Fundamental Corporation Changes

Question 1

What are shareholder appraisal rights?

Answer 1

When the corporation wants to make a fundamental corporate change the dissenting shareholder has the right to force the corporation to buy his shares at “fair value”

If shareholder & corporation cannot agree on fair value, the CORPORATION SUES to determine the value→court cannot discount the shares if they are minority shares and not controlling shares

Question 2

Which fundamental changes trigger shareholder appraisal rights?

Answer 2

1) SOME amendments to the certificate; like those… altering or abolishing a preference
- changing redemption rights
- altering or abolishing a preemptive right
- limiting voting rights

2) Consolidation
3) YOUR corporation merges into another corporation
4) YOUR corporation transfers substantially all of its assets
5) YOUR corporation’s shares are acquired in a share exchange

** NOTE: BUT EVEN IF a corporation is doing one of these fundamental changes, if the stock is listed on a PUBLIC exchange→ NO appraisal rights (i.e. applies to CLOSE corporations only)

Question 3

What must a shareholder do to perfect his appraisal rights?

Answer 3

1) Before the shareholder vote, file written objection & your intent to demand payment with the corporation;
2) Abstain or vote against the change;AND
3) After the vote, make written demand to be bought out

Question 4

How can changes be made the the certificate of incorporation?

Answer 4

STEP 1: Minor changes: can be made by the BOARD ALONE (e.g. changing office location, registered agent, etc.)

Non-minor changes: must be approved by

(i) the BOARD; AND 
(ii) a MAJORITY of the shares entitled to vote 
* * NOT just those ACTUALLY voting			

** NOTE: If amendment will change or strike a supermajority quorumor voting requirement for shareholder voting (NOT directors) → needs approval of (i) the board; AND (ii) 2/3d of the shares entitled to vote

STEP 2: If an amendment is approved, certificate of amendment must be delivered to the Department of State for filing

Question 5

What is the difference between a merger and a consolidation?

Answer 5

1) Merger = A merges into B → Adisappears & B survives

2) Consolidation = A and B form C (both A & B disappear)

Question 6

What steps are required to effect a merger (or consolidation)?

Answer 6

1) EACH company’s board adopts a plan of merger (or consolidation);
2) Shareholder approval is needed from BOTH corporations; AND

** NOTE: NO Shareholder approval is necessaryIF the parent (acquiring) corporation owns 90 PERCENT or more (i.e. a short form merger)

3) Deliver a certificate of merger (or consolidation) to Dept. of State for filing

** NOTE: Successor Liability = the surviving company succeeds to all rights & liability of the constituents

Rights of Appraisal→ ONLY IF shareholder of corporation that disappeared (i.e. not for shareholders of surviving company)

Question 7

What are the steps toeffect of a transfer of substantially all of the assets of a corporation?

Answer 7

STEP 1: each corporations board authorizes the deal; AND
STEP 2: approval by SELLING corporation’s shareholders (ONLY)

• • Majority of shares ENTITLED to vote
• • NOTE:These assets areNOT in the ordinary course of business

** ACQUIRING company normally takes assets free of successor liability

** Only shareholder of selling corporation have rights of appraisal

** No delivery to Department of State necessary

Question 8

What steps are necessary to effect a share exchange?

Answer 8

STEP 1: one company acquires all the outstanding shares of one or more class of another corporation

STEP 2: deliver plan of exchange to Department of State for filing

NOTE: These are ONLY fundamental changes for the SELLING corporation so only shareholder of the selling corporation have rights of appraisal

Question 9

What isneeded for VOLUNTARY dissolution?

Answer 9

1) Votes of majority of SHARES entitled to vote(NOT those “actually voted”)
* * NO boardvote necessary

2) Certificate of dissolution delivered to Department of State for filing

Question 10

How can you petition the court for INVOLUNTARY dissolution?

Answer 10

1) Resolution by board OR majority of shares entitled to vote, IF the corporation has insufficient assets to discharge liability or dissolution would be beneficial to shareholders

2) ½+ of shares entitled to vote, IF
(i) directors too divided to manage;
(ii) shareholders too divided to elect directors; OR
(iii) internal dissention makes dissolution beneficial to shareholders

3) ANY shareholder entitled to vote, IF shareholders are unable to elect directors for 2 annual meetings

4) 20%+ of voting shares in a CLOSE CORP IF there is evidence of…
(i) management’sillegal, oppressive or fraudulent acts toward the complaining shareholder; OR
(ii) management’s wasting, diverting or looting of assets

**NOTE: court can deny if complaining shareholder can get fair return (e.g. by ordering buyout); will consider if liquidation is the ONLY way to get a fair return

** Corporation or non-complaining shareholder can AVOID dissolution IF within 90 days of the petition, they buy the petitioner’s shares at fair value on terms approved by the court (i.e. a buyout)

Question 11

What are the steps to liquidating a business after it has been dissolved?

Answer 11

Dissolution does NOT end the corporation’s existence.Further steps must be taken. Steps to winding up (i.e. liquidating):

1) gather all assets	
2) convert them to cash	
3) pay creditors	
4) distribute remainder to shareholder, pro-rata by share unless there’s a dissolution preference			

** Must say “dissolution preference” (which means paid first)

** Shareholders CANNOT agree that they will be paid before creditors