Breaking Up a For Profit Corporation

Originally published by Nacol Law Firm - Dallas TX.

A For Profit Corporation can be a useful tool if utilized appropriately. One major problem with a For Profit Corporation is the lack of flexibility to dissolve the Corporation when a disagreement arises between the equity shareholders. If ownership in a For Profit Corporation consists of 50% – 50% split in equity then there may be issues down the road.

Many future circumstances may warrant a dissolution of the For Profit Corporation, such as a dispute on the direction of the business, the profitability of the business, or simply a disagreement regarding employment and management duties. When these disputes arise, it may make the For Profit Corporation untenable and impractical. This can be a problem if one owner of the company wishes to continue business as usual and the other owner wishes to dissolve the corporation.

When making the decision to enter into a For Profit Corporation and splitting equity within the Corporation at a 50/50 ratio please keep in mind a couple of things:

1. It will be hard to dissolve the Corporation with a 50/50 split in equity;
2. It will cost additional expenses to appoint a receiver to manage the company;
3. It will cost additional expenses to retain a lawyer for the purpose of forcibly winding down a For Profit Corporation;
4. It will be an uphill battle to dissolve a For Profit Corporation that creates jobs in the community because the policy of Texas Courts’ is to find any alternatives to a dissolution that may bring termination to many employees.
5. It will be a complex and time consuming undertaking to dissolve a For Profit Corporation if both equity shareholders do not agree.

Prior to forming a For Profit Corporation, you should research all of your options. Many business organization can provide tax relief and flexibility without the rigidity of a For Profit Corporation. Please seek an experienced attorney when creating or amending any business organization and ask the pros and cons of all business entities.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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