Delaware 280 vs 281(b): choosing a dissolution route while assets are still in play

The short answer: which route fits

Use section 280 when uncertainty is the main risk: pending suits, long-tail or contingent liabilities, or a large distribution that directors want protected by a court order fixing reserves and barring late claims. Use the section 281(b) default when creditors are known and can be paid, and speed, cost and privacy matter more. Followed properly, either route shields directors from personal liability to claimants, and neither pays stockholders ahead of claims.

The sharpest single difference is the horizon for claims nobody has made yet. On the court route, the Court of Chancery sets security for unknown claims likely to arise within 5 years of dissolution, a period the court can extend to no more than 10. A 281(b) plan must make reasonable provision for unknown claims likely to arise within 10 years, and the board, not a judge, decides what is reasonable.

If the company's operational records might still be licensed, say so before the petition is filed or the plan of distribution is adopted: a pending license adds an asset and can add obligations the claims reserve must cover.

How do section 280 and section 281(b) compare?

Section 280 sets out the notice and court procedure, and section 281(a) then governs payment and distribution for a company that followed it. Section 281(b) applies to every dissolved corporation that does not.

When does the court-supervised route win?

The court route is worth its cost when the board cannot price the claims with confidence.

• Litigation is pending or threatened. The court sets security for filed suits, so the distribution does not wait for every judgment.
• Liabilities have a long tail. Product, warranty, environmental, employment and tax exposures can surface years later.
• Contracts are still running. Leases, guarantees, old acquisition indemnities and multi-year licenses are contingent or unmatured contractual claims, and the 280 process lets the court settle their security.
• Distributions are large or widely held. Section 282 caps each stockholder's exposure at the lesser of its pro rata share of a claim and the amount it received, but a cap does not prevent a clawback suit against hundreds of holders.
• Directors want the answer upfront. A court-set reserve is harder to second-guess than a board estimate.

The price is time and visibility: notices, a claims period, a petition and a hearing, all on the public record, with court-ordered security that may be held for years.

When does the default 281(b) plan win?

The default route fits a clean wind-down where the board can list every creditor and pay them.

• Trade creditors, payroll, taxes and leases are known and can be paid or settled.
• No suit is pending or reasonably expected.
• A venture-backed startup is winding down after an asset sale or team hire, and investors want one prompt liquidating distribution.
• Insurance tail coverage and a modest holdback can absorb the unknowns.

The trade-off is finality. Nothing is barred by notice, so a later claimant can argue the provision was not reasonable. The board's protection is its record: a written claims inventory, the basis for each reserve, the insurance position, and minutes showing the analysis.

Why does a pending records license change the plan?

Under section 278, a dissolved Delaware corporation continues for 3 years, or longer if the Court of Chancery directs, to wind up: settle its affairs, dispose of its property, discharge liabilities and distribute what remains, but not to keep running the business. Licensing operational records to AI developers can fit that frame if the plan accounts for it; the DGCL section 278 winding-up period page covers the clock.

It adds an asset

A license fee is property of the dissolved corporation like any sale proceeds: claims first, stockholders after. If the plan ignores it and a final distribution goes out, the board must reopen the distribution or leave value stranded. On the court route, the petition should describe expected proceeds; under 281(b), the plan should include them or state that a supplemental distribution will follow.

It can add obligations the reserve must cover

A license can outlast the winding-up schedule, particularly an exclusive license for an agreed term. Depending on its terms, the company may owe delivery, confidentiality or other commitments while it runs. Counsel should read the draft agreement for anything that would be a contingent or unmatured contractual claim and provide for it: security under section 280, or a specific line in the 281(b) plan.

It runs on its own timeline

With SourceX, nothing is binding until the company agrees price and terms and signs. The sequence is qualification on size, history, data breadth and rights; a data inventory; price and terms; buyer review, where buyers typically respond within about two weeks once a company is deal-ready; then signature, delivery and a one-time payment, typically within about 60 days of invoicing once the buyer selects the data. Build the distribution schedule around that sequence.

