winding up a corporation

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The process of dissolving a corporation or settling the affairs of a dissolved corporation. Winding up a corporation generally takes place when a corporation decides to end a business or declares bankruptcy. Winding up involves the settling of accounts (e.g., returning debts to creditors), liquidation of corporate assets, and addressing any needs to allow the business to close. 

Corporations that have dissolved are generally prohibited from conducting any type of business except for winding up its affairs. For example, in New York, corporations, and their directors, officers and shareholders, may only perform certain actions following dissolution. These actions include addressing pending litigation (including bringing actions), disposing of or conveying property, addressing liabilities, and distributing remaining assets to stockholders. In Delaware, corporations are given a three-year period post expiration or dissolution for wind up purposes. 

Corporations may still be sued during its winding up period and even, in some jurisdictions, after dissolution. California subjects dissolved corporations to suits arising out of its pre-dissolution activities, with the only limitation being the general statute of limitations on the type of action being sought. For example, the Third Circuit, applying California law, has held that a plaintiff may still pursue an action for negligence against a dissolved company arising out of its former business. 

On the other hand, Delaware and New York both impose statutory periods for corporate wind-up activities, after which, corporations cannot be sued. For example, while New York does not have a statutorily-defined period for dissolution, its courts have stated that the wind up period must be "reasonable" and ceases once its "affairs are fully adjusted." After this period, a wound-up corporation may no longer be sued for liabilities incurred pre-dissolution. 

[Last updated in April of 2022 by the Wex Definitions Team]