Pg 55

Question 1

What are things you don’t need shareholder approval to do?

Answer 1

• sell/lease/exchange/dispose of corporation’s assets in the regular and usual course of business
• mortgage, pledge, dedicate to the repayment of indebtedness or encumber any or all corporate assets
• transfer any and all corporate assets to another corporation if all of their shares and interests are owned by the corporation
• distribute assets pro rata to the holders of one or more classes or series of corporate shares

Question 2

What are the two things that make it so that you don’t need shareholder approval to do a merger?

Answer 2

– de minimus exception: if the corporation’s shareholders will keep substantially the same interest in the corporation
– short form mergers: if one corporation already owns 90% or more of the stock of the other corporation

Question 3

What is a merger?

Answer 3

When one or more corporations are absorbed by another existing corporation.

Question 4

What is the merged corporation and the surviving corporation when a merger happens?

Answer 4

• merged corporation: the corporation that gets absorbed

– surviving corporation: the corporation that is remaining

Question 5

If B corporation merges with C corporation, what happens to be corporation’s name and their debts?

Answer 5

The name is gone but the debts live on, so C corporation must pay them

Question 6

What are the constituents with regard to corporate mergers?

Answer 6

These are the parties to the merger

Question 7

What does the merged corporation automatically assume after a merger?

Answer 7

It assumes all debts and liabilities of the transferring corporation

Question 8

What does a merger do automatically with regard to creditors?

Answer 8

It involves a compulsory novation and substitutes the merged corporation for the corporation that was previously liable for the debt. The surviving corporation gets title to all assets of both companies and is liable for all liabilities of both companies

Question 9

Can a merger be initiated by shareholders?

Answer 9

No

Question 10

If shareholders want a corporation to merge with another corporation but the Board of Directors doesn’t want to do this, what is the only recourse that shareholders have?

Answer 10

To elect a new board that will approve a merger

Question 11

What are the major different kinds of merger?

Answer 11

• stock-for-stock merger
  – cash out merger
  – triangular merger

Question 12

What is a stock for stock merger?

Answer 12

All of the old shareholders will get new corporate stock for their old shares. Both sets of shareholders will become shareholders of the surviving corporation. The determination of the amount of stock that each shareholder gets depends on the value of the two companies and they use an exchange ratio such as 10 to 1 to do the conversion into the surviving company’s stock

Question 13

What is a cash out merger?

Answer 13

Some shareholders will get something other than the surviving corporation’s stock, so this could be bonds, real property, lottery tickets, presents, cash, etc. The cash out amount is a function of what the shares are worth.

Question 14

What is a triangular merger?

Answer 14

A merger where two or more companies combine but one of the corporations is the subsidiary of the other. Ie: if A corporation creates a 100% subsidiary and has merged into B corporation, that is a triangular merger because there are three parties involved: A corporation, B corporation, and sub-corporation, but only two are merging, so A corporation is just B corporation’s shareholder

Question 15

What is a compulsory share exchange?

Answer 15

When one corporation’s shareholders are forced to exchange their shares for another corporation’s stock. There’s no individual choice because their corporation approved the deal through a majority vote of the shareholders. This is the same result as a triangular merger, but you don’t have to create a subsidiary or do a merger.

Question 16

What is a tender offer?

Answer 16

A transaction between one company and the shareholders of another company. This involves the tender offeror buying the stock of the other company [the target company] directly from the target company’s shareholders. This is used when you don’t want to combine the management of the two corporations. If one corporation can buy enough of the other corporation’s shares directly from the shareholders to get control of the other corporation, it can use its position as a controlling shareholder to force a combination of the two corporations.

Question 17

What is the procedure to do a tender offer for a merger?

Answer 17

The offeror publishes an announcement of the offer and all of its details which has to stay open for at least 20 days. When the deadline expires, if the conditions of the offer are met, the offeror closes the deal and arranges for each shareholder to get payment for his shares. The offeror is then the owner of those shares and you don’t need approval of the other corporation’s board.

Question 18

What is consolidation?

Answer 18

The blending together of two or more corporations to create a new corporation. The resulting corporation is the consolidated corporation. The surviving corporation automatically assumes all of the debts and liabilities of the transferring corporations. I.e.: if two different companies plan to each discontinue business and join together into a new company, that is called consolidation

Question 19

What does a consolidation automatically do?

Answer 19

Invokes a compulsory novation on the part of the creditors. This means it substitutes the consolidated corporation for the corporation that was previously liable for the debt.

Question 20

What is dissolution?

Answer 20

The way a corporation ends through the filing of articles of dissolution with the Secretary of State. This can be either voluntary dissolution or administrative action taken by the secretary of state which is called involuntary dissolution. The corporation’s legal existence doesn’t end until it is dissolved.

Question 21

What are the steps involved in voluntary dissolution?

Answer 21

1. winding up of the corporation’s affairs: paying debts and distributing the remaining assets to the shareholders
2. dissolution proper: ending the corporation’s legal existence by filing articles of dissolution “certificate of election to wind up and dissolve“ with the Secretary of State.
3. dissolution is effective on the date of filing

Question 22

What is involved in informal liquidation?

Answer 22

This requires the sale of all corporate assets, the cessation of corporate activities, the distribution of the corporation’s property to its creditors, and the balance goes to the shareholders. You don’t need to file with the Secretary of State. Essentially the old corporation no longer functions as a corporation, but it’s legal existence continues.

Question 23

What is the rationale behind informal liquidation?

Answer 23

It’s a good idea to keep the shell of an old corporation around if you want to use it as a vehicle for a corporate merger or consolidation, at a later date, or to preserve intellectual property rights. We still need approval from the board and shareholders and winding up with a corporation’s business

Question 24

What are the two different ways you can have involuntary dissolution of a corporation?

Answer 24

– administrative action

– judicial dissolution

Question 25

How do you get involuntary dissolution of a corporation through administrative action?

Answer 25

The corporation is dissolved because it was created with a specific dissolution date in the articles of incorporation or by an action of the Secretary of State, for example for failing to pay the annual filing fee or for a statutory violation

Question 26

What is involved in judicial dissolution?

Answer 26

Remedies are imposed by the courts for different things. Usually this is requested by the shareholders or the creditors