Avoiding Involuntary Dissolution

Avoiding Involuntary Dissolution of Your Idaho Corporation

Idaho law has given shareholders of a corporation a wide range of ways to dissolve a corporation through judicial means if that shareholder believes the corporation is unable to function or it is operating improperly. How do you keep your corporation from being involuntarily dissolved through the actions of a shareholder?

Before the promulgation of Judicial Dissolution by the Idaho Code, courts and shareholders of Idaho corporations were bound by the following rule:

The general rule is that in the absence of specific statutory language, a court is without authority to order dissolution of going, solvent corporations in a suit brought by minority shareholders. The remedy of a disgruntled shareholder, dissatisfied with the management and operation of a corporation, normally is to withdraw from the corporation by the sale of his stock interest in the corporation.

Rowland v. Rowland, 102 Idaho 534, 540, 633 P.2d 599, 605 (1981) (citing 19 Am.Jur.2d, Corporations § 1601-02 (1965).

Today, the Idaho Code has provided the specific statutory language giving the court authority to dissolve a corporation.  Courts in Idaho may dissolve a corporation pursuant to the following:

In a proceeding by a shareholder if it is established that:

The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;

The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;

The shareholders are deadlocked in voting power and have failed, for a period that includes at least two (2) consecutive annual meeting dates to elect successors to directors whose terms have expired; or

The corporate assets are being misapplied or wasted[.]

• 30-29-1430(a)(2), Idaho Code. In the event a shareholder of a corporation seeks judicial dissolution pursuant to the foregoing provisions, the corporation and remaining shareholders have the option to 1) establish at a hearing the falsity of the claim or 2) to purchase the shares in lieu of dissolution. Of course, the corporation runs the risk of dissolution by attending the hearing. However, Idaho Code allows the shareholders to purchase:

In a proceeding under section 30-29-1430 (a)(2), Idaho Code, to dissolve a corporation, the corporation may elect or, if it fails to elect, one (1) or more shareholders may elect to purchase all shares owned by the petitioning shareholder at the fair value of the shares. An election pursuant to this section shall be irrevocable unless the court determines that it is equitable to set aside or modify the election.

• 30-29-1434(a), Idaho Code.

Dissolution of a corporation is a drastic remedy that should be invoked with extreme caution and only when justice requires it. McCann v. McCann, 152 Idaho 809, 819, 275 P.3d 824, 834. Protect your thriving and successful corporation from disgruntled shareholders. If you are ever facing dissolution of your corporation, find out how you can save it.

For assistance in these areas, call an attorney at Brian Webb Legal today at (208) 331-9393