Fundamental Corporate Changes Flashcards
Who must approve a fundamental corporate change?
Both the board and SHs. The corporation must notify the Department of State.
Who has a dissenting shareholder right of appraisal?
A SH in a close corporation ONLY
When does the dissenting shareholder right of appraisal apply?
- Some amendments to the certificate
- Consolidation
- If your corporation merges into another
- If your corporation transfers substantially all of its assets; or
- Your corporations shares are acquired in an exchange
What is a dissenting shareholder right of appraisal?
It’s a right to force the corporation to buy back your stock at a fair value when the corporation undertakes a fundamental change
When is there no right of appraisal even when one of the conditions is met?
When the stock is listed on a national securities exchange
How does a shareholder invoke the right of appraisal?
- Before vote, file a written objection and intent to demand payment
- Abstain or vote against the change; and
- After the vote, make a written demand to be bought out
If there is a dispute as to the value to be paid for the stock in an appraisal, how will the value be determined?
The court will determine a fair value. In New York, there is no minority discount
What changes to the Certificate of Incorporation can be made by the Board alone?
Minor changes, such as the office location, the registered agent, etc
If an amendment to the Certificate of Incorporation is more than a minor change, who must approve?
- The board; and
2. A majority of the shares entitled to vote (not majority of share present)
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?
- Board approval
2. 2/3rd of shares entitled to vote
Are there dissenting shareholder rights of appraisal for changes to the certificate?
Yes, if the amendment:
- Alters or abolishes a preference
- Changes redemption rights
- Alters or abolishes a preemptive right
- Limits voting rights
What are the three requirements for a merger or consolidation?
- Plan of merger or consolidation adopted by EACH company’s board
- Shareholder approval from EACH company (majority of shares entitled to vote)
- Delivery certificate of merger to Dept. of State
When is shareholder approval not required in a merger or consolidation?
When a parent corporation owns 90% or more of each class of stock of a subsidiary being merged into the parent corp
Are there dissenting shareholder rights of appraisal when a merger or consolidation occurs?
Yes, for the shareholders of the corporation that disappeared (need not be closely-held)
What happens to the liabilities of the absorbed corporation?
They are assumed by the absorbing corporation. This is known as successor liability
Is a transfer of all or substantially all of a corporations assets a fundamental corporate change?
Yes, for the selling corporation only.
What are the requirements for selling substantially all of a corporations assets?
- Approval by EACH company’s Board
2. SH approval for SELLING company
Are there dissenting shareholder rights of appraisal when a corporation sells substantially all of their assets?
Yes, for the selling company’s shareholders only
Is the company acquiring assets liable for the torts of the selling company?
Generally, no, unless:
- The deal provides otherwise
- The purchasing company is a mere continuation of the seller; or
- The deal was entered into fraudulently to escape such obligations
What are the requirements for a voluntary dissolution?
No board vote is necessary. Majority shareholder vote (of shares entitled to vote)
When may an action for judicial dissolution be brought?
- Board / Majority of shares entitled to vote pass a resolution (corp is insolvent / best interest of corp)
- 50% or more of shares entitled to vote can petition court if extreme internal dissension
- Any SH may petition if no directors elected for two annual meetings
In what situations can as few as 20% of voting shares (not traded on market) petition for judicial dissolution?
- Management commits illegal, oppressive, or fraudulent acts towards the complaining SHs; or
- Management wastes, diverts, or loots assets
Does a corporation have any defense when SHs petition for judicial dissolution?
Yes. The corporation, within 90 days, may buyout the complaining SHs at fair value on terms approved by the court.
After dissolution, what is the process for liquidation of corporate assets?
- Gather all assets
- Convert to cash
- Pay creditors first
- Distribute remainder to SH
