Small businesses should not only think carefully about the appropriate form for the operation of the business, but also for the possible end of the business. When a corporation ceases doing business, it may be dissolved. However, not all states treat a dissolved corporation the same a California does. This distinction was recently illustrated in a California Court of Appeal decision, Greb v. Diamond International Corporation.
In Greb, the defendant corporation incorporated in Delaware and, in 2005, was dissolved pursuant to California law. More than three years later, Mr. Greb sued the corporation in California. The trial court dismissed the lawsuit because, under Delaware law, a dissolved corporation may not be sued more than three years after dissolution. The Greb court noted that most states impose some limit the time in which a dissolved corporation may be sued. However, California corporations law contains no such limitation.
The Greb court rejected the argument that California law governed the time limit for filing suit against a dissolved out-of-state corporation. The court stated “California, as a general rule, has routinely held the law of the state of incorporation determines the consequence of corporate dissolution.” The court found nothing in California’s corporation statutes to indicate a contrary intent and, therefore, affirmed the trial court’s dismissal of the case.