Fundamental Corporate Changes

Question 1

What are fundamental corporate changes?

Answer 1

1. Amending the certificate
2. Selling off corporate assets
3. Merging

Question 2

What is the dissenting shareholder’s right of appraisal?

Answer 2

Right to force the corporation to buy your stock at fair value

Question 3

What corporate actions trigger appraisal remedy?

Answer 3

1. Some amendments to the certificate
2. Consolidation
3. Your corporation merges into another corp
4. Your corp transfers substantially all of its assets OR
5. Your corp’s shares are acquired in a share exchange

(BUT! Even if the corp is doing one of these things, no appraisal if listed on national exchange)

Question 4

What actions are taken by the shareholders to perfect the right of appraisal?

Answer 4

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

Question 5

How is price determined if the shareholder and corp can’t agree on price?

Answer 5

Court determines fair value

(Court may not discount for minority position)

Question 6

What is required for non-minor amendments to the certificate?

Answer 6

1. Director action; AND
2. Majority of shares entitled to vote (regardless of quorum, regardless of votes actually cast)

(if approved, deliver certificate to Department of State)

Question 7

What is required to strike a supermajority quorum or voting requirement for shareholder vote?

Answer 7

1. Director approval PLUS
2. 2/3 of shares entitled to vote

Question 8

What are the rights of appraisal for dissenting shareholders?

Answer 8

Dissenting shareholders have a right to appraisal IF the amendment to the certificate:

1. Alters or abolishes a preference;
2. Changes redemption rights; OR
3. Alters or abolishes a preemptive right or limits voting rights

Question 9

What are the requirements for mergers and consolidations?

Answer 9

1. Each company’s BOD adopts a plan or merger or consolidation
2. Shareholder approval required from both corps (majority of shares entitled to vote)

(deliver certificate of merger or consolidation to Dept of State)

Question 10

What is the exception to the requirement of shareholder approval for mergers or consolidations?

Answer 10

No shareholder approval needed IF parent co. owns 90% or more of a subsidiary that is being merged into the parent

Question 11

What shareholders have right of appraisal in mergers or consolidations?

Answer 11

Shareholders of the company that disappears (including dissenters in a short form merger)

Question 12

What is the effect of a merger or consolidation?

Answer 12

Surviving company succeeds to all rights and liabilities of the disappearing company (successor liability)

Question 13

What are the requirements for sale of substantially all of the assets not in the ordinary course of business (or share exchange)?

Answer 13

1. Each corp Board must approve
2. Must get approval from selling corp’s shareholders (majority of shares entitled to vote for seller) (No req’t for buyer!)

(no filing requirement)

Question 14

Whose shareholders have right of appraisal for sale of substantially all assets?

Answer 14

Seller only

Question 15

What is the rule for successor liability in sale of substantially all of assets?

Answer 15

Generally, the company acquiring the assets will NOT be liable for the liabilities of the company being acquired

(BUT SEE exception)

Question 16

What is the exception to the rule that the company acquiring the assets in a transfer of all or substantially all of a company’s assets will NOT be liable for the liabilities of the company being acquired?

Answer 16

Acquiror will not be liable UNLESS:

1. Deal terms provide otherwise
2. The purchasing company is mere continuation of the seller OR
3. Deal was entered fraudulently to escape such obligations

Question 17

What are the requirements for voluntary dissolution of the corporation?

Answer 17

1. No bd approval required
2. Majority of shares entitled to vote

(deliver certificate of dissolution to dept of State)

Question 18

What are the requirements for involuntary dissolution? (judicial act)

Answer 18

Dissolution may be ordered by the court IF:

1. Board resolution or a majority of shares entitled to vote determine:
   (a) that corp has insufficient assets to pay liabilities, OR
   (b) dissolution would be beneficial to shareholders;
2. Deadlock of directors or shareholders;
3. Shareholders are unable to elect directors for two annual meetings;
4. 20% or more of voting shares in corporation whose shares are not traded on a market petition for dissolution on the grounds that:
   (i) Mgmt has engaged in illegal, oppressive, or fraudulent acts towards the shareholders; OR
   (ii) mgmt is wasting, diverting, or looting assets.

Question 19

Who constitutes management for involuntary dissolution?

Answer 19

BOD (close or non-close corp)

Managing shareholders (in a close corporation)

Question 20

What may a court do instead of dissolution?

Answer 20

Provide some other fair return to investors (especially buyout)

Court considers whether liquidation is the only way to give s/h a fair return on investment

Question 21

How may corporate or non-complaining shareholders avoid involuntary dissolution?

Answer 21

Corporation may buy petitioners’ stock:

1. at FMV;
2. on terms approved by the court; AND
3. within 90 days of petition

Question 22

What are the steps in winding up? (happens after dissolution)

Answer 22

1. Gather all assets
2. Convert to cash
3. Pay creditors
4. Distribute remainder to shareholders, pro-rata by shares unless dissolution preference