Fundamental corporate changes Flashcards
definition of fundamental corporate changes
- fundamental corporate changes need both a board and SH vote
- defined by statute:
i. amendment of articles of incorporation
ii. mergers or consolidations
iii. transfer of substantially all assets not in the ordinary course of business
iv. dissolution
Procedure of fundamental corporate changes
- procedure for a fundamental change:
i. board adopts resolution of fundamental change
ii. board submits proposal to SHs with written notice
iii. SH approval
a. use ordinary voting rule (quorum: majority outstanding voting shares, votes: in favor exceed votes against)
iv. for most changes, deliver a document to the Secretary of State
Right of appraisal
- right of appraisal: right of dissenting SH in small corporations to sell their stock for FMV
- actions triggering the right
i. merger or consolidation
ii. transfer of substantially all assets not in the ordinary course of business
iii. transfer of shares in a share exchange (type of merger) - only applies in close corporations
i. the right is not available if the stock is listed on a national exchange or has 2,000 or more shareholders (bc dissenting SH can sell on the market) - right must be perfected; perfection procedures:
i. written notice of objection and intent to demand payment filed with corporation before SH vote
ii. abstain or vote against the proposed change
iii. deposit stock with corporation and make written demand to be bought out, within the time set by the corporation after the vote - court may appoint an appraiser if SH and corporation can’t agree on FMV
- absent fraud right of appraisal is the only remedy for fundamental changes
Amendment of articles of incorporatino
- fundamental change
- requirements:
i. board of director action and notice to shareholders
ii. shareholder approval
iii. if approved, deliver amended articles to the Secretary of State - no right of appraisal
Mergers
- fundamental change: disappearing company merges into surviving company, which succeeds to all of the assets of and liabilities of disappearing company
- requirements:
i. board of director action and notice to shareholders
ii. shareholder approval
iii. if approved, deliver amended articles to the Secretary of State - right of appraisal
Short form merger
- short form merger: parent merges with its ≥ 90% owned subsidiary
- voting:
i. no SH approval of parent company needed - procedure:
i. if approved, surviving corporation delivers articles of merger or consolidation to the Secretary of State
ii. right of appraisal exists for voting shareholders of parent and all SHs of subsidiary - successor liability:
i. surviving corporation succeeds to all rights and liabilities of the constituents
ii. creditor of that corporation can sue the survivor - generally, for shareholders entitled to vote on the merger or consolidation and also for shareholders of subsidiary in short-form merger
Share exchanges and transfers of all or substantially all assets not in the ordinary course of business
- a share exchange (transfer of all the shares of a company) is the same thing as a sale of company
- substantially all of the assets:
i. varies from state-to-state
ii. at least 75 percent of the assets - these are fundamental corporate changes for the seller only, not the buyers
Share exchanges and transfers of all or substantially all assets not in the ordinary course of business - procedure
i. board of director action (both corporations)
ii. notice to selling corporation’s SHs
iii. approval by selling corporation’s SHs
a. acquiring company’s SHs do not to vote
iv. appraisal rights for dissenting selling SHs only
v. usually no filing with secretary of state
Share exchanges and transfers of all or substantially all assets not in the ordinary course of business - no successor liability
i. the company still exists (and got a lot of money so no harm to creditors)
ii. the buyer company is not liable for the debts of the seller, unless the deal says otherwise or unless buyer is merely a continuation of the seller
Share exchanges and transfers of all or substantially all assets not in the ordinary course of business - compared to merger
i. only selling SHs vote and get appraisal rights
ii. no filing with Secretary of State needed
iii. no successor liabiltiy
Dissolution
- process of ending of the corporation
i. dissolution is not the end of the corporation
ii. dissolution begins the process ending the corporate existence (then liquidation)
Voluntary dissolution
- requirements:
i. board of director action
ii. shareholder approval
iii. if approved, file notice of intent to dissolve with Secretary of State
iv. notify creditors so they can make claims - corporation stays in existence to wind up.
Involuntary dissolution
- involuntary dissolution is dissolution due to court order
- SH can petition for involuntary dissolution if:
i. director abuse, waste of assets, misconduct
ii. director deadlock that harms the corporation
iii. SHs failure at two consecutive annual meetings to fill a vacant board position - alternative to involuntary dissolution:
i. court might order buyout of the objecting shareholder
ii. especially likely in a close corporation - creditor can petition for dissolution of an insolvent corporation if:
i. creditor has an unsatisfied judgment, or
ii. corporation admits the debt in writing
Liquidation/ windup
- liquidation (or wind-up) follows dissolution
- winding up consists of:
i. gathering all assets
ii. converting assets to cash
iii. paying creditors
iv. distributing remainder to SHs
a. distribution is pro-rata by share unless there is a liquidation preference
i) do not confuse with dividend distribution; preferred shares mean nothing
b. liquidation preference means a SH is paid first
i) like a dividend preference
ii) liquidation preferences must be stated in the articles of incorporation