When to raise the license in the dissolution timeline

The cheapest moment is before anything is fixed: systems still running, reserves not yet set, stockholders not yet paid.

Questions to settle with Delaware counsel before the plan is adopted

1. Does the company still hold the rights? If an earlier asset purchase agreement moved intellectual property, books and records or customer data to the buyer, the company may hold nothing it can license.
2. Who can authorize and sign? Confirm the board resolution and officer authority. If the board is split, see custodians for deadlocked companies.
3. Which license obligations need a reserve or security, and for how long?
4. Will expected proceeds join the initial distribution or a supplemental one, and what holdback covers the gap?
5. Which systems must stay live or be exported until delivery, who keeps admin access, and which subscriptions must not lapse?
6. Who holds the records after the final distribution and for the rest of any license term?
7. Does the winding-up period leave enough room? If it has already run, see reviving a dissolved corporation to complete an asset deal, or ask about a court extension.

Illustrative: a 281(b) plan with a license still in review

Illustrative and fictional. Larkspur Freight Software, a Delaware company that peaked at 160 full-time employees, sold its customer contracts and source code to a competitor and voted to dissolve, planning one liquidating distribution under 281(b).

Before the plan was adopted, the former CFO mentioned a SourceX qualification covering nine years of support tickets, project tracker history and sales records. Counsel found the asset purchase agreement gave the buyer the code but not the ticket or CRM archives. The board then:

• kept the ticketing system and CRM read-only instead of cancelling them;
• listed the possible license in the plan as a contingent asset with no assumed value;
• set a holdback for export costs and any license obligations; and
• provided for a supplemental distribution once any license fee is received.

Had Larkspur faced a product-liability suit, the same facts would have gone into a section 280 petition instead, and the court would have set the security.

What SourceX looks for in a dissolving company

Wound-down companies can qualify if the data still exists. The baseline is the same as for an operating business: a US company with 50+ full-time employees at peak (contractors excluded), several years of documented operations, rights to license the data, and an authorized sponsor, meaning an owner, CEO, CFO or other authorized representative; in a dissolution, confirm the board has authorized that person. The full baseline is on who qualifies, and the company fit checker gives a preliminary, non-binding screen with no contact details required.

Stop early if archives were deleted or systems cancelled without an export, the records mainly belong to clients who have not consented, the data is mainly consumer personal data or protected health information, it was already licensed for AI training, or a court, trustee or assignee controls the assets and has not been involved.

If the company cannot pay its creditors, dissolution may not be the vehicle at all. In an assignment for the benefit of creditors, an assignee holds the assets in trust and liquidates them, so the assignee decides on a license. In chapter 11, the company usually stays in control as debtor in possession and proposes a plan, which can be a liquidating plan, and the records belong in the Schedule A/B intangibles section. Where lenders take control instead, see what happens to records when private credit lenders take the keys.

How referral rewards work for counsel and advisors

Anyone can introduce a company. Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. Rewards become payable only after the buyer pays and SourceX receives its fee; a lead, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed.

One point matters more than usual in a dissolution: the reward is a share of SourceX's fee and is never deducted from what the company receives, so it does not shrink what is left for claimants and stockholders.

Lawyers advising the dissolving company should treat a possible reward as a personal interest connected to a client matter and raise it with ethics counsel first, who may look at conflict rules such as ABA Model Rule 1.8(a), which sets written disclosure, independent-counsel and informed-consent conditions for business transactions with clients; whether any rule applies depends on your state's version and the facts. This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

Next step

Find out whether the records are worth licensing before the board adopts a plan of distribution or files a section 280 petition, while systems are still running and reserves are still open. If you advise a dissolving Delaware company, register as a partner and make the introduction, or have the authorized officer apply directly at sourcex.si/apply with your referral link.