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Would it be possible for a corporation or not-for-profit organization to legally include a self-destruct clause in founders agreement, by-laws, or similar binding agreement, one that can not or is unlikely to be superseded by another authority?

For example,

  1. Bob and Alice register an organization (non-profit or for-profit)
  2. Bob and Alice both agree the purpose of the organization is X
  3. Bob and Alice both explicitly agree that deviation from the initial purpose or change of ownership of the organization in a way that would inevitably lead to such deviation should trigger the organization to dissolve, and assets be split in manner Y.

Now let's assume Bob transfers his ownership or something similar happens that is likely to result in change of direction for the org, how likely it is that such clauses be overturned somehow? Can this be done in a way that prevents boards and similar bodies from removing such clauses in a "more-likely-to-be-upheld" manner?

I am interested in EU and US, so feel free to answer according to your geographical area of expertise. This is not a real scenario, just a legal thought I am entertaining at the moment.

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  • How would something as vague as "likely to result in change of direction" trigger some drastic action? Boards can generally amend by-laws but agreements among founders/shareholders are more durable. Jul 4 at 21:49
  • For the purposes of the example, assume the article/by-law/agreement would list that explicitly, for example, if the org is selling shoes, and is predominantly dedicated to selling shoes, if it suddenly shifts into say smelting, it shall dissolve.
    – Matiss
    Jul 4 at 22:25
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    @kisspuska Posters may use any placeholder names they please, in any order. While it is true that the use of Alice, Bob, Carol and Dave in that order was inspired by alpha order, an poster may use Dace an John if s/he pleases. The same cryptography texts that introduced Alice thru Dave also use Eve, Trent, and Mallet for particular roles, although nthese are not in alpha order. Jul 5 at 0:46
  • So maybe I set up a company to create and publish original fantasy media, and I add a bylaw stating "This company shall automatically disband if a majority of its stock is owned by Disney, with the company's assets immediately donated to the Third Street Orphanage in Podunk at the exact moment of stock acquisition." Is that sort of like what you are asking? Jul 6 at 14:50
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Many U.S. jurisdictions recognize that an entity may be of limited duration dissolving at a certain date or upon the happening of a certain event, and there are ways that amendments to prevent that term from being removed can be protected absent unanimous support of the owners.

In modern commercial practice, this is usually done for joint ventures or real estate development projects for which a specific limited term objective is contemplated or a one shot venture like producing a particular movie or concert tour. For example, a company might be formed to build a block full of town houses and to sell them to third-party buyers.

In non-profit practice, this usually involves a non-profit established for a specific event, such as an election campaign, or a academic conference, or an Olympics style sports event, or developing a vaccine on a contract basis.

In between, a limited term entity might also be formed, for example, to handle assets owned by a receiver or a probate estate in a jurisdiction outside the one where the receiver or executors has authority directly from an appointing court. This might be expressly limited to the duration of the receivership or probate estate administration.

Generally speaking, however, dissolution of an entity does not actually cause the entity to cease to exist. Instead, it causes the entity's management to be restricted by law to limiting its operations to winding up the company and distributing its assets in accordance with the law. If the management fails to do so, the usual remedy would be to have a court appoint a liquidator to wind up the affairs of the dissolved entity.

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No

Not because there’s any specific rule against such a by-law but rather because there are only certain ways that a company can legally be dissolved because the dissolution of a company affects the rights of third-parties: creditors, people who have ongoing contracts with the company, tax authorities, etc.

It is extremely likely that, for a mature company, the only legal way of “dissolving” it is through liquidation. Liquidation is a last ditch measure for a company that has no hope of being able to pay its debts and is extremely destructive to value. The directors cannot, by law, do anything that is against the company’s interests - liquidating a viable company is.

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  • AFAIK, directors have a duty towards shareholders and creditors, not "the company". AFAIK, if shareholders and creditors are fine with the dissolution of the company, they can do it. There also may be a company charter written by the founders which can impose specific restrictions on the way the company may operate.
    – user253751
    Jul 5 at 10:34
  • @user253751 The problem is that you don't know who all the creditors are. I have a tiny limited company in the UK, to dissolve it, I have to wait for several years after the last commercial activity because new creditors may come up. Like anyone who bought a product from you and four years later it turns out to be dangerous is suddenly a creditor.
    – gnasher729
    Jul 5 at 13:28
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    @gnasher729 That's fine, you could write a charter that says the dissolution process must be started under X conditions... It is not illegal for a company to go away. It is relatively routine.
    – user253751
    Jul 5 at 13:29

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