Simon PLC Attorneys & Counselors – March 2024 Memorandum
Corporate Dissolution in Michigan and the Power to Sue and Be Sued
Troy, MI. In the dynamic landscape of business, corporate entities may find themselves faced with the need to dissolve their operations for various reasons. In the State of Michigan, the process of corporate dissolution involves several steps and requirements to ensure a smooth and legally compliant wind-down of business activities.
Corporate dissolution refers to the formal process of ending the existence of a corporation as a legal entity. This process involves liquidating assets, settling debts, and terminating business operations. Dissolution can be voluntary, initiated by the corporation’s shareholders or board of directors, or involuntary, due to regulatory non-compliance or other external factors.
Steps for Corporate Dissolution in Michigan
1. Approval of Dissolution: The decision to dissolve a corporation must be approved by the board of directors and shareholders following the procedures outlined in the corporation’s bylaws and state laws.
2. File Articles of Dissolution: To formally dissolve a corporation in Michigan, the entity must file articles of dissolution with the Michigan Department of Licensing and Regulatory Affairs (LARA). This document typically includes the corporation’s name, date of dissolution, and a statement of intent to dissolve.
3. Settle Debts and Obligations: The corporation must settle all outstanding debts, taxes, and obligations before proceeding with dissolution. This may involve notifying creditors, selling assets, and distributing remaining funds to shareholders. Michigan’s statute provides a framework for notice.
A dissolved corporation “may” notify either its “existing” claimants, MCL 450.1841a, or any claimant (existing or not), MCL 450.1842a, of its dissolution. If the dissolved corporation chooses to exercise either or both of these options, then under section 841a its existing claimants, once given direct written notice as set forth in the statute, shall have not less than 6 months in which to submit their claims to the defendant, lest they be barred. MCL 450.1841a(1)(c). Under section 842a, the dissolved corporation may publish notice of its dissolution in a general circulation newspaper. To be effective, this notice must state that unless a claim is “commenced” within 1 year of the publication date of the newspaper notice, the claim will be barred. MCL 450.1842a(2)(b).
4. Notify Stakeholders: It is important to notify various stakeholders, including employees, customers, suppliers, and other business partners, about the decision to dissolve the corporation. This helps facilitate a smooth transition and mitigate any potential disruptions.
5. File Final Tax Returns: The corporation must file final federal and state tax returns before the dissolution is complete. This includes reporting any income, assets, and liabilities up to the date of dissolution.
6. Cancel Permits and Licenses: Cancel any permits, licenses, or registrations held by the corporation with state and local authorities. This ensures that the entity is no longer liable for any ongoing regulatory requirements.
7. Distribute Assets: After settling all debts and obligations, the remaining assets of the corporation are distributed among shareholders according to their ownership interests.
Consequences of Non-Compliance.
Failure to follow the proper procedures for corporate dissolution in Michigan can result in legal consequences, including continued liability for taxes, debts, and obligations, as well as potential lawsuits from creditors or other parties.
The Michigan Court of Appeals, reading MCL 450.1833 and MCL 450.1834 together, has concluded: “[A] dissolved Michigan corporation may continue to exist beyond its date of dissolution only until it has concluded ‘winding up its affairs,’ ” and this end of the winding up process represented “a point in time when a dissolved corporation is terminated and ceases to exist for all purposes.” Id. at 495- 496. The Court found:
As noted previously, a dissolved corporation may continue to sue and be sued in its corporate name . . . in the same manner as if dissolution had not occurred. But once a dissolved corporation has finished winding up its affairs, its existence is terminated and it ceases to exist for all purposes. The general rule is that after the . . . termination of the existence of a corporation, no action can be maintained against it, and it has no capacity to sue. We conclude that once the existence of a dissolved corporation has terminated, it loses the powers enumerated in MCL 450.1833 and 450.1834, including the power to sue and be sued. . . .
In a recent unpublished opinion (Drake v Plum Hollow Lanes No. 363347 ) the Michigan Court of Appeals further explained, “MCL 450.1833 defines the interim state between dissolution and termination of corporate existence, the “winding up” phase when the corporation still exists and maintains its ability to sue and be sued. MCL 450.1834(e). MCL 450.1833(c) states the winding up of a corporation’s affairs includes “[p]aying its debts and other liabilities.”
Conclusion.
In conclusion, corporate dissolution in Michigan is a formal process that involves several important steps to ensure a proper wind-down of business activities. By following the legal requirements and fulfilling obligations to stakeholders, corporations can successfully dissolve their operations and move forward in compliance with state laws. Consulting with legal and financial professionals can help navigate the complexities of corporate dissolution and ensure a smooth transition for all parties involved.
N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.
