Best Practices for Dissolving a Nevada Corporation
Eventually it happens to every corporation – the time comes for the corporation’s affairs to be wound up and its assets distributed. Hopefully the assets are distributed among the corporation’s stockholders, but sometimes the assets must go to the creditors. In this article, I will outline the requirements for dissolving a Nevada corporation and will set forth a short list of best practices to make sure that the dissolution is smooth and without surprises.
Note that in some circumstances insolvent corporations are forced to rely on the federal bankruptcy code. While a viable option in many cases, this article will focus on dissolution under Nevada law, not liquidation in bankruptcy.
Dissolution of a Nevada corporation is accomplished by having the board of directors adopt a resolution authorizing the dissolution and recommending it to the corporation’s stockholders, and then the stockholders must also approve the dissolution. Once director and stockholder approval has been obtained, a certificate of dissolution is filed with the Nevada Secretary of State and the corporation is deemed dissolved.
Dissolution does not necessarily end all of the corporation’s affairs, however. Nevada law provides that the dissolved corporation’s directors are trustees for the dissolved corporation. As trustees, the dissolved corporation’s directors are empowered to “settle the affairs, collect the outstanding debts, sell and convey the property, real and personal, and divide the money and other property among the stockholders, after paying or adequately providing for the payment of [the corporation’s] liabilities and obligations." Trustees also have the power to sue on behalf of the dissolved corporation, and are suable by the dissolved corporation’s creditors for debts owing by the dissolved corporation at the time of dissolution.
Trustees can become personally liable for debts owing by the dissolved corporation at the time of dissolution, if they fail to “adequately provided for the payment of [the corporation’s] liabilities and obligations." This liability is limited to the value of the dissolved corporation’s money or property which comes into the trustees’ control.
For example, where a director knows or should know of a potential lawsuit against a dissolved corporation, it is probably unreasonable to liquidate and distribute all of the corporation’s assets to the corporation’s stockholders. In that case, the creditor threatening suit could assert that the director did not adequately provide for the payment of the dissolved corporation’s liabilities and obligations. The result? The director could be held personally liable up to the amount of the assets which were distributed to the stockholders.
As trustees, directors of a dissolved corporation are well advised to follow the following “best practices:"
Be sure that the corporation has ceased all business, other than winding up its affairs.
Marshall all of the corporation’s assets and monies. Document the value of all assets and funds.
Make a list of all of the corporation’s creditors. Give the creditors written notice of the dissolution and solicit their written claims. Pay the creditors’ claims if there are sufficient funds. If the corporation’s treasury is not sufficient to pay all creditors’ claims, consult an attorney. It may be wise to bring an action in district court to apportion the treasury among the creditors.
DON’T distribute monies among stockholders until all creditors have been satisfied.