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Section 1800 And The Case Of The Little Shareholder That Could

Section 1800 of the California Corporations Code provides a procedure for the involuntary dissolution of a corporation.  The process begins with the filing of a verified complaint, but only those persons listed in the statute have standing to file the complaint.  Included in the list is any shareholder or shareholders who hold shares representing not less than 331/3 percent of:

  • the total number of outstanding shares (assuming conversion of any preferred shares convertible into common shares);
  • the outstanding common shares; or
  • the equity of the corporation.

Thus, it would seem that the holder of 20% of the outstanding common shares would have no standing to file a complaint for involuntary dissolution under the statute.  However, the statute excludes shares owned by any person who has "personally participated in any of the transactions enumerated in paragraph (4) of subdivision (b) [of Section 1800].  That paragraph includes in the list of the grounds for involuntary dissolution "Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers".

For example, if a corporation has 100 outstanding common shares of which 60 are held by one stockholder and 20 each by two other stockholders, either one of the minority stockholders would have standing to file a complaint if the controlling stockholder personally participated in any of the transactions described in Section 1800(b)(4).  In that case, the controlling stockholder's shares would be excluded and each of the two minority shareholders would have 50% of the outstanding common shares for purposes of the statute.

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California Corporations Code

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
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