Common Reasons the California Secretary of State Rejects Corporate Filings - Part Four

Common Reasons the California Secretary of State Rejects Corporate Filings - Part Four – Dissolutions

This is the final installment in a four-part series, and examines a few of the most common reasons that filings for entity dissolutions are rejected.

Dissolving a California domestic stock corporation is initiated by an election to dissolve. The corporation must then file certain documents with the Secretary of State, including a certificate of dissolution. The certificate is available at:http://bpd.cdn.sos.ca.gov/corp/pdf/dissolutions/corp_stkdiss.pdf

Common reasons why the certificate of dissolution is rejected include:

1. Failing to describe, in an attachment, the provision made for the corporation’s known debts and liabilities: When selecting “The corporation’s known debts and liabilities have been adequately provided for as far as its assets permitted” (the fourth option in Section 3 of the certificate of dissolution), a filer must specify in an attachment the provision made and one of the following: (a) the address of the corporation, person, or government agency that assumed or guaranteed the payment, (b) the depositary with which the deposit has been made, or (c) other information necessary to enable creditors or others to whom payment is to be made to appear and claim payment. The format may be an attached page that contains the information listed above, the address of the assumer or the bank where the deposit was made or other information to help creditors claim payment. Attaching a bankruptcy judgment instead of the required attachment is generally insufficient.

2. Making contradictory statements regarding corporate assets: Filers who select that “debts and liabilities have been paid as far as assets permitted” in Section 3 cannot also state that the corporation has never acquired assets in Section 4. If the corporation is paying its debts and liabilities with its own assets, it must have acquired assets. If the corporation has in fact never acquired assets, then the most likely answer for Section 3 is that (a) another entity is assuming the debts and liabilities (the third option in Section 3) or (b) the corporation never incurred any known debts or liabilities (the fifth option in Section 3.

3. Making contradictory statements between the certificate of dissolution and the certificate of election: If fewer than all of the outstanding shares vote to dissolve a corporation, a certificate of election to wind up and dissolve is additionally required. If a filer indicates in the certificate of dissolution that all of the shares voted to dissolve the corporation (Section 5), the certificate of election cannot state that the corporation has no shares outstanding (the second option in Section 3). If the corporation has no shares outstanding, then the certificate of election should state that no shares are outstanding (the second option in Section 3) and the certificate of dissolution should state that the election to dissolve was not made by the vote of all outstanding shares (“No” in Section 5), as outstanding shares cannot vote if they do not exist. Note that if this is the only filing deficiency with the certificate of dissolution, the Secretary of State will return the certificate of election and file the certificate of dissolution by itself since on its face, the latter complies with law and no election is needed. If there are additional deficiencies, then the certificate of dissolution and the certificate of election will both be returned and will need to be fixed.

Daniel H. Alexander, Attorney www.dalexander.com

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