Legal Corner: Reasons for dissolution of companies Thursday, 23 June 2011 00:54

By Abdelaal A Khalil

The law points out that the commercial companies will ease to exist by the dissolution of the company or its liquidation. The reasons for dissolution differ according to the type of company whereas the law provides for the general reasons to dissolve the companies.

First: The expiry of the period of the company mentioned in the memorandum of association or statutes of the company, unless renewed in accordance with the rules contained in the memorandum of association. Second: The end of the purpose for which the company was founded or there is impossibility to achieve it. Third: The transfer of all shares or all stocks to a number of partners or shareholders less than the minimum numbers prescribed by law.

Fourth: The reason which requires the dissolution of the companies is the loss of all capital of the company or most of it so that the rest of the capital cannot be invested as worthwhile investment. Fifth: It is based on the agreement of all partners on the dissolution of the company before the end of the period unless the company memorandum provides to dissolve it with a certain majority.

Sixth: The merger of the company in another company and final one is the issuance of a judicial ruling to dissolve the company or declare its bankruptcy.

The court may judge to dissolve any partnership firm or limited partnership or joint venture at the request of one of the partners if it finds the serious reasons that require the same. Every condition that demands to deprive the partner of the use of this right is void. If reasons lead to the dissolution resulting from the misconduct of one of the partners the court may ask for his expulsion from the company and in this case, the company shall continue to exist between the other partners.

The court may pass the judgment to dissolve the company at the request of one of the partners because of one partner’s failure to meet his promise.

The partnership firm or limited partnership or joint venture shall expire in case of death of any partner or his legal incompetency or declaration of his bankruptcy or insolvency or his withdrawal from the company. However, the provision in the company memorandum allows that in case of death of any of the partner of the company, it shall continue with the heirs even if they are minors.

If the withdrawal of a partner takes place in a bad faith or in an inappropriate time the court may pass the judgment for the partner to continue in the company as well as the compensations if required.

If in the contract of the partnership firm or limited partnership or joint venture no provision has been mentioned to continue the company in case of withdrawal of one of the partners or death or a verdict on his incompetency or declaration of bankruptcy or his insolvency, the partners may, within 60 days from the date of the occurrence of any of these cases, decide unanimously to continue the company with each other. It shall not be permissible by this agreement to protest against other only from the date of his declaration with the enrollment in the commercial register for partnership firm and limited partnership.

In all cases to continue the company with the rest of the remaining partners the share of the partner, who left the company, shall be estimated according to the latest inventory, unless the company memorandum provides for another method of estimation. The partner or his heirs shall not a share in the emerging rights of the company except to the extent of those rights that resulted from the operations that were performed before he left the company.

With regard to the joint-stock company the companies’ law no. 5 / 2002 points out that the joint-stock company shall be dissolved if the total losses of the company reached half of the capital. The members of the Board of Directors shall have to invite the Extraordinary General Assembly to look into the continuation of the company or its dissolution before the term specified in the statute. If the Board of Directors didn’t invite the Extraordinary General Assembly or it failed to issue a resolution in this regard, every concerned party may request the court to dissolve the company.

The joint-stock company shall dissolve and expire due to transfer of all its shares to one shareholder and this shareholder shall be liable for the debts of the company within the limits of its assets. If one year passed on the less number of shareholders below the minimum limit, each cncerned party may request the court to dissolve the company.

The limited liability company shall not be dissolved by the withdrawal of one of the partners or death or the issuance of the rule of the incompetency or declaration of bankruptcy or insolvency unless the company memorandum provides otherwise. If the losses in the limited liability company reached half of the capital, the managers must, within 30 days after the losses, present to the assembly of the partners the issue to cover the capital or dissolve the company. In order to issue the decision of dissolution there must be a majority required to amend the company memorandum. If the managers neglected to invite partners or if it became difficult for the partners to reach a decision in this matter, the directors or partners, according to the cases shall jointly be responsible for obligations of the company resulting from their negligence.

The company limited by shares shall get dissolved with the withdrawal of one of the general partners or his death or incompetency or bankruptcy or insolvency, unless the company memorandum provides otherwise. If in the company memorandum no provision has been mentioned in this regard, the extraordinary general assembly may decide the continuation of the company. The procedures prescribed for amendment of the company shall be followed by the company.

If the withdrawal, death or incompetency or bankruptcy or insolvency included all the general partners in a company limited by shares, the company must be dissolved, unless otherwise the statute provides for the permission to turn into another type of company.

The company limited by shares shall expire due to the reasons of the expiry of the joint-stock company, bearing in mind that if the reason of expiration is the transfer of ownership of all shares to one of the partners and this partner is a general partner, he shall be liable in his all funds for the debts of the company.

Finally, in all cases, the decision to dissolve the company must be declared by its record in the commercial register and its publication in two local daily newspapers published in Arabic. The protest against the other with this decision can be done from the date of its publicity. The directors of the company or the president of the Board of Directors according to the cases shall follow up the implementation of this procedure with the exception of joint ventures.