fundamental corporate changes

Question 1

what are fundamental changes

Answer 1

so fundamental that most require both bd and SH approval and in most, corp must notify dept of state by delivering a doc which corp files

Note: mortgage of substantially all corp assets is not fundamental change so may be approved by board action alone–but still need quorum and majority vote

Question 2

right of appraisal

Answer 2

dissenting SH right to force corp to buy stock at fair value

triggered by following actions:

• some amendments to certificate
• consolidation
• merger
• sale of assets (transfer of substantially all assets)
• shares acquired in share exchange

never a right of appraisal for publicly traded corps/ corp is listed on national securities exchange

-to perfect the right, SH must 1) file a written objection and intent to demand payment before SH vote, 2) abstain or vote against change, AND 3) after vote, make written demand to be bought out

if SH and corp don’t agree on fair value, corp sues and ct determines value. in setting value, ct cannot discount minority shares

Question 3

amendment to certificate of incorporation

Answer 3

• minor changes (ie office location) can be made by Bd alone
• other amendments must be approved by 1) director action, and 2) majority of shares entitled to vote (NOT amt of shares actually voting)

-if amd will change or strike a supermajority quorum or voting requirement for SH (not director) voting, you need director approval + 2/3rds of shares entitled to vote

• if amd is approved, deliver certificate of amd to dept of state
• dissenting SH have right of appraisal if amd alters or abolishes a preference, changes redemption rights, alters or abolishes a preemptive right, or limits voting rights

Question 4

mergers or consolidations

Answer 4

• each corp’s bd adopts a plan, AND each corp must get SH approval of a majority of shares entitled to vote
• no SH approval required from either corp if parent corp owns 90% or more of each class of stock of a sub that is merging into parent corp (this is short form merger)
• then merged or consolidated corp delivers certificate of merger to dept of state
• there are dissenting SHs’ rights of appraisal for corp that disappeared, including sub in short-form merger
• surviving corp succeeds to all rights and liabilities of disappearing corp (this is successor liability)

Question 5

transfer (not just mortgage) of all or substantially all of assets not in ordinary course of business or share exchange

Answer 5

fundamental change for selling corp only, not buying corp

need:
each corp’s bd to authorize deal, AND approval by selling corp’s SH of majority of shares entitled to vote
-there are dissenting SHs’ rights of appraisal for selling corp, NOT buying corp.
-must deliver plan of exchange in share exchange to Dept of State (no filing required for transfer of assets)

-generally corp acquiring assets won’t be liable for torts of corp whose assets it acquired UNLESS deal provides otherwise, or purchasing company is mere continuation of seller, or deal was entered fraudulently to escape such obligations

Question 6

dissolution

Answer 6

voluntary: no bd vote necessary, need majority vote of SH entitled to vote; then certificate of dissolution is delivered to Dept of State

involuntary (judicial):

1) by board res or res of majority of shares entitled to voting, stating that corp has insufficient assets to discharge liabilities or that dissolution would be beneficial to SH
2) 1/2 or more of shares entitled to vote may petition if directors too divided to manage or SH too divided to elect directors or that dissolution would be beneficial to SH
3) any SH entitled to vote may petition if SH unable to elect directors for 2 annual meetings
4) 20% or more of voting shares in corp whose shares are not traded on a securities market may petition on either of these grounds: a) mgmt’s illegal, oppressive, or fraudulent acts toward complaining SH; or b) mgmt’s wasting, diverting, or looting assets (mgmt here could be bd or managing SH ie close corp); c) ct may deny dissolution if there is some other way the complaining SH can obtain a fair return on investment (eg by ordering buyout)–cts will consider whether liquidation is necessary to protect petitioners and is only way to get fair return on investment

-corp or non-complaining SH may try to avoid dissolution within 90 days of petition, by forced sale –buy petitioner’s stock at fair value, terms approved by ct

Question 7

priority of claims after dissolution

Answer 7

dissolution doesn’t end existence..still need to wind up (liquidate) by: gathering all assets, converting to cash, paying creditors, and distributing remainder to SH, pro rata unless dissolution preference (ie pay first)

always pay debt before equity–outside creditors and then SH. if bylaws say how to distribute, that provision apples to distribution amongst SH after creditors are paid.