Fundamental Corp Changes Flashcards
APPRAISAL RIGHTS
What are SH appraisal rights?
***HIGHLY TESTED MATERIAL
Appraisal Rights = The right of a shareholder to FORCE the Corporation to buy their stock
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
NOTE: THE COURT CANNOT discount the shares if they are minority shares and not controlling shares
FUNDAMENTAL CHANGES TRIGGERING APPRAISAL RIGHTS
Which 5 fundamental changes trigger SH appraisal rights?
***HIGHLY TESTED MATERIAL
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) SHAREHOLDER’S corporation MERGES into another corporation
4) SHAREHOLDER’S corporation TRANSFERS SUBSTANTIALLY ALL of its ASSETS
5) SHAREHOLDER’S corporation’s shares are ACQUIRED in a share exchange
NOTE: BUT EVEN IF a corp is doing one of these fundamental changes, if the stock is listed on a PUBLIC EXCHANGE→ NO APPRAISAL RIGHTS (i.e. applies only to CLOSE corps only)
REQUIREMENTS TO PERFECT APPRAISAL RIGHTS
What 3 things must a SH do to “perfect” his appraisal rights?
***HIGHLY TESTED MATERIAL
THE SHAREHOLDER MUST TAKE THE FOLLOWING ACTION TO PERFECT HER APPRAISAL RIGHTS:
1) BEFORE the SH VOTE, SH MUST file written objection & your intent to demand payment with the corporation;
2) SH MUST ABSTAIN OR VOTE AGAINST the change;AND
3) AFTER THE VOTE, SH MUST make written demand to be bought out
CHANGES TO CERTIFICATE OF INCORPORATION
How can changes be made the the certificate of incorporation?
STEP 1:
MINOR CHANGES: can be made by the BOD ALONE
e.g. changing office location, registered agent, etc
NON_MINOR CHANGES: must be approved by
(i) the BOD; AND
(ii) a MAJORITY of the shares ENTITLED to vote (NOT just those ACTUALLY voting) (VERY TOUGH STANDARD!)
NOTE: If the 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
MULTIPLE CHOICE QUESTION!!*
STEP 2:
If an amendment is approved, certificate of amendment must be delivered to the Dept. of State for filing
MERGER vs. CONSOLIDATION
What is the difference b/t a merger and a consolidation?
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)
STEPS TO EFFECT A MERGER OR CONSOLIDATION
What 3 steps are req’d to effect a merger (or consolidation)?
3 steps are REQUIRED to effect a merger or consolidation:
STEP #1) EACH company’s BOD MUST adopt a plan of merger (or consolidation);
STEP #2) EACH company’s SHs MUST grant approval ; AND
BUT NOTE: NO SH approval is necessaryIF the parent (acquiring) corp owns 90 PERCENT or more (i.e. a short form merger) – But appraisal rights still exist
STEP #3) MUST Deliver a certificate of merger (or consolidation) to Dept. of State for filing
NOTES:
Successor Liability = the surviving company assumes ALL the rights & liability of the merged or consolidated Co
Rights of Appraisal→ ONLY IF SH of Corp that DISAPPEARED (i.e. NOT for SH of SURVIVING company)
ASSET SALE
What are the steps toeffect of a transfer of substantially all of the assets of a corp?
***HIGHLY TESTED MATERIAL
An asset sale is a fundamental corporate changes for the selling corporation only. Not for the buying
corporation:
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
b/c NOT a fundamental change for acquiring company
NOTE:
(i) These assets areNOT in the ordinary course of business
(ii) ACQ’ING company normally takes assets free of successor liability
(iii) Only SH of selling corporation have rights of appraisal
(iv) No delivery to Dept. of State necessary - NO FILING RQRD FOR ASSET SALES
GENERALLY: the company acquiring assets will not be liable for the torts of the company whose assets it acquired….
BUT Successor Liability MAY attach if:
(1) the deal provides otherwise, or
(2) the purchasing company is mere continuation of the seller, or
(3) the deal was entered fraudulently to escape such obligations
SHARE EXCHANGE
What is 2 steps are necessary to effect a share exchange?
Steps for Share Exchange:
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:
These are ONLY fundamental changes for the SELLING corporation so only SH of the selling corp. have rights of appraisal
VOLUNTARY DISSOLUTION
What 2 things areneeded for VOLUNTARY dissolution?
***HIGHLY TESTED MATERIAL
FOR A VOLUNTARY DISSOLUTION:
1) Votes of MAJORITY of SHARES ENTITLED to vote(NOT those “actually voted”) IS REQUIRED
BUT NO BODvote necessary!
2) Certificate of dissolution delivered to Dept. of State for filing
PETITION FOR INVOLUNTARY DISSOLUTION
What are the 4 ways to petition the ct for INVOLUNTARY dissolution?
***HIGHLY TESTED MATERIAL
The scenarios allowing for an Involuntary (judicial - someone is asking for a court order of dissolution) are as follows:
1) Resolution by BOD OR majority of shares entitled to vote, ONLY IF the corp has insufficient assets to discharge liability or dissolution would be beneficial to SH
2) ½ or more of shares ENTITLED to vote, IF
(i) directors too divided to manage;
(ii) SH too divided to elect directors; OR
(iii) internal dissension makes dissolution beneficial to SH
3) ANY SH entitled to vote MAY PETITION, IF SHs are unable to elect directors for 2 annual meetings
4) 20% or more 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: The COURT can DENY the PETITION IF the complaining SH can get a fair return some other way (e.g. by ordering buyout); The COURT WILL ONLY CONSIDER the Petition if liquidation is the ONLY way to get a fair return
The CORPORATION 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)
STEPS FOR LIQUIDATING BUSINESS AFTER DISSOLUTION
What are the steps to liquidating a business after it has been dissolved?
***HIGHLY TESTED MATERIAL
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
