Fundamental Corporate Change

Question 1

What are the 6 fundamental corporate changes you need to recognise in a fact pattern?

Answer 1

Amending the articles

Merging or consolidating into another company

Transferring substantially all corporate assets

Convert to another form of business

Stock being acquired in share exchange

Dissolve

Question 2

What is the dissenting SH right of appraisal with regard to fundamental corporate change?

Answer 2

The right to force the company to buy your stock for fair value (which is set by the Board).

Question 3

For which 4 types of fundamental corporate changes does the SH right of appraisal exist?

Answer 3

Merger/consolidation

Transferring substantially all assets

Stock being acquired in share exchange

Conversion to another form of business.

Question 4

For which type of company is the SH’s right of appraisal most likely to exist and why?

Answer 4

Close Corporation. Because the right isn’t available for a company whose stock is listed on a national exchange OR where there are more than 2,000 SH.

Question 5

How does the SH perfect their right of appraisal?

Answer 5

BEFORE SH VOTE — File written notice objection + intend to demand payment

DURING VOTE — abstain OR vote against

AFTER VOTE — make written demand to be bought out (within set timeframe) + deposit stock with company.

Question 6

If the Board wants to amend the company’s articles, what steps must they undertake to action this fundamental corporate change?

Answer 6

1. Pass Board Resolution
2. Notice to SH
3. SH approval (majority entitled to vote)
4. Deliver amended articles to Sec of State

Question 7

If the Board wants to merge/consolidate the company with another corporation, what steps must they undertake to action this fundamental corporate change?

Answer 7

1. Pass Board Resolution at BOTH companies
2. Notice to SH
3. SH approval from BOTH companies (majority entitled to vote)
4. Deliver articles of merged/consolidated company to Sec of State

Question 8

You need SH approval to merge or consolidate two company, subject to one exception. What is it?

Answer 8

No SH approval required for short-form merger (90% or more owned subsidiary merged into a parent co.)

Question 9

What constitutes transferring “substantially all of the assets” for the purpose of a fundamental corporate change?

Answer 9

Varies between states. Generally it is 75% or more.

Question 10

For whom is the transfer of substantially all corporate assets or share exchange a fundamental corporate change?

Answer 10

Only the SELLER

Question 11

If the Board wants to sell substantially all of the company assets or share exchange, what steps must they undertake to action this fundamental corporate change?

Answer 11

1. Board Resolution
2. Notice to Selling company’s SH
3. Approval from Selling company SH (only)
4. Deliver article of exchange to Sec of State. Usually not necessary for transfer of assets.

Question 12

When would you expect successor liability?

Answer 12

Merger or consolidation of companies, but not when the buyer is a mere continuation of the seller (for share exchange or transfer of substantial assets)

Question 13

If the Board wants to convert the company to another form of business, what steps must they undertake to action this fundamental corporate change?

Answer 13

1. Board Resolution
2. Notice to SH
3. SH Approval
4. Deliver documents to Sec of State

Question 14

To action a VOLUNTARY company dissolution, what steps must the company undertake?

Answer 14

1. Board Resolution
2. Notice to SH
3. SH Approval
4. Deliver documents to Sec of State

Question 15

When might a SH petition the court order an INVOLUNTARY dissolution of a company?

If the court disagrees that the company should be dissolved, what is an alternative?

Answer 15

(1) director abuse/waste it assets or misconduct
(2) director deadlock that harms the company
(3) SH fails at consecutive annual meetings to fill Board vacancy

Alternatively, the court might order that the objecting SH be bought out by the company. Most likely in a C-Corp.

Question 16

When can a creditor petition the court to dissolve a company?

Answer 16

The company is insolvent; AND

The creditor has an unsatisfied judgement

OR

The corporation admits the debt in writing

Question 17

A company needs to remain in business to wind-up or liquidate. Can then company be sued during this time?

Answer 17

Yes

Question 18

To wind-up a company, what steps does the company need to follow?

Answer 18

1. Written notice to KNOWN creditors
2. Publish notice of dissolution in the paper in the county of its principal place of business
3. Gather all assets
4. Convert assets to cash
5. Pay creditors, and
6. Distribute remaining sounds to SH, pro-rata according to their shares. Unless there is a liquidation preference.

Question 19

How can a company bar known creditors from making future claims after its wound up?

Answer 19

1. Corporation must notify known creditors in writing that it is dissolving
2. The notice must describe the procedure for a creditor to assert a claim
3. The notice must state a deadline by which the creditors should lodge their claim (no less than 120 days)
4. Otherwise the creditor’s claim will be barred

Question 20

How can a company bar unknown creditors from making future claims after its wound up?

Answer 20

1. The company should publish notice of its dissolution in the newspaper in the county where the corporation’s principal place of business is located
2. The notice must describe the procedure for a creditor to assert a claim against the company
3. The notice must also state that the claim will be barred unless it’s lodged within the statutory period after notice is published. (Usually 3-5 year period)