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What Are Common Causes of Corporation Dissolution?

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  • Written By: Tess C. Taylor
  • Edited By: W. Everett
  • Last Modified Date: 31 March 2014
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In the business world, corporation dissolution refers to the termination of an organization due to factors that necessitate the end of the business. The most common causes of corporate dissolution include company bankruptcy, total property loss or destruction, or an internal disagreement on the direction that the company should take. Sometimes a corporate dissolution will happen when the business owner decides to sell the business, or after a complete breakdown of the company due to mismanagement, legal, or moral issues. The corporate dissolution can be a good business decision made purely for financial gain.

When overwhelming financial difficulties make it impossible for a company to continue operations, a corporation dissolution may be the only valid solution. The company assets and debts are tallied, proper financial reports are filed, and the company is dissolved by submitting corporate dissolution or bankruptcy forms. The government records this information and then the company ceases to be a legal entity. Debts are handled according to legal terms and assets are sold or auctioned off to settle these matters.

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In the case of a total destruction or loss of property, which may happen as a result of a natural or man-made disaster, a company may choose to go through the process of corporation dissolution. Once damages are assessed and insurance settlements are received by the owners of the company, the corporate dissolution process eliminates the business entity. This protects the owners from further damages and gives the owners a chance to start over as a new company if they desire.

There are times when corporation dissolution is caused by severe internal disagreements among corporate leaders. This can be the case when a company changes direction, is being mismanaged, or experiences the breakdown of leadership for various reasons. A corporate dissolution may be the only solution to settling disputes and restructuring the company so that all benefit in the long term.

In a more positive sense, many times a corporation dissolution is caused when a company decides to sell to an investor or to a competitor. By making a sound business decision to sell the company and all its assets to another company, a corporation may undergo a merger or an acquisitions process. The company that is sold dissolves its right to do business independently and the seller loses some or all of the ownership responsibilities. This is often a good alternative to closing down a business completely or filing bankruptcy in times of financial need. Corporate dissolution that is handled in this manner keeps the company operating, but under the ownership of another entity that has the financial means to do so.

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