Dissolution of a closely held New York corporation can be accomplished either voluntarily, by vote of the shareholders, or involuntarily by way of a petition for judicial dissolution. The two methods are fundamentally different and should never be confused.

Article 10 of the Business Corporation Law (BCL) governs voluntary or “non-judicial” dissolution.  For corporations formed after February 22, 1998, when the law was amended, a simple majority vote of the shareholders may authorize the filing of a certificate of dissolution. For corporations formed before that date, a two-thirds vote is required unless an amended certificate is filed authorizing dissolution approved by a simple majority. For older or newer corporations, the certificate need not contain any provision on the subject, and frequently the issue instead is dealt with in the shareholders agreement, which often prohibits voluntary dissolution absent unanimous consent of the shareholders.

BCL Article 11 governs judicial dissolution. Section 1104 authorizes a 50% shareholder to seek a court order dissolving the corporation based on director deadlock, shareholder deadlock and “internal dissension”. Section 1104-a authorizes a 20% or greater shareholder to seek judicial dissolution where those in control have engaged in illegal, fraudulent or oppressive conduct or have looted, wasted or diverted corporate assets.

In Matter of General Trading Co., Index No. 106157 (Sup Ct NY County July 28, 2006), a 50% shareholder and creditor of the corporation brought a petition for judicial dissolution even though he had already gained control of all the corporation’s shares under a pledge agreement and had replaced its board of directors with his own single designee. The court dismissed the case on the ground that, since the petitioner held all the shares and controlled the one director, there was no deadlock under BCL Section 1104 and no need for judicial dissolution under Section 1104-a when the petitioner could achieve the same result by filing a certificate of voluntary dissolution under Article 10.  The case was decided by Justice Leland DeGrasse of the New York County Supreme Court.