Fundamental Corp Changes

Question 1

What are SH appraisal rights?

Answer 1

When the corporation wants to make a fundamental corporate change the dissenting shareholder has the right to force the corporation to buy his shares at “fair value”

If SH & corp cannot agree on fair value, the CORPORATION sues to determine the value→ct cannot discount the shares if they are minority shares and not controlling shares

Question 2

Which 5 fundamental changes trigger SH appraisal rights?

Answer 2

1) SOME amendments to the certificate; like those… (i) altering or abolishing a preference
(ii) changing redemption rights
(iii) altering or abolishing a preemptive right
(iv) limiting voting rights

2) Consolidation
3) YOUR corporation merges into another corporation
4) YOUR corporation trnfrs substantially all of its assets
5) YOUR corporation’s shares are acq’d in a share exchange

NOTE: BUT EVEN IF a corp is doing one of these fund. changes, if the stock is listed on a PUBLIC exchange→ NO appraisal rights (i.e. applies to CLOSE corps only)

Question 3

What 3 things must a SH do to “perfect” his appraisal rights?

Answer 3

1) Before the SH vote, file written objection & your intent to demand payment with the corporation;
2) Abstain or vote against the change;AND
3) After the vote, make written demand to be bought out

Question 4

How can changes be made to the certificate of incorporation?

Answer 4

STEP 1: Minor changes: can be made by the BOD ALONE

E.g. changing office location, registered agent, etc

Non-minor changes:

(i) the BOD; AND
(ii) a MAJORITY of the shares entitled to vote (NOT just those ACTUALLY voting)

NOTE: If amendment will change or strike a supermajority quorumor voting requirement for shareholder voting (NOT directors) → needs approval of (i) the BOD; AND (ii) 2/3d of the shares entitled to vote

STEP 2: If amendment approved, certificate of amendment must be delivered to the Dept. of State for filing

Question 5

What is the difference b/t a merger and a consolidation?

Answer 5

1) Merger = Corp A merges into Corp B → Corp Adisappears & Corp B survives
2) Consolidation = Corp A and Corp B form Corp C (both A & B disappear)

Question 6

What 3 steps are req’d to effect a merger (or consolidation)?

Answer 6

1) EACH company’s BOD adopts a plan of merger (or consolidation);
2) SH approval is needed from BOTH corps; AND

NOTE: NO SH approval is necessaryIF the parent (acq’ing) corp owns 90 PERCENT or more (i.e. a short form merger)

3) Deliver a certificate of merger (or consolidation) to Dept. of State for filing

NOTE: Successor Liability = surviving company succeeds to all rights & liability of the constituents

Rights of Appraisal→ ONLY IF SH of Corp that disappeared (i.e. not for SH of surviving company)

Question 7

Steps to transfer of substantially all of the assets of a corp?

Answer 7

STEP 1: Each corp’s BOD authorizes the deal; AND

STEP 2: Approval by SELLING corp’s SHs (ONLY)

Majority of shares ENTITLED to vote

NOTE:These assets areNOT in the ordinary course of business

ACQ’ING company normally takes assets free of successor liability

Only SH of selling corporation have rights of appraisal

No delivery to Dept. of State necessary

Question 8

2 steps for share exchange?

Answer 8

STEP 1: One company acquires all the outstanding shares of one or more class of another corporation

STEP 2: Deliver plan of exchange to Dept. of State for filing

NOTE: ONLY fundamental changes for the SELLING corporation so only SH of the selling corp. have rights of appraisal

Question 9

2 thingsneeded for VOLUNTARY dissolution?

Answer 9

1) Votes of majority of SHARES entitled to vote(NOT those “actually voted”)

NO BODvote necessary

2) Certificate of dissolution delivered to Dept. of State for filing

Question 10

4 ways to petition the ct for INVOLUNTARY dissolution?

Answer 10

1) Resolution by BOD OR majority of shares entitled to vote, IF

(i) the corp has insufficient assets to discharge liability OR
(ii) dissolution would be beneficial to SH

2) ½+ of shares entitled to vote, IF
(i) Divided directors - too divided to manage;
(ii) Divided SH - too divided to elect directors; OR
(iii) Internal dissent - makes dissolution beneficial to SH

3) ANY SH entitled to vote, IF SHs are unable to elect directors for 2 annual meetings

4) 20%+ of voting shares in a CLOSE CORP, IF there is evidence of…
(i) mgmt’s (i.e. directors or managing SHs)illegal, oppressive or fraudulent acts toward the complaining SH; OR
(ii) mgmt’s wasting, diverting or looting of assets

NOTE: Ct can deny if complaining SH can get fair return (e.g. by ordering buyout); will consider if liquidation is the ONLY way to get a fair return

Corp. or non-complaining SH can AVOID dissolution IF w/in 90 days of the petition, they buy the petitioner’s shares at fair value on terms approved by the court (i.e. a buyout)

Question 11

What are the steps to liquidating a business after it has been dissolved?

Answer 11

Dissolution does NOT end the corporation’s existence.Further steps must be taken.

Steps to winding up (i.e. liquidating):

1) Gather all assets
2) Convert them to cash
3) Pay creditors
4) Distribute remainder to SH, pro-rata by share unless there’s a dissolution preference

Must say “dissolution preference” (which means paid first)

SHs CANNOT agree that they will be paid before creditors