Fundamental Corporate Changes

Question 1

What is a fundamental corporate change?

Answer 1

It is so fundamental that it requires that both the board and shareholders approve. The Corporation also must notify department of state which the department then files.

Question 2

What is a dissenting shareholders right of appraisal?

Answer 2

Right to buy your stock at fair value.

Question 3

What are examples of other fundamental changes that give rise to right of appraisal?

Answer 3

Amendments to certificate, merger, transfer of substantially all assets, shares acquired in a share exchange.

Question 4

Is there a right of appraisal for listed companies?

Answer 4

No it is only available for close corporations.

Question 5

How do shareholders take action to perfect their right of appraisal?

Answer 5

1) before vote they file written objection and intent to demand payment;
2) Abstain from the vote or against the change;
3) After vote make written demand to be brought out.

Question 6

What if they cannot agree on the fair value?

Answer 6

Corporation sues and the Court determines value.

Question 7

What amendments to the certificate can the board make?

Answer 7

Minor changes such as those relating to office location and registered agent can be made by board alone

Question 8

How can more major amendments get approval?

Answer 8

With director action and the majority of shares entitled to vote.

Question 9

What shareholder vote do you need if you are going to change or strike a supermajority quorum or voting requirement for shareholder voting?

Answer 9

2/3 shares entitled to vote.

Question 10

What if the amendment is approved?

Answer 10

Deliver certificate of amendment to department of state for filing.

Question 11

What if the amendment alters or abolishes a preference, changes redemption rights, alters or abolishes a pre-emptive right or limits voting rights?

Answer 11

There are dissenting rights of appraisal.

Question 12

What shareholder approval is needed for merger?

Answer 12

Both corporations’ shareholders majority of voting shares.

Question 13

What merger situation would no shareholder approval be required?

Answer 13

In a short form merger where the parent corporation owns 90% or more of each class of stock of a subsidiary that is merged into parent corporation. Do need 1) board of parent corp adopt plan, 2) copy or outline of plan of merger be given to outside shareholders of subsidiary and 3) certificate of merger be filed not less than 30. Days after notice to outside shareholders

Question 14

Do dissenting shareholders in a short form merger have right of appraisal?

Answer 14

Yes they do even though they didn’t vote.

Question 15

What is the effect of a merger or consolidation?

Answer 15

The surviving corporation succeeds to all rights and liabilities of the disappearing corporation.

Question 16

What is a transfer of all or substantially all of the assets not in the ordinary course of business or share exchange?

Answer 16

One corporation acquires all of the outstanding shares of one or more classes of another corporation.

Question 17

Is selling all or substantially all the assets or share exchange a fundamental corporate change?

Answer 17

Is is for the selling corporation only.

Question 18

How does a sale of substantially all assets or share exchange go down?

Answer 18

Each corporations board of directors authorizes the deal and selling corporations shareholder’s approve by majority of shares entitled to vote. the buyer company doesn’t need to do this.

Question 19

Are there dissenting shareholders’ rights of appraisal in selling the company?

Answer 19

Yes.

Question 20

What are the filing requirements of a) transfer of assets and b) share exchange?

Answer 20

No filing requirement for transfer of assets but delivery to department of state for filing required.

Question 21

Does the buying company acquiring assets have liability for torts of the company whose assets it acquired?

Answer 21

No generally unless the deal provided otherwise, the purchasing company is mere continuation of the seller or the deal was entered fraudulently to escape such obligations.

Question 22

Why is selling of assets different to merger?

Answer 22

Because with merger, selling company doesn’t still exist like it does here. Creditors can still sue it.

Question 23

Is board vote needed for dissolution?

Answer 23

No its voluntary, majority of shares entitled to vote needed from shareholders.

Question 24

What is done after shareholders vote on dissolution?

Answer 24

Certificate of dissolution is sent to department of state for its filing.

Question 25

Is there a form of involuntary dissolution?

Answer 25

Yes, its judicial.

Question 26

How is involuntary dissolution carried out?

Answer 26

1) By board resolution or resolution of majority of shares entitled to vote stating corporation has insufficient assets to discharge liabilities or that dissolution would be beneficial to shareholders;
2) One half or more of shares entitled to vote can petition if directors or shareholders to divided to elect directors or dissolution would be beneficial to shareholders;
3) Any shareholder entitled to vote may petition if shareholders unable to elect directors for two annual meetings.

Question 27

What percentage of voting shares in closed corporation may petition on grounds that management is being illegal, oppressive or fraudulent towards complaining shareholders or is wasting, diverting or losing assets?

Answer 27

Owners of 20% or more of outstanding shares entitled to vote in election of directors.

Question 28

When might a court deny dissolution?

Answer 28

If there is some other way the complaining shareholder can obtain a fair return on his investment.

Question 29

What will the court consider for the protection of petitioners?

Answer 29

That liquidation is necessary to protect petitioners and is the only way to get a fair return on investment.

Question 30

What could the non complaining shareholders do to avoid dissolution?

Answer 30

Within 90 days of the petition buy petitioners stock at fair value on terms approved by the Court.

Question 31

Does dissolution end the corporation’s existence?

Answer 31

No, the corporation stays in existence until wound up. They gather all assets, covert to cash, pay creditors and distribute remainder to shareholders pro-rata by share unless a dissolution preference.

Question 32

What is a dissolution preference?

Answer 32

Works like dividend preference meaning that that person is paid first.

Question 33

New York prohibits unreasonable restraints on alienation of shares, however what might be valid?

Answer 33

Reasonable share transfer restrictions are valid. Ie one requiring a selling shareholder to first offer his shares to the corporation.