Chapter 10 Corporate Dissolution and Liquidation

Terminology• Dissolution is the formal extinguishment

of the corporation’s legal life.

• Liquidation is the process of reducing the corporation’s assets to cash or liquid assets.

• Winding up is the whole process of liquidating the assets, paying off creditors, and distributing what remains to shareholders.

Two Fundamental Forms of Dissolution

Voluntary Dissolution• expiry of the term of operation• occurrence of an event triggering dissolution • resolution on dissolution made by shareholders’ meeting

or shareholders’ general meeting

Involuntary Dissolution• dissolution required by a merger or division • business license revoked• company ordered to be closed down• dissolution ordered by a court

Regulation in China

• Article 182 the company may continue to exist by m

aking an amendment to its articles of association.

• Amendment to the articles of association of a limited l

iability company in accordance with the provisions of t

he preceding paragraph shall require a resolution pas

sed by a two-third majority of votes cast by its shareh

olders; in the case of a company limited by shares, su

ch a resolution shall be passed by a two-third majority

of votes cast by its shareholders present at a shareho

lders’ general meeting.

Involuntary Dissolution

• dissolution required by a merger or division the acquired company dissolved• business license revoked by Administration of Industry and Commerce• company ordered to be closed down Securities Companies CSRC Insurance Companies CIRC Banks CBRC

• Judicial Dissolution

Judicial Dissolution

• Article 183 Where a company experiences serious difficultie

s in its business and the shareholders will suffer serious damages if the company continues its operation, a shareholder or a group of shareholders holding 10% or more of the shares of the company may, in the absence of any other means, request for a mandatory dissolution of the company by a people’s court.

Note: Distinguish common lawsuits and judicial dissolution

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