Fundamental Corporate Changes Flashcards
Characteristics of fundamental corporate change
(1) board action adopting resolution of fundamental change
(2) Board submits proposal to shareholders with written notice
(3) Shareholder approval (majority of shares entitled to vote)
Fundamental corporate change
E.g. amending articles, selling off all assets, merging
Dissenting shareholders’ right to appraisal
Right to force corp to buy your stock at fair value
- Have right if company merging or consolidating, transfering substantially all assets not in the ordinary course of business, or transferring stock in share exchange
- NO appraisal if stock listed on national exchange or if company has 2,000 or more shareholders
- Right of appraisal exists in close corporations
How to perfect shareholders’ right to appraisal
(1) before shareholder vote, file with corp written notice of objection and demand of payment
(2) abstain or vote against proposed change; and
(3) after vote, within time set by corp, make written demand to be brought out and deposit stock with corp
-If cannot agree on fair value of shares, corp sues and court may appoint an appraiser
Is shareholder’s right to appraisal exclusvie remedy if does nto like fundamental change?
Yes, absent fraud
Amendment of articles
(1) Board of director action and notice to shareholders
(2) Shareholder approval (majority of shares entitled to vote)
(3) If approved, deliver amended articles to Secretary of State
- NO dissenting shareholder rights of appraisal
How to get Mergers or Consolidations
(1) Board of director action (both corp) and notice to shareholders
(2) Shareholder approval (gen both corp). Majority of shareholders entitled to vote
(3) No shareholder approval required if 90% or more owned subsidiary is merged into parent corp (short form merger)
(4) if approved, surviving corp delivers articles of merger or consolidation to Secretary of State
(5) Right of appraisal for shareholders entitled to vote on merger or consolidation and also for shareholders of subsidiary in short-form merger
Merger/Consolidation effect
Surviving corp succeds to all rights and liabilities of constituents. If creditor of corp can sue survivor (survivor liability)
Transfer of all or substantially all assets not in ordinaryyy course of business or share exchange (one company acquires all stock of another)
(1) Board action (both corp) and notice to selling company’s shareholders
(2) Approval by selling company’s shareholders (majority of share entiteld to vote)
(3) dissenting shareholders’ rights of appraisal for shareholders of selling corp only
(4) deliver to secretary of state articles of exchange in share exchange. Usually no filing in transfer/assets
- substantially all assets varies from state to state (rule of thumb is requires at least 75% transfer of all assets)
- fundamenta corp changes for selling corp only
- no successor liability b/c selling comp still exists
Voluntary dissolution
(1) Board of directors action AND
(2) Approval by majority of shares entitled to vote
(3) File notice of intent to dissolve with seretary of state
- Corp stays in existance to wind up -must notify creditors so can make claims
Involuntary dissolution (by court order)
Shareholder can petition b/c of:
(1) Director abuse, waste of assets, misconduct, or
(2) director deadlock that harms corp, or
(3) shareholders failed at consecutive annual meetings to fill board vacancy
- Alternative: court might order buy-out of objecting shareholder (esp. in close corporations)
Creditor can petition because corp is insolvent and (1) he has an unsatisfied judgment or (2) corp admits debt in writing
Winding up
Process that will end corporate existance when done
(a) gathering all assets
(b) converting to cash
(c) paying creditors
(d) Distribting remainder to shareholders, pro-rata by share unless liquidation preference
Liquidation Preference
“pay first” (must be in articles)
