Involuntary Corporate Dissolution Right

Involuntary corporate dissolution happens when the government lawfully liquidates an existing corporation for reasons like the company’s inability to follow trading rules and regulations or the firm’s engagement in illicit commercial operations like fraud. Veziroglu (2019) opines that if a corporation voluntary or involuntary violates the trading rules and regulation, it is subject to getting dissolved by the government involuntarily. Although the government has powers to regulate, control and even liquidate a corporation it is ought to make consideration on adverse effects that would occurs as a result of dissolving a firm; thus, the government must consider the following factors before applying this right.

The government ought to reflect on why it is dissolving the corporation involuntarily. Involuntary dissolution must serve the public interest. In most cases, a corporation’s dissolution results from the entity’s failure to comply with state tax or other regulatory requirements. For instance, if a corporation is involved in criminal acts like fraud, it could hurt the public by defrauding or scamming its customers; in this case, the government would be justified in shutting it down.

Additionally, the government should consider the nature of the corporation before applying the right of involuntary terminating a corporation. Some corporations play a significant role in the country’s economy by providing job opportunities to the public. Through the jobs that public members get, they earn income which aids them in meeting their basic needs and reduces the unemployment rate. When the public earns income, there is increased consumer spending and purchasing power, which leads to increased production and more job opportunities, thus boosting the country’s economy. Therefore, before the government considers practicing the involuntary right, it is essential to consider the nature of the corporation they are about to close and how the termination would adversely affect the country’s economy.

Moreover, the government is the sole creator of trading rules and regulations; hence they can implement alternatives before exercising the right of involuntary. Before terminating a corporation, the government needs to evaluate the available alternatives that the corporations would employ to ensure they adhere to corporate rules and regulations as per the government’s requirements. If a corporation engages in illegal behavior, its management may face criminal prosecution, its business license may be suspended, and the company may be obliged to comply with collective measures before it can restart operations.

Furthermore, the government must consider the due process to be followed during the dissolution of the corporations. The government should consider allowing the corporations to defend themselves and table any defense as evidence the dissolution takes place. Additionally, in a situation where the government is convinced and has enough evidence that the corporation violated the rules and regulations of trading, it should ensure that it enhances fairness and transparency throughout the dissolution process. The government would enhance transparency by allowing the corporation to refute all the allegations made against the corporation. Consequently, the government should follow the legal process for dissolution and provide the corporation with the basis and facts that lead to the dissolution.

Chu et al. (2018) asserts that, the government ought to prioritize public needs while deciding on whether to terminate the corporations. It is the role and responsibility of the government to safeguard the public interest while maintaining control over and reducing the negative effects of corporate actions should serve as the guiding principle. Chu et al. (2018) argues works so hard to ensure that the general public is protected from any harm that may results from corporation but again it must also consider the potential negative consequences for the economy and the public good that might arise from forcing a corporation’s dissolution.

Moreover, the government should evaluate when a corporation is dissolved. When the nation is experiencing a financial and economic crisis, dissolving a corporation would have more negative effects than positive ones (Radović,2020). Hence, the state committee in charge of dissolving a corporation should analyze if the time it is dissolving the corporation is the optimal time and evaluate whether there is another utterly appropriate period to dissolve the organization. If the government decided to terminate a corporation it should effectively communicate to both the corporations and the public members. Communicating effectively to both the public and corporation and giving the basis and reasons for it in decision would make the public gain trust on them and thus supporting the idea of dissolving the corporation (Radović,2020). The government sets rules and regulations that corporations have to adhere to while trading thus means the government is liable and accountable to the public for any harm that occurs as result of trading. The government being the guard for the public should embrace integrity and at not any given point should it prorogate the right of involuntary dissolution to avoid being held liable by the general public. For instance, if the corporations engage into illegal operations the government should impose punishment to the corporation and uphold integrity and transparency.

Before dissolving the company, the authorities should also carefully assess the corporation’s financial stability. According to Pehlivanoglu (2018), if a corporation is operating in deficit, it means that there are high chances that it will not be able to meet some of its need such as paying employees and enhancing effectiveness and effeciency hence it should be dissolved. However, if the corporation is financials viable the government should consider supporting it to achieve it is set goals and objectives.

References

Chu, M. H., & Chang, K. P. (2018). Involuntary Non-Voting Stock Due to War: Reflections and Solutions to Remaining Corporate Governance Issues for the Chinese Civil War. Available at SSRN 3440982.

Pehlivanoglu, M. C. (2018). Involuntary Dissolution: Theory and Operation in Publicly Traded Corporations. Ann. Surv. Int’l & Comp. L., 23, 1.

Radović, V. (2020). Involuntary dissolution for deadlock and oppression. Revija Kopaoničke škole prirodnog prava, 2(1), 101-120.

Veziroglu, C. (2019). Arbitration of Corporate Law Disputes in Joint Stock Companies under Turkish Law: A Comparative Analysis. European Company and Financial Law Review, 16(6), 771-806.