Amendments and Changing Organizational Structure Flashcards
Amending the articles of incorporation
A corporation may amend its articles of incorporation at any time to add, change, or delete a provision if:
- The proposed amendment is adopted by a majority of the board of directors at a meeting that is properly called and noticed, and where a quorum is present
- The proposed amendment is approved by a majority of the shareholders
- The articles of amendment are properly filed with the secretary of state of the state in which the corporation is incorporated with (a) the text of each amendment adopted, (b) the date of each amendment’s adoption, and (c) a statement that each amendment was duly adopted
When is shareholder approval not necessary for amending the articles of incorporation?
Shareholder approval is not required if (1) the proposed amendment is routine and ministerial in nature (i.e., deleting names of initial directors or modifying the name to use “Corp.”), or (2) the corporation has not yet issued shares
When is a merger valid?
A merger is likely valid if (1) the companies have a plan of merger, (2) both corporations’ board of directors approve the plan, and (3) both corporations’ shareholders (i.e., by majority vote) approve the plan
What must the plan of merger include?
- The name, jurisdiction of formation, and type of entity for each party to the merger
- The name, jurisdiction of formation, and type of entity for the surviving company
- The merger’s terms and conditions
- The manner and basis of converting the shares of each merging corporation and the eligible interests of each merging entity into shares, cash, or other property or securities
- The articles of incorporation of any entity created by the merger or any amendments to the surviving company’s articles of incorporation
- Any other provisions required by the state laws under which any party to the merger is organized or governed
What are the requirements for a notice of merger?
The corporation must provide written notice to each shareholder of the shareholder meeting at which the plan of merger will be submitted for approval. This notice must:
- State that the purpose of the meeting is to consider the plan of merger;
- Contain or be accompanied by a copy or summary of the plan; and
- Include a copy or summary of the articles of incorporation and bylaws of the surviving corporation
The acquiring company’s shareholders do not need to approve the plan of merger if:
- The acquiring company will survive the merger
- The acquiring company’s articles of incorporation will not be changed by the merger
- Each of the acquiring company’s shareholders will hold the same number of shares with identical rights immediately after the effective date of the merger; and
- The merger’s issuance of shares or stock options convertible into shares does not require a shareholder vote, because the total number of shares outstanding after the merger will not
exceed the maximum number of shares authorized in the articles of incorporation
The target company’s shareholders do not need to approve the plan of merger if:
- The acquiring company offers to purchase any and all of the target company’s shares at a certain price, and the acquiring company becomes the owner of the majority of the target company’s shares; and
- Once the acquiring company owns the majority of the target company’s shares, it proposes a merger in which each remaining target company shareholder receives the same consideration that was provided to the shareholders who sold their shares
Neither company’s shareholders need to approve the plan of merger if:
It is a short-form merger (i.e., when a parent company owns at least 90% of the voting power in a subsidiary and the parent merges the subsidiary into the parent or one of the parent’s other subsidiaries)
Legal effect of a merger
The target company ceases to exist, the acquiring company becomes the
new owner of all the target company’s assets and liabilities, and the target company’s shareholders must surrender their shares in exchange for consideration for the merger (i.e., cash, shares in the acquiring company, debt, or any combination of these)
Dissenter’s rights
Shareholders who do not consent to a merger or acquisition may be entitled
to sell their shares to the corporation for a fair value if (1) before the vote is taken, the shareholder gives the corporation written notice of the shareholder’s intention to demand payment for the shares if the action is approved, and (2) the shareholder does not vote in favor of the action
Fair value of shares
The corporation determines the fair value, but if the shareholder does not agree with the valuation, the shareholder can ask a court to determine the fair market value of
the shares
Sale of substantially all assets
A corporation must obtain the approval of its shareholders if the
sale would leave the corporation without a significant continuing business activity
When does significant continuing business activity exist?
Exists if the corporation would still have (1) at least 25% of its total assets and (2) at least either (a) 25% of income from continuing operations
before taxes or (b) 25% of revenues from continuing operations
When must a corporation have shareholder approval for recapitalization?
If the recapitalization (1) requires the corporation to amend the articles of
incorporation, or (2) is occurring through a merger, then the corporation must obtain shareholder
approval via the appropriate rules
Exchange of securities requirements
Similar to mergers, the two companies must prepare a plan of share exchange and this plan must be approved by the boards and shareholders of both companies
