Fundamental Corporate Changes

Question 1

Who must approve a fundamental corporate change?

Answer 1

Both the board and SHs. The corporation must notify the Department of State.

Question 2

Who has a dissenting shareholder right of appraisal?

Answer 2

A SH in a close corporation ONLY

Question 3

When does the dissenting shareholder right of appraisal apply?

Answer 3

1. Some amendments to the certificate
2. Consolidation
3. If your corporation merges into another
4. If your corporation transfers substantially all of its assets; or
5. Your corporations shares are acquired in an exchange

Question 4

What is a dissenting shareholder right of appraisal?

Answer 4

It’s a right to force the corporation to buy back your stock at a fair value when the corporation undertakes a fundamental change

Question 5

When is there no right of appraisal even when one of the conditions is met?

Answer 5

When the stock is listed on a national securities exchange

Question 6

How does a shareholder invoke the right of appraisal?

Answer 6

1. Before vote, file a written objection and intent to demand payment
2. Abstain or vote against the change; and
3. After the vote, make a written demand to be bought out

Question 7

If there is a dispute as to the value to be paid for the stock in an appraisal, how will the value be determined?

Answer 7

The court will determine a fair value. In New York, there is no minority discount

Question 8

What changes to the Certificate of Incorporation can be made by the Board alone?

Answer 8

Minor changes, such as the office location, the registered agent, etc

Question 9

If an amendment to the Certificate of Incorporation is more than a minor change, who must approve?

Answer 9

1. The board; and

2. A majority of the shares entitled to vote (not majority of share present)

Question 10

What are the voting requirements if the change to the certificate is to strike or change a supermajority quorum or voting requirement for SH voting?

Answer 10

1. Board approval

2. 2/3rd of shares entitled to vote

Question 11

Are there dissenting shareholder rights of appraisal for changes to the certificate?

Answer 11

Yes, if the amendment:

1. Alters or abolishes a preference
2. Changes redemption rights
3. Alters or abolishes a preemptive right
4. Limits voting rights

Question 12

What are the three requirements for a merger or consolidation?

Answer 12

1. Plan of merger or consolidation adopted by EACH company’s board
2. Shareholder approval from EACH company (majority of shares entitled to vote)
3. Delivery certificate of merger to Dept. of State

Question 13

When is shareholder approval not required in a merger or consolidation?

Answer 13

When a parent corporation owns 90% or more of each class of stock of a subsidiary being merged into the parent corp

Question 14

Are there dissenting shareholder rights of appraisal when a merger or consolidation occurs?

Answer 14

Yes, for the shareholders of the corporation that disappeared (need not be closely-held)

Question 15

What happens to the liabilities of the absorbed corporation?

Answer 15

They are assumed by the absorbing corporation. This is known as successor liability

Question 16

Is a transfer of all or substantially all of a corporations assets a fundamental corporate change?

Answer 16

Yes, for the selling corporation only.

Question 17

What are the requirements for selling substantially all of a corporations assets?

Answer 17

1. Approval by EACH company’s Board

2. SH approval for SELLING company

Question 18

Are there dissenting shareholder rights of appraisal when a corporation sells substantially all of their assets?

Answer 18

Yes, for the selling company’s shareholders only

Question 19

Is the company acquiring assets liable for the torts of the selling company?

Answer 19

Generally, no, unless:

1. The deal provides otherwise
2. The purchasing company is a mere continuation of the seller; or
3. The deal was entered into fraudulently to escape such obligations

Question 20

What are the requirements for a voluntary dissolution?

Answer 20

No board vote is necessary. Majority shareholder vote (of shares entitled to vote)

Question 21

When may an action for judicial dissolution be brought?

Answer 21

1. Board / Majority of shares entitled to vote pass a resolution (corp is insolvent / best interest of corp)
2. 50% or more of shares entitled to vote can petition court if extreme internal dissension
3. Any SH may petition if no directors elected for two annual meetings

Question 22

In what situations can as few as 20% of voting shares (not traded on market) petition for judicial dissolution?

Answer 22

1. Management commits illegal, oppressive, or fraudulent acts towards the complaining SHs; or
2. Management wastes, diverts, or loots assets

Question 23

Does a corporation have any defense when SHs petition for judicial dissolution?

Answer 23

Yes. The corporation, within 90 days, may buyout the complaining SHs at fair value on terms approved by the court.

Question 24

After dissolution, what is the process for liquidation of corporate assets?

Answer 24

1. Gather all assets
2. Convert to cash
3. Pay creditors first
4. Distribute remainder to SH