Dissolution refers to the legal process of terminating the existence of a corporate entity by liquidating assets and winding down operations.
Causes of Dissolution:
- Voluntary dissolutions result from non-viability like persistent losses or achieving objectives
- Involuntary actions stem from legal violations, abandoning business activities or court rulings
Liquidation Process:
- Assets convert to cash by sale to the highest bidder over time under a liquidator’s watch
- Creditors receive intimation to file claims against distributed proceeds according to ranking
- Members receive residual funds, if any, after full debt satisfaction
Example:
High costs compelled the early-stage biotech’s founders to reluctantly commence dissolution before securing additional financing, resulting in project termination.
Key Takeaway:
Dissolution concludes the technical life of an entity by discharging liabilities through an organized process overseen by regulators, with tax implications for owners.