5. Fundamental Corporate Changes

Question 1

What is the dissenting shareholders’ right of appraisal?

Answer 1

It is the right to force the corporation to buy your stock at fair value.

Question 2

What actions by the corporation trigger the shareholder’s right of appraisal?

Answer 2

(a) Some amendments to the certificate;
(b) Consolidation;
(c) Your corporation merges into another corporation;
(d) Your corporation transfers substantially all of its assets; or
(e) Your corporation’s shares are acquired in a share exchange.

Question 3

Appraisal rights exist in what kind of corporation?

Answer 3

The close corporation

Question 4

What actions are taken by the shareholder to perfect the right of appraisal?

Answer 4

1. Before the shareholder vote, file written objection, and intent to demand payment.
2. Abstain or vote against the proposal, AND
3. After the vote, make a written demand to be bought out.

Question 5

How are amendments made to the certificate of incorporation?

Answer 5

Minor changes, such as those relating to office location and registered agent can be made by board alone.

Other amendments must be approved by

(1) director action and

(2) a majority of the shares
entitled to vote.

Question 6

If an amendment is made to the certificate of incorporation, are there dissenting shareholder rights of appraisal?

Answer 6

Yes, if the amendment alters or abolishes a preference, changes redemption rights, alters or abolishes a preemptive right or limits voting rights.

Question 7

Merger requirements

Answer 7

1. Each company’s board of directors adopts a plan of merger (or consolidation)
2. Shareholder approval – each corporation
3. Deliver certificate of merger (or consolidation) to Department of State for filing

Question 8

What is a short form merger?

Answer 8

If parent corporation owns 90 percent-or-more of each class of stock of a subsidiary that is merged into a parent corporation. No shareholder approval is required.

Question 9

Are there dissenting shareholders’ rights of appraisal in a merger?

Answer 9

Yes, for the shareholders of a corporation that disappeared, so generally it is not for the shareholders of the survivor in a merger.

Question 10

Do dissenting shareholders of the subsidiary in a short-form merger have the right of
appraisal?

Answer 10

Yes, even though they did not vote.

Question 11

What is the effect of merger or consolidation?

Answer 11

The surviving company succeeds to all rights and liabilities of the disappearing companies.

Question 12

Transfer of all or substantially all of the assets not in the ordinary course of business or share exchange (S Corp. wants to sell all of its assets to B, Inc.)

What are the requirements?

Answer 12

1. Each corporation’s board of directors authorizes the deal and
2. Approval by selling corporation’s shareholders
3. In the share exchange, deliver plan of exchange to the Department of State for filing. In the transfer of assets, no filing is required.

Question 13

Are there dissenting shareholders’ rights of appraisal in a transfer of all assets?

Answer 13

Yes, for the shareholders of the selling company only

Question 14

Voluntary dissolution requirements

Answer 14

1. Majority of the shares entitled to vote.

2. Then the certificate of dissolution delivered to the Department of State for its filing.

Question 15

Involuntary (judicial - someone is asking for a court order of dissolution) requirements

Answer 15

1. By Board resolution or resolution of majority of shares entitled to vote, stating that corporation has insufficient assets to discharge liabilities or that dissolution would be
   beneficial to shareholders.
2. One-half or more of shares entitled to vote may petition if directors too divided to manage or shareholders are too divided to elect directors or magnitude of internal dissension makes dissolution beneficial to shareholders.
3. Any shareholder entitled to vote may petition if shareholders unable to elect directors for two annual meetings.

Question 16

Twenty percent or more of voting shares in corporation whose shares are not traded on a securities market may petition for dissolution on either of these grounds:

Answer 16

1. Management’s illegal, oppressive, or fraudulent acts, towards the complaining shareholders.
2. Management’s wasting, diverting, or looting assets.

Question 17

Dissolution does not end the corporation’s existence. The corporation stays in existence to wind up. Steps in winding up (liquidating):

Answer 17

1) Gather all assets;
2) Convert to cash;
3) Pay creditors (they had been given notice earlier); and,
4) Distribute remainder to shareholders, pro-rata by share unless there is a dissolution preference.