- 1 Procedures for dissolution of a U.S. corporation
- 2 Due Diligence (Confirmation of Company Status)
- 3 Resolution to dissolve the company.
- 4 Tax and accounting procedures
- 5 Terminating an employment contract with an employee
- 6 Liquidation Services
- 7 Resignation of Representative in Japan
- 8 Legal Liability for Foreign Subsidiary’s Debts
- 9 Precautions for Disposal of Subsidiary Assets
- 10 Fraudulent Transfer
- 11 Unfair Preference
- 12 Bulk Sale Law (Uniform Commercial Code Article 6)
- 13 Equitable Subordination
- 14 When the transferee of an asset is liable
- 15 Piercing the Corporate Veil Theory
- 16 A case in which a parent company was found liable in tort for improper corporate management of a subsidiary
- 17 Management Guidance Letter (Comfort Letter, Keep-Well Letter)
Procedures for dissolution of a U.S. corporation
In addition to expanding overseas, circumstances may force us to consider withdrawing from our overseas bases. The procedures for dissolving and liquidating a U.S. corporation are as follows.
Due Diligence (Confirmation of Company Status)
Before liquidation proceedings can be undertaken, the company’s financial situation and administrative issues must be ascertained. The first step in the due diligence process is to gather basic company documents. The basic documents include the following
1 Articles of Incorporation
2 Copies of share certificates
3 Minutes of board of directors meetings
4 Minutes of shareholders meeting
5 Names of directors and auditors
6 State business licenses obtained by the company
7 Copies of current valid contracts (office lease, lease agreement, supply contracts)
8 List of employees, employee wage ledgers
9 List of customers, creditors, leasing agents, and debtors
10 Any disputes with customers
11 Copies of bank passbooks
Resolution to dissolve the company.
Prepare a written consent of the company’s board of directors and shareholders. If there is more than one director or shareholder, it is always necessary to obtain the consent of all of them or to pass a board of directors or general meeting resolution. Prepare a Certificate of Dissolution or Certificate of Termination of Existence for filing with the state of incorporation.
Tax and accounting procedures
In order to file a Certificate of Dissolution with the state government of the state of incorporation, you will need to prepare financial statements (with the assistance of a tax accountant or accountant), register an annual report, and pay franchise taxes. You may also want to obtain a tax clearance certificate to certify that your taxes have been properly paid, file a corporate income tax return with the IRS (tax return to stop payment of federal taxes), an employment tax form (for employees’ taxes), a dissolution of the company, or a tax return for the company’s employees (for employees’ taxes). Form 966 is a form to be filed with the IRS when a company resolves to dissolve. You are required to report the company’s address, trade name, date and place of incorporation, date and place of dissolution, details of the dissolution resolution, and the name of the parent company.
If the company has failed to file a national tax return with the IRS or a tax return with each state tax office in prior years, a new return must be prepared and filed for that year. If state equalization taxes have not been paid, they must be paid.
Terminating an employment contract with an employee
If you have employees, you will need to terminate their employment contracts. You will discuss the terms of the termination and prepare an Employment Termination Agreement or Severance Agreement that outlines the terms of the agreement, including notice of termination of the 401K plan, notice of termination of benefits to the health insurance provider, and notice of continuation of health insurance. to notify them of the termination of their benefits and the continuation of their health insurance coverage.
The liquidator will pay debts (including taxes and unpaid salaries), collect accounts receivable, notify suppliers of the termination of contracts, return leased property, and vacate the building as the conclusion of current operations. Any remaining assets are to be returned to shareholders, etc.
Resignation of Representative in Japan
If the U.S. corporation has a Japanese branch, the Japanese branch will be registered and the name of the representative in Japan will be listed. When liquidating the Japanese branch, the resignation of the Japanese representative may be registered, or the closure of the Japanese branch may be registered. We can handle the procedures for registering the resignation of the Japanese representative and the closing of the Japanese branch.
Legal Liability for Foreign Subsidiary’s Debts
When liquidating a foreign subsidiary, it is necessary to ascertain whether the parent company is liable for the debts of the remaining subsidiary. In the case of a corporation, the shareholder has limited liability; in the case of a limited liability company, the member has limited liability; in the case of a limited partnership, the general partner has unlimited liability, but the limited partner has limited liability. In the case of a Limited Partnership, the General Partner has unlimited liability, but the Limited Partner has limited liability.
Precautions for Disposal of Subsidiary Assets
When disposing of the assets of a subsidiary, various liabilities may arise with respect to the parent company. The following legal principles should be noted.
Fraudulent Conveyances/Fraudulent Transfers are fraudulent transfers if (a) a bankruptcy proceeding is filed within a certain time period (within two years of the disposition of the assets under the federal bankruptcy code), (b) the court determines that the assets were disposed of without receiving reasonably equivalent value, and (c) the seller was insolvent at the time of the disposition of the assets, or the disposition of the assets may be reversed as a fraudulent transfer.
If a debtor becomes insolvent and then makes payments to certain creditors in excess of what the debtor is entitled to in the bankruptcy proceeding (i.e., payment of “preference”), the debtor’s future payments may be disallowed by the trustee in bankruptcy and returned to the bankruptcy estate under the U.S. Bankruptcy Code.
Bulk Sale Law (Uniform Commercial Code Article 6)
If a company is selling its inventory in bulk and the Bulk Sale Code applies, the procedures set forth in the Code must be followed. The seller is required to submit a list of creditors to the buyer, who is required to file a contract with the Secretary of State, notify the seller’s creditors, and distribute the proceeds to the seller’s creditors in a pre-determined manner. If this procedure is not followed, the buyer is liable for damages to the seller’s creditors.
Under principles of equity, a creditor may be subject to equitable subordination if (a) the creditor owes a fiduciary duty to another creditor (which can arise from exerting control over the debtor by owning a shareholder interest or by controlling the debtor’s business decisions) and the creditor causes injury to the other creditor by acting unfairly. or (b) the creditor has acted maliciously or fraudulently to the detriment of other creditors, the court may subordinate the creditor’s claim against the other creditors.
When the transferee of an asset is liable
Under the Product Line Theory, De Facto Merger Theory, and Superfund Law, the transferee of assets may be liable to the creditors of the transferor.
Piercing the Corporate Veil Theory
If a subsidiary guarantees the quality of its products or services to its customers, the subsidiary is liable for Representation and Warranty. Tort liability also arises if the subsidiary engages in tortious conduct. Product liability arises when a product manufactured or sold by a subsidiary is defective and causes damage to consumers. In these cases, if the subsidiary closes without paying compensation, a claim for damages may be brought against the parent company under the doctrine of Piercing the Corporate Veil.
A case in which a parent company was found liable in tort for improper corporate management of a subsidiary
In a case in which the trustee of Lee I.E. International, Inc. (Lee I.E.), which was in financial difficulties, was placed under the control of the former Choh Bank, and the trustee of Lee I.E. filed a lawsuit against Shinsei Bank in Saipan court claiming damages for the improper disposal of hotels and other assets at an unfairly low price. Shinsei Bank will pay the trustee ¥21.8 billion in settlement. The case took into consideration the fact that, at the time of the disposal of the assets of the company, the majority of the directors of the company were officers dispatched from the former Chouin Bank.
Management Guidance Letter (Comfort Letter, Keep-Well Letter)
When a parent company provides a letter of guarantee to a subsidiary’s business partners or financial institutions, the parent company is liable for the guarantee. The parent company may or may not be liable for a Comfort Letter or Keep-Well Letter.