Fundamental Corporate Changes Flashcards
Types of Fundamental Corporate Changes
- amending the articles
- merging or consolidating into other company
- transferring substantially all assets
- converting to another business form
- dissolving
Procedure for Fundamental Corporate Change
(1) board action adopting the change
(2) board submits proposal to shareholders by written notice
(3) shareholder approval
- traditional rule: majority shares entitled to vote
- modern rule: majority shares that actually vote
most changes also require that we deliver a document to the SoS
What happens to the dissenting shareholders in voting on a fundamental corporate change?
May have a right of appraisal - right to force the corporation to buy back your stock for fair value
- only certain changes trigger this right:
1. merger or consolidation
2. transferring substantially all assets
3. stock being acquired in a share exchange
4. converting to another business form
ABSENT FRAUD, the right of appraisal is the shareholder’s EXCLUSIVE remedy if they don’t like the change
Exception to Right of Appraisal
Typically only exists in close corporations.
There is no appraisal right if:
1. stock is on national exchange; or
2. company has 2,000 or more shareholders & shares involved are at least $20M in value.
This is called the “market-out” exception.
Perfecting Right of Appraisal
- Notice given to shareholders stating they will be entitled to exercise their dissenting rights;
- before the vote, shareholder files with the corp. a written notice of objection and intent to demand payment
- at the vote, shareholder abstains or votes against
- if action approved, corporation must notify (within 10 days) all shareholders who filed an intent to demand payment (notice should include the time and place to submit their shares and other terms of the repurchase)
- within the time set by corp., the shareholder must make written demand to be bought out and deposit her stock with the corp
- corp. must pay dissenters fair value + accrued interest
If SH doesn’t agree with value - 30 days to send corp. her own estimate and demand payment.
If corporation doesnt agree, they must file within 60 days of the demand, an action in court requesting court to determine value
if corporation fails to file - they pay shareholder what she demanded
Amendments to Articles of Incorporation
- considered a fundamental change; follows the procedures outlined above
- housekeeping amendments can be made without shareholder approval
- shareholders generally do not have dissenting rights of appraisal for amendments of articles
- once amended - filed with SoS
Mergers and Consolidations
Merger: involves the blending of one or more corporations into another corporation, and the latter corporation survives while the merging corporation(s) cease to exist most-merger
Consolidation: involves two corporations combining to form a new entity.
For either one, board of director action (by both corps) is required & notice to SH and SH approval is typically needed.
No Significant Change to Surviving Corporation
Approval of a merger plan by shareholders of the surviving corporation is not required if: (1) the articles of incorporation of the surviving corporation will not differ from the articles pre-merger; (2) each SH of the survivor whose shares were outstanding immediately prior to the effective date of merger will hold the same number of shares, with identical characteristics; and (3) the voting power of the shares issued as a result of the merger will comprise no more than 20% of voting power of the shares of the surviving corporation that were outstanding immediately prior to the merger.
Short Form Merger
No SH required.
Short Form Merger: parent corporation owns at least 90% of outstanding shares of each class of subsidiary coirporation and can merge without shareholder or director approval of the subsidiary
The parent must mail a copy of the plan of merger to each SH of the subsidiary
Selling Corporate Assets
Fundamental change for selling company only - not the buyer.
Selling company must follow fundamental change procedure.
- board action required
- notice to company’s SHs
- approval by SH
Types of Dissolution
- voluntary
- involuntary
voluntary dissolution: dissolution by incorporators or initial directors
if shares have not yet been issed or business has not yet started, a majority of the incorporators or initial directors may dissolve the corporation by delivering articles of dissolution to the SoS.
Corporate debts should be paid before dissolving, and if shares have been issues, any assets remaining should be distributed to the shareholders.
dissolution by corporate act
corporation may dissolve by a corporate act approved under the fundamental change procedure (i.e., board action, SH approval, and notice of intent to dissolve with the SoS)
effect of dissolution
a corporation that has been dissolved continues its corporate existence but is not allowed to carry on any business except as appropriate to wind up and liquidate its affairs. we also need to notify creditors so that they can make any claims.
a claim can be asserted against a dissolved corporation to the extent of that corporation’s undistributed assets. if the assets have been distributed, a claim may be brought against individiual shareholders for a pro rata share.
corporation can cut short the time for bringing known claims by notifying claimants in writing of the dissolution and giving them a deadline of not less than 120 days to file their claim. the time for filing unknown claims can be limited to three years if publishing notice of dissolution in a newspaper in the county where the corporation’s known place of business is located.
revocation of voluntary dissolution
corporation may revoke the same way they approved the dissolution
