The Sacred Cow of Corporate Existence: Problems of Deadlock and Dissolution

0RAOmN ... is a mere conception of the legislative mind.It 4 exists only on paper through the command of the legislature that L .its mental conception shall be clothed with power"-thus, a fa- mous Judge of the New York Court of Appeals in 1912.1Among the powers with which the corporation is thus clothed is the power to survive the death of its owners or any one or more of them.Indeed, under most statutes corporate existence is permitted to be perpetual and the vast majority of certificates filed under those statutes so provide.By the same token destruction of the legislative creature is not easy.Historically the courts have been reluctant to destroy it except under conditions expressly spelled out by the legislature as warranting such action; and even under such conditions the courts are wont to speak of dissolution as a "drastic" remedy and to seek almost any other available alternative before resorting to it.It is the writer's view that this sacred cow has all too often been an effective road block in cases where the over-all best interests of the owners of the enterprise call for its dissolution or liquidation.Such situations most commonly arise in what we have come to call "dose corporations."By that term, we do not necessarily imply that the enterprise is a small one --or that the number of its shareholders is relatively few, although the latter, at least, is usually the case.What we do mean, is a corporation where management and ownership are substantially identical to the extent that the independent judgment of directors is, in fact, a fiction. 2 We mean the corporate entity typically organized by an individual, or a group of individuals, seeking the recognized advantages of incorporation, limited liability, perpetual existence and easy transferability of interests-but regarding themselves basically as partners and seeking veto powers as * Member of the New York Bar. 1