Breaking Up a For Profit Corporation

A For Profit Corporation can be a useful tool if utilized appropriately. One major problem with a For Profit Corporation is the lack of flexibility to dissolve the Corporation when a disagreement arises between the equity shareholders. If ownership in a For Profit Corporation consists of 50% – 50% split in equity then there may be issues down the road.

Many future circumstances may warrant a dissolution of the For Profit Corporation, such as a dispute on the direction of the business, the profitability of the business, or simply a disagreement regarding employment and management duties. When these disputes arise, it may make the For Profit Corporation untenable and impractical. This can be a problem if one owner of the company wishes to continue business as usual and the other owner wishes to dissolve the corporation.

When making the decision to enter into a For Profit Corporation and splitting equity within the Corporation at a 50/50 ratio please keep in mind a couple of things:

1. It will be hard to dissolve the Corporation with a 50/50 split in equity;
2. It will cost additional expenses to appoint a receiver to manage the company;
3. It will cost additional expenses to retain a lawyer for the purpose of forcibly winding down a For Profit Corporation;
4. It will be an uphill battle to dissolve a For Profit Corporation that creates jobs in the community because the policy of Texas Courts’ is to find any alternatives to a dissolution that may bring termination to many employees.
5. It will be a complex and time consuming undertaking to dissolve a For Profit Corporation if both equity shareholders do not agree.

Prior to forming a For Profit Corporation, you should research all of your options. Many business organization can provide tax relief and flexibility without the rigidity of a For Profit Corporation. Please seek an experienced attorney when creating or amending any business organization and ask the pros and cons of all business entities.