achieve in helping you with your overwhelming debt. Finally, contact KAASS LAW today for a confidential consultation. We are here to provide the expert legal guidance and support you need to explore your options and take the first step towards a brighter financial future. Additionally, our firm offers expert business guidance through a scheduled consultation service. For instance, we can offer and navigate any opportunity to buy out your business partner.
The first step in starting a business is to gain a business formation. In general, there are four types of business formation in Californian. They include:
A corporation is an organization through which a business is conducted. It is a legal entity incorporated in certain jurisdictions by its founders. Like a physical person, a corporation has its rights and obligations. However, the latter shall not be attributed to the owner(s) of a corporation, since they are distinct from each other.
Corporations as a rule have several of distinctive characteristics that altogether separate them from the other types of legal entities and help to obtain certain rights and obligations. Many specialists in the field of corporate/business law distinguish characteristics of corporations that overlap one with the other. Many lawyers believe that the central attributes of the corporations are:
According to the Corporation Code of California, the types of corporate structure within Californian jurisdiction are divided into two broad categories:
The persons who have formed partnerships are known as partners, while shareholders are persons who own one of the shares of a corporation. Therefore, the differences arising among the partners/shareholders within partnership/corporation are referred to as partnership and shareholder disputes.
When the business involves two or more people, sooner or later the disagreements between them become inevitable. Partners/shareholders usually succeed in ironing out the differences based on mutual understanding given the common business interest. Unlike it, sometimes disagreements have deep roots full of possible grave consequences for the business. Such disagreements may refer to many different circumstances in connection with the collision of business interests, opposite ideas, breaches, etc.
The practice shows that more frequently the factors described below do cause or at least contribute to such disputes:
A corporation registered with the State of California can cease its corporate existence in two ways:
Each way of dissolution has its grounds and specific legal procedure. While a corporation may be involuntarily dissolved under a court decree, the voluntary dissolution is carried out by a corporation’s shareholders, as well as in special cases by the Board of Directors. This article will address voluntary dissolution, leaving involuntary dissolution for a separate discussion.
The Corporations Code of California, chapter 19, sections 1900-1907, covers the legal regulations pertaining to the procedure of voluntary dissolution. These rules help an interested person to comply with the requirements of the law in the process of voluntary dissolution.
In general, someone may initiate voluntary dissolution by:
In most states, it has become a conventional practice when the companies are incorporated without having a temporary existence limitation and only in exceptional cases do the founders/shareholders of the companies decide to have an ending date. If the shareholders decide, at the moment of registration, that the company should have a specified ending date, then the defined date shall be considered as an automated end of the corporation if prescribed in the charter of the company. However, in the prevailing number of cases, the founders of the corporations do not specify an ending date, which means that the corporation can have an ending date only if:
The characteristic of perpetual existence of the corporation gives the shareholders a sense of comfort meaning that the corporation is easily manageable, safer and a stable place to make investments, expect returns without having to worry about the sudden changes. Likewise, this characteristic eliminates any extra expenses the corporation may have taken for the regular updates/addendums in the state registration body. Alternatively, corporations can carry the information as initially prescribed in the charter without spending additional efforts to file any other documents.
A legal personality in the case of companies is decided by the specific types of business organizations, which own separate property and assets (tangible, intangible) and the liability of the latter extends to the assets and investments it committed. The legal persons can acquire and exercise property and non-property rights, carry on responsibilities, act as plaintiffs and/or defendants in courts.
Limited liability is a fundamental doctrine of corporate law. There are many benefits of a limited liability company. The rule of limited liability implies that the investors who make contributions to the equity capital of the company/corporation bear the risks only to the extent of the initial investments and the assets the company possesses. For example, if A and B persons, each owning 50% of the shares in the company, jointly organized, invested 200$ in total to the charter capital of the company, then each of them risks only 100$ and not more than the investment if no other assets are transferred under the property entitlement of the company.
If you need help in forming a corporation in California we invite you to contact our Los Angeles Business lawyer at (310) 943-1171.
In some cases, there are laws aimed at resolving shareholder disputes within the legal procedure. For instance, in the process of voluntary dissolution of a corporation, the minority shareholder’s rights may be violated while distributing corporation assets to the shareholders entitled thereto, so they may fight it by the legal tools vested by the Corporation Code of California. In particular, according to the latter, upon the petition of shareholders who hold shares representing 5 percent the court may take jurisdiction over the voluntary winding-up proceeding if that appears necessary for the protection of any parties. The court, if it assumes jurisdiction, may make such orders as to any matters concerning the winding up of the affairs of the corporation and for the protection of its shareholders. In short, the shareholder dispute described above could be resolved by the interference of a court for the protection of the shareholder rights.
There is a range of methods to resolve such disputes. Among others, they may include:
We believe that the most effective and practical way would be entrusting an attorney to reach a settlement in conditions best for your interests.
If you need legal assistance when you find settling such disputes is beyond your powers, we invite you to contact an attorney at KAASS LAW at (310) 943-1171 and speak to our Glendale business attorney to assist with the process.
Shareholders may dissolve their corporation for a variety of reasons. In this regard, they are not accountable to anyone else. Shareholders holding shares representing 50% or more of the voting power should vote to wind up and dissolve the corporation, unless the articles of incorporation prescribe a higher threshold. Whereas, the board of directors may approve to wind up and dissolve a corporation which comes within one of the following descriptions:
Once the resolution on a voluntary dissolution is in place, the corporation steps into the stage known as “winding up”. This aims to finalize the debt-clearance process. It assumes paying outstanding debts and discharging pending liabilities. Afterwards, the corporation resolves the issue of distributing the remaining assets to the shareholders entitled thereto.
The corporation must notify its creditors about the commencement of dissolution, allowing them to submit their claims. Such notification shall include all the relevant information necessary for sending claims, for instance the mailing address, the deadlines for submission etc.
Further, you need to file a certificate of dissolution with the Secretary of State (SOS). The certificate of dissolution shall include the following information:
The official website of SOS provides the form of the certificate. You must submit the certificate via email or in person. Thereupon the corporate powers, rights, and privileges of the corporation ceases. The Secretary of State notifies the Franchise Tax Board of the dissolution.
However, in addition to the above actions, the corporation must consider a number of additional legal obligations. For example, the corporation must file a final tax return with the California Franchise Tax Board. Also, all applicable taxes must be paid before or at the time the Certificate of Dissolution is filed. In addition, if the corporation had employees, all requirements under the California Labor Code must be met. These include:
Failure to meet these obligations can result in civil liability and penalties. In addition, if the company holds any licenses or permits, they must be formally revoked or transferred. This is especially important for businesses in regulated industries. Such as:
Corporations are advised to retain accounting and corporate records for at least three years after liquidation. This may be necessary in the event of an IRS audit or creditor lawsuit. Contact KAASS LAW for legal assistance in all stages of liquidation.
If you need to initiate and finalize the process of a voluntary dissolution of your corporation, we invite you to contact an attorney at KAASS LAW at (310) 943-1171 and speak to our Glendale business attorney to assist with the process.