Fundamental Corp. Changes & Controlling SHs

Question 1

fundamental changes req whose approval?

Answer 1

1. BOD
2. SHs
   & notify Dept of State

Question 2

**What is dissenting SHs right of appraisal upon fundamental change?

Answer 2

right to force corp to buy your stock at FAIR VALUE

Question 3

what actions trigger SHs’ appraisal rights FOR PRIVATELY TRADED COMPANIES? (If corp is publicly traded, no need for appraisal. You can just sell shares.)

Answer 3

1. certain cert amendments
2. consolidation
3. MERGER
4. TRANSFER SUBST. ALL CORP ASSETS
5. your shares acquired in share exchange

Question 4

what does SH do to perfect appraisal rights in private corp?

Answer 4

1. written objection and intent to demand payment BEFORE VOTE ON FUNDAMENTAL CHANGE;
2. abstain or vote against change; and
3. Post-vote make WRITTEN DEMAND to be bought out for fair value

Question 5

if corp and SH can’t agree on fair value, corp sues and court sets it by….

Answer 5

Court provides fair value. NO MINORITY DISCOUNT.

Question 6

Is amendment of certificate a fundamental change?

Answer 6

Yes. Req BOD approval + MAJORITY OF SHARES ENTITLED TO VOTE (not just majority of shares that actually do vote)

Question 7

When are there dissenting SH appraisal rights for change in cert? 4 situations

Answer 7

1. alters or abolishes a PREFERENCE
2. changes REDEMPTION rights
3. alters or abolishes a PREEMPTIVE RIGHT, or
4. limits VOTING RIGHTS

Question 8

def of consolidation

Answer 8

A and B corp join and form C corp

Question 9

merger or consolidation require approvals of?

Answer 9

BOD and SH approval of all shares entitled to vote

Question 10

who has appraisal rights in merger?

Answer 10

target’s SHs, including subsidiary SHs in short-form merger

Question 11

Keep your eyes out for successor liability

Answer 11

b/c existing corp inherit all assets and liabilities of corp(s) merging out of existence

Question 12

*transfer of substantial all assets (or share exchange) require approval of?

Answer 12

BOD and majorty of all SHs entitled to vote OF SELLING CORPORATION ONLY. Buyer needn’t get SH approval.

Question 13

sale of subst all assets (or share exchange): who has appraisal right for dissenting SHs?

Answer 13

only seller SHs. it’s not a fundamental change for buyers.

Question 14

will acquiring corp in buyer of subst all assets be liable for tort claims of target?

Answer 14

NO SUCCESSOR LIABILITY FOR ASSET PURCHASE because the selling corp still exists. Only tort successor liability if (1) deal provides for it, or (2) purchasing company is continuation of seller; or (3) deal was fraud to evade tort.

Question 15

What approval necessary for voluntary dissolution?

Answer 15

Just majority of SHs entitled to vote. No BOD approval nec.

Question 16

*** How to get involuntary corp dissolution? (4 ways)

Answer 16

1. BOD or majority of SH reso
2. 50% or more SHs vote that directors are too divided to manage or SHs too divided
3. any SH entitled to vote may petition if SHs unable to directors for 2 annual meetings
   * *4. 20% OR MORE OF VOTING SHARES IN CLOSE CORP PETITION FOR DISSOLUTION ON (A) MGMT’S ILLEGAL, OPPRESSIVE, OR FRAUD ACTS TOWARD COMPLAINING SHs; OR (B) MGMT DILUTING, STEALING, OR WASTING ASSETS

Question 17

When may court deny dissolution upon proper 20% complaining SHs in close corp?

Answer 17

Court will consider non-dissolution options, e.g., order buyout of complainant.

Question 18

**How many corp or non-complaining SHs try to avoid dissolution where 20% of close corp SHs seek involuntary dissolution?

Answer 18

Within 90 days of petition’s move to get dissolution, corp or non-complaining SHs can buy back BASED ON PRICE APPROVED BY COURT.

Question 19

Dissolution doesn’t wind up corp. The wind up is 4 steps:

Answer 19

1. gather assets
2. convert to cash
3. pay creditors
4. distribute remainder to SHs (pro-rata by share unless there’s dissolution preference)

Question 20

Do controlling shareholders owe fiduciary duty to minority SHs?

Answer 20

Yes. If you control corp, you do owe fid duty. Most likely to come up in close corp.

Question 21

sale of controlling SHs interest: if controlling SH sells and gets control premium, does she get to keep premium?

Answer 21

yes

Question 22

If controlling SH sells to someone with control premium, selling SH is liable to minority if he sells ______

Answer 22

to looter who’s bidding for anonymous buyer and wants just the assets. Then seller’s profit is disgorged and corp recovers for damages.

Question 23

If controlling SH sells for premium to looter who just wants the assets, what happens to control premium?

Answer 23

shared with all SHs b/c no individual has right to sell corp assets

Question 24

can controlling SH sell their own resignation from the board?

Answer 24

No. Can’t sell out your fiduciary duties

Question 25

**Freezeout: forcing out minority SHs by merging one corp you MAJ own into another. When may courts protect minority SHs?

Answer 25

Ct reviews transaction as whole and looks for FAIR PRICE, FAIR COURSE OF DEALING, AND LEGIT CORP PURPOSE FOR MERGER

Question 26

NY rule for mkt trading based on inside info: D&O makes profit, what happens?

Answer 26

Corp can sue D&O for profit. Can be deriv suit. It’s the corp’s suit.

Question 27

D&O trades with non-disclosure of “special facts” (common law insider trading - 10b-5). 1. what are special facts?

2. who can sue?
3. damages?

Answer 27

1. material facts
2. SH who deals with D&O can sue
3. damages = diff in price b/t price paid and reas time after full disclosure