Part Eight: Changes in Structure Flashcards
What is the general procedure for “fundamental changes”?
The following procedure applies to “fundamental changes”:
- the BOARD adopts a resolution;
- WRITTEN NOTICE is given to the shareholders;
- the shareholders APPROVE of the changes;
- changes in ARTICLES are filed with the state
What are the general rules regarding amendments to the articles of incorporation?
- The corporation can amend it articles with any provision that would be lawful in the original articles;
- Certain “housekeeping” amendments can be made without SH approval
- Most amendments require SH approval
What is a “merger” ?
A “merger” involves the blending of one or more corporations into another corporation. The latter corporation survives, while the other two cease to exist after merger.
What is the rule re: SH approval for SH’s of surviving corporation in merger?
Approval of plan of merger by SH’s of SURVIVING corporation is not requires if ALL of the following conditions exist:
- articles of incorporation of surviving corporation will not differ from articles before merger; AND
- each SH of survivor will hold same number of shares with same rights; AND
- voting power of shares issued as a result of merger will comprise no more than 20% of the voting power of shares of surviving corporation that were outstanding immediately prior to the merger.
What is the rule regarding “Short Form Merger of Subsidiary” ?
A parent corporation owning at least 90% of the outstanding shares of each class of a subsidiary may merge the subsidiary into itself WITHOUT the approval of the SH’s OR DIRECTORS of the subsidiary.
The parent must mail a copy of the plan of merger to each SH of the subsidiary.
What is a “share exchange”?
A “share exchange” involves one corporation purchasing ALL OF THE OUTSTANDING shares of one or more classes or series of another corporation.
What is the rule re: SHAREHOLDER APPROVAL of SHARE EXCHANGE?
- only the SH’s of the corporation whose shares will be acquired in the share exchange need approve a share exchange;
- A share exchange is NOT a fundamental corporate change for the acquiring corporation
What is a “conversion”?
A “conversion” involves one business entity changing its form to another business entity.
Example —> corporation turns into LLC
What is the procedure for a “conversion”?
The procedure for effecting a conversion generally is the same as the procedure for approving a merger in which the converting corporation is not the survivor.
What is the rule regarding “Disposition of ALL or SUBSTANTIALLY ALL assets of the corporation” ?
Should be treated as a “fundamental corporate change” for the disposing corporation.
What counts as “all or substantially all”?
75%
What is the effect on purchaser of purchasing “all or substantially all” assets?
Generally, the purchaser of another corporation’s property does not become liable for the seller’s obligations; the Seller remains solely liable.
HOWEVER –> if the disposition of property is rlly a disguised merger, a court might treat it as a merger under the de facto merger doctrine and hold the purchaser liable for the sellers obligation just as if a merger had occurred.
What is the “Right of appraisal” or “dissenter’s rights”?
If a corporation approves a fundamental change, SH’s who DISSENT from the change MAY have the right to have the corporation purchase their shares.
This is known as “appraisal rights” or “dissenter’s rights”.
What is required to have a “right of appraisal” or “dissenter’s rights”?
The following are among those who have a right to the appraisal remedy:
- any SH ENTITLED TO VOTE on a plan or merger and SHAREHOLDERS of the subsidiary in a short form merger;
- SHAREHOLDERS of the corporation whose shares are being acquired in a share exchange; AND
- a shareholder who is ENTITLED TO VOTE on a disposition of all or substantially all of the corporation’s assets.
