Fundamental Corporate Changes - Pt 2

Question 1

Share Exchange

Answer 1

• when one company acquires all of the stock of another
• one company gobbling up another

Question 2

Transfer of All/Substantially All Assets and Share Exchange - Who does this count as fundamental change for?

Answer 2

• ONLY the selling corporation
• NOT the buyer
• means only the corporation selling property needs to follow the fundamental change procedures

Question 3

Transfer of All Assets/Share Exchange - Procedure

Answer 3

• board action by both corporations is required
• need notice + approval ONLY wrt selling co’s SHs

Question 4

Transfer of All Assets/Share Exchange - Filing

Answer 4

• share exchange usually requires filing w/ sec of state
• usually no filing req for transfer of all assets

Question 5

Transfer of All Assets/Share Exchange - Successor Liability

Answer 5

• DON’T expect successor liability for sale of substantially all assets
  -> b/c selling co still exists -> creditor can sue it
• exception if buyer = “mere continuation” of seller (same management, SHs, etc.)
• also exception if ct determines deal was really a disguised merger

Question 6

Conversion - Basic Concept

Answer 6

• involves one business entity changing its form to another business form, such as corp converting itself into an LLC

Question 7

Conversion - Procedure

Answer 7

• need board approval
• also need SH notice + approval
• also need to deliver doc to sec of state
• SHs have dissenting right of appraisal

Question 8

Kinds of Voluntary Dissolution

Answer 8

• dissolution by incorporators or initial directors
• dissolution by corporate act

Question 9

Dissolution by Incorporators or Initial Directors

Answer 9

• can happen if shares have not yet been issued or business not yet commenced
• majority of incorporators or initial directors can dissolve corp by delivering articles of dissolution to the state
• all corp debts must be paid before dissolution
• if shares have been issued, any assets remaining after wind up must be distributed to SHs

Question 10

Dissolution by Corporate Act

Answer 10

• corp may dissolve by corp act approved under fundamental change procedure
• means need board of director action, SH approval, + file notice of intent to dissolve w/ sec of state

Question 11

Effect of Dissolution

Answer 11

• dissolved corp continues its corporate existence
• BUT can’t carry on any business except as appropriate to wind up + liquidate affairs
• need to notify creditors so they can make any claims

Question 12

Ways for Dissolved Corp to Cut Short Time for Claims

Answer 12

• corp can cut time short for bringing known claims by notifying claimants in writing of dissolution + giving them deadline of not less than 120 days in which to file claim
  -> time for filing unknown claims can be limited to 3 yrs by publishing notice of dissolution in newspaper in country where corp’s known place of business located

Question 12

Barring Claims Against the Corporation

Answer 12

• claim CAN be asserted against dissolved corp, even if claim doesn’t arise until after dissolution, to the extent of the corp’s undistributed assets
• if the assets have been distributed to SHs, claim can be asserted against each SH for pro rata share of the claim, to the extent the assets are distributed to him

Question 13

Revocation of Voluntary Dissolution

Answer 13

• corp may revoke voluntary dissolution using same procedure used to approve the dissolution

Question 14

Involuntary Dissolution

Answer 14

• aka judicial dissolution
• happens by court order
• different players can ask for this

Question 15

Involuntaary Dissolution - Action by Attorney General

Answer 15

AG may seek judicial dissolution of corp on grounds:
- that corp fraudulently obtained its articles of inc OR
- that corp is exceeding or abusing its authority

Question 16

Involuntary Dissolution - Action by SHs

Answer 16

SHs can petition for involuntary dissolution on grounds that:
- director abuse, waste of assets or misconduct
- directors are deadlocked in management of corp affairs, SHs unable to break deadlock, + irreparable injury to corp is threatened
-> OR corp affairs can’t be conducted b/c of the deadlock
- SHs deadlocked in voting power + have failed to elect one or more dirs for period including at least 2 consecutive annual meetings OR
- corp has abandoned its business + failed to dissolve win reasonable time

Question 17

Election to Purchase in Lieu of Dissolution

Answer 17

• as alt to ordering invol dissolution, court might order buyout of objecting SH
  -> might be especially likely in a close corp
• this alt involvs corp electing to purchase shares owned by petitioning SH at fair value

Question 17

Involuntary Dissolution - Action by Creditors

Answer 17

Creditors may seek judicial dissolution if:
1) creditor’s claim has been reduced to judgment, execution of judgment has been returned unsatisfied, + corporation is insolvent OR
2) corp has admitted in writing that creditor’s claim is due + owing + corp is insolvent

Question 18

Court Supervision of Voluntary Dissolution

Answer 18

• court may dissolve corp in action by corp to have voluntary dissolution continued under court supervision

Question 19

Administrative Dissolution - General Concept

Answer 19

• state may bring an action to administratively dissolve corporation for reasons such as failure to pay fees or penalties, failure to file annual report, + failure to maintain registered agent in state

Question 20

Administrative Dissolution - Procedure

Answer 20

• state must serve corp w/ written notice of failure
• if corp doesn’t correct grounds for dissolution or show don’t exist w/in 60 days after notice, state effectuates dissolution by signing cert of dissolution

Question 21

Administrative Dissolution - Reinstatement

Answer 21

• corp that is admin dissolved may apply for reinstatement w/in 2 yrs after effective date of dissolution
• app must state grounds for dissolution either didn’t exist or have been eliminated
• reinstatement relates back to date of dissolution
  -> corp may resume carrying on business as if dissolution never occurred

Question 22

Winding Up - General Concept

Answer 22

• process the ends the corporate existence
• corp continues to exist -> can sue + be sued
• can’t start new business -> must wind up (liquidate)

Question 23

Steps for Winding Up

Answer 23

Need all of following:
- give written notice to known creditors
- publish notice of dissolution in newspaper in county of principal place of business
- gather all assets
- convert assets to cash
- pay creditors AND
- distribute any remaining sums to SHs, pro rata by share, unless there’s a liquidation preference

Question 24

Liquidation Preferences

Answer 24

• “pay first”
• work like a dividend preference
• articles may set out dividend preference or liquidation preference
• may be relevant to insolvency