Mergers and Dissenters' Rights

Question 1

What procedure is required for fundamental changes to be enacted?

Answer 1

1. The board of directors must vote to propose the fundamental change to the shareholders AND
2. the shareholders must vote to enact the fundamental change.

Question 2

What are fundamental changes?

Answer 2

1. Mergers
2. Sale of all or substantially all assets
3. Share exchanges
4. Amendments to the articles of incorporation
5. Dissolution

Question 3

What fundamental changes grant dissenters’ rights?

Answer 3

1. Mergers
2. Short form mergers
3. Selling all or substantially all assets
4. Share exchanges

Question 4

What is a merger?

Answer 4

A combination of two corporations, in which only one corporation survives and assumes the assets and liabilities of the other corporation.

Question 5

What is a consolidation?

Answer 5

When two corporations combine to create a new corporation and both of the original corporations cease to exist.

Question 6

What procedural process is required for a merger?

Answer 6

1. The board of directors make a resolution (by vote) to propose the merger
2. The board of directors provide written notice to the shareholders
3. The majority of all shares actually casting a vote approve the merger.

Question 7

What is a short form merger?

Answer 7

A merger in which the corporation merges a subsidiary that it owns 80% or more of into itself.

Approval is not required, but dissenters’ rights still exist.

Question 8

What about asset sales?

Answer 8

If the corporation sells all or substantially all of its assets, then the selling corporation must treat it like a merger.

The buying corporation generally does not have to treat it like a merger, UNLESS there is successor liability or continuity of enterprise.

Question 9

What about share exchanges?

Answer 9

The selling corporation must treat it like a merger.

Question 10

What are dissenters’ rights?

Answer 10

They give the shareholder the right to have their shares bought back by the corporation at a fair value.

Question 11

Who has dissenters’ rights?

Answer 11

Any shareholder with the right to vote on

1. a merger
2. an asset sale
3. a share exchange
4. an amendment of the articles of incorporation

AND shareholders of the subsidiary in a short form merger.

Question 12

What is the “market out” exception?

Answer 12

An elimination of dissenters’ rights IF the corporation’s stock is

• listed on a national exchange OR
• held by more than 2,000 stockholders
  
  • NOT the same as there being more than 2,000 shares of stock!

Question 13

How do you invoke your dissenters’ rights?

Answer 13

1. Send written notice to the corporation of your intent to dissent BEFORE the shareholders vote on the action
   
   1. gives the directors time to rethink things if a lot of people say they’ll dissent
2. Either abstain or vote no, AND
3. make a written demand for fair value after the action has been approved.

Question 14

What constitutes fair value?

Answer 14

The corporation will make an offer and if the shareholder isn’t happy with it, then they can petition the court to determine the fair value.

Question 15

What if the corporation wants to voluntarily dissolve?

Answer 15

The same procedure applies as if it were a merger.

1. Board of directors pass a resolution to present dissolution to the shareholders
2. Board of directors provide written notice
3. Majority of actual votes cast by shareholders approve dissolution.

Question 16

When is involuntary dissolution permissible?

Answer 16

Upon request by the AG, a shareholder, a director, or a creditor.

Creditor must show corporation is not paying its debts

Shareholder must show EITHER

• that corporate assets are being wasted
• that the directors are acting fraudulently or oppressively
• that the directors are deadlocked OR
• that the shareholders are deadlocked.