Imposing The Corporate Death Penalty

In this post published yesterday, UCLA Law Professor Stephen Bainbridge challenges the following statements attributed to Robert F. Kennedy Jr.:

I do, however, believe that corporations which deliberately, purposefully, maliciously and systematically sponsor climate lies should be given the death penalty.  This can be accomplished through an existing legal proceeding known as “charter revocation.”  State Attorneys General can invoke this remedy whenever corporations put their profit-making before the “public welfare.”

Professor Bainbridge cites three ways in which the death penalty may be imposed on corporations under the Model Business Corporation Act - "voluntary dissolution approved by the shareholders and the board of directors"; administrative dissolution by the Secretary of State; and judicial dissolution at the request of the Attorney General.  California generally follows this pattern, but there are some differences.

Voluntary Dissolution

First, California doesn't use the terminology of "administrative dissolution" vis-a-vis the Secretary of State.  Sections 2205 and 2206 of the California Corporations Code provide for suspension and forfeiture, respectively, of corporate powers, rights, and privileges.

Involuntary Dissolution

Second, voluntary dissolution is by the election of the shareholders.  Cal. Corp. Code § 1900(a).  A corporation may be voluntarily dissolved by election by "approval by the board" only in the following three circumstances:

  • An order for relief under Chapter 7 of the Bankruptcy Code has been entered with respect to the corporation;
  • The corporation has disposed of all of its assets and has not conducted any business for a period for the five years immediately preceding the election to dissolve; or
  • The corporation has issued no shares.

Professor Bainbridge omits involuntary dissolution - a remedy available under both the Model Business Corporation Act and Chapter 18 of the California Corporations Code.  The California statute authorizes involuntary dissolution to be pursued by filing a verified complaint by any of the following persons:

  • One-half or more of the directors in office;
  • A shareholder or shareholders who hold shares representing a 33 1/3 per cent of (i) the total number of outstanding shares (assuming conversion of any preferred shares convertible into common shares) or (ii) the outstanding common shares or (iii) the equity of the corporation, exclusive in each case of shares owned by persons who have personally participated in any of the transactions enumerated in Section 1800(b)(4);
  • Any shareholder or shareholders of a "close corporation" (see the definition in Section 158);
  • Any shareholder if the ground for dissolution is that the period for which the corporation was formed has terminated without extension; or
  • Any other person expressly authorized to do so in the articles of incorporation.

Cal. Corp. Code § 1800(a).  The MBCA list (§ 14.30) is different and includes certain creditors.

Corporate Death Penalty

Professor Bainbridge's point, however, isn't these legal technicalities.  His post focuses on the basis for dissolution by a state's Attorney General (these proceedings are often referred to as quo warranto actions).  California authorizes the Attorney General to file an action seeking to procure a judgment dissolving the corporation and annulling, vacating or forfeiting its corporate existence upon any of the following grounds:

  • The corporation has seriously offended against any provision of the statutes regulating corporations;

  • The corporation has fraudulently abused or usurped corporate privileges or powers;

  • The corporation has violated any provision of law by any act or default which under the law is a ground for forfeiture of corporate existence; or

  • The corporation has failed to pay to the Franchise Tax Board for a period of five years any tax imposed upon it by the Bank and Corporation Tax Law.

I agree with the professor, none of these authorizes the killing of a corporation merely because it has put its profit motive above the "general welfare".