Fundamental Corporate Changes

Question 1

Typical Process for a Fundamental Change

Answer 1

(1) Have board ADOPT RESOLUTION approving the change
(2) NOTIFY shareholders of a shareholder’s meeting to consider the change
(3) Have shareholders APPROVE change (typically majority vote)
(4) FORMALIZE change in articles
(5) DELIVER amended articles to secretary of state

Question 2

Amendments to the Articles

Answer 2

Considered a fundamental change

Minor amendments may be made by board without shareholder approval unless articles say otherwise

Question 3

Mergers

Answer 3

Combination of two or more corporations where only one firm survives

All assets and liabilities of a firm that is merged into another corporation become assets and liabilities of the surviving corporation as a matter of law

Usually the merger must be approved by each class of stock entitled to vote on the plan by a majority of all the shares entitled to vote

Question 4

Asset Sale

Answer 4

Firm may elect to purchase all, or substantially all, of another corporation’s assets

If WITHIN the course of business (look for a relatively small sale of assets), board may act without shareholder approval

If transaction is OUTSIDE the ordinary course of business (look for sales of substantially all assets or relatively large purchases), then:

(1) notice must be given to shareholders before a meeting to vote on the transaction; and
(2) shareholders must approve the transfer by a majority of votes entitled to be cast

Question 5

Appraisal Rights

Answer 5

Shareholder who objects to certain actions may be entitled to file an appraisal claim to dissent from the decision and force the corporation to buy their shares at judicially determined fair price

Question 6

Appraisal Rights: Qualifying Shareholders

Answer 6

Any shareholder entitled to vote on a fundamental activity generally has appraisal rights

Question 7

Appraisal Rights: Procedure

Answer 7

Shareholder must:

(1) NOTIFY FIRM they intend to dissent
(2) VOTE against action
(3) Make WRITTEN DEMAND for payment after action approved

Question 8

Control Share Acquisition

Answer 8

Shareholder who acquires a block of stock in any of the following ranges will lose the right to vote on director elections (until the right is restored by a majority vote of other shareholders):

1/5 to 1/3 of voting power

1/3 to 1/2 of voting power

More than 1/2 of voting power

Question 9

Limit on Business Combination

Answer 9

Prevents buyer who obtains control of 10% or more of the voting power of a publicly traded resident domestic corporation (more than 100 shareholders registered with SEC) from using corporation’s assets for purposes contrary to best interests of the corporation and its remaining shareholders

No dissenting shareholder rights