Fact Pattern 5: Fundamental Corporate Changes

Question 1

What are fundamental corporate changes?

Answer 1

These are extraordinary so the board cannot do them alone. They are:

1. Amend the articles;
2. Merge or consolidate into another company;
3. Transfer substantially all assets (or having stock acquired in a stock exchange);
4. convert to another form of business;
5. Dissolve.

Question 2

What is necessary to complete a fundamental corporate change?

Answer 2

1. Board action adopting a resolution for a fundamental change;
2. Board submits proposal to shareholders with written notice;
3. Shareholder approval with the majority of shares entitled to vote approving it.
4. Delivering a document to the secretary of state.

Question 3

What is the dissenting shareholders right of appraisal?

Answer 3

The right to force the corporation to buy your stock at fair market value?

Question 4

What changes trigger the right of shareholder appraisal?

Answer 4

Only:

1. Merging or consolidating into another company;
2. Transferring substantially all assets;
3. Stock being acquired in a stock exchange

Question 5

Even if a company is doing one of the three items that will trigger the right of appraisal, what will negate the shareholers ability to trigger the right of appraisal?

Answer 5

If the company’s stock is listed on a national exchange or if the company has 2,000 or more shareholders.

Question 6

What is required for a shareholder to perfect their right of appraisal?

Answer 6

1. Before the shareholder’s vote, file with the corporation a written notice of objection and intent to demand payment;
2. At the shareholder vote, abstain or vote against the proposed change; and
3. After the vote, within time set by the corporation, make written demand to be bought out and deposit stock with the corporation.

Question 7

If the shareholder and the corporation cannot agree on a fair value of the shares, what happens?

Answer 7

the corporation will have to sue and the court may appoint an appraisser to determine fair value.

Question 8

What is necessary to amend the articles?

Answer 8

1. Board of director action and notice to shareholders;
2. Shareholder approval by the majority of shares entitled to vote;
3. If approved, deliver amended articles to the secretary of state.
   Note: no right to shareholders dissenting appraisal.

Question 9

Requirements to merger or consolidations of corporations:

Answer 9

1. Board of directors actions (both corps) and notice to shareholders;
2. Shareholder approval (both corporations)
3. No shareholder approval required if a 90 percernt or more owned subsidiary is merged into a parent corporation. (known as a short form merger)
4. If approved, surviving corporation must deliver articles of merger or consolidation to secretary of state.
   Note: Right to shareholders dissenting appraisal is allowed here.

Question 10

How much of a corporations assets must be transfered to trigger the substantially all assets requirement for shareholder voting?

Answer 10

Generally 75% of the assets.

Question 11

When selling substantially all assets, which corporation is required to have a shareholder vote because it is a fundamental change?

Answer 11

The seller only. Not the buyer

Question 12

Requirements to sell substantially all assets or share exchange stock?

Answer 12

1. Board action for both corporations and notice to selling companies shareholders;
2. Approval by the selling companies shareholders with a majority of shares entitled to vote;
3. Deliver to secretary of state.
   Note 1: Dissenting shareholder’s right to apprasail exists.
   Note 2: Because selling corp still exists, buying corp does not take on liabilities.

Question 13

Requirements for conversion to a different business

Answer 13

1. Board approval;
2. Notice to shareholders;
3. Shareholder approval;
4. Delivery to secreatry of state.
   Note: Dissenting shareholders right to appraisal.

Question 14

What is required for voluntary dissolution of corporation?

Answer 14

1. Board of directors action and shareholder approval.
2. File notice of intent to dissolve with secretary of state;
3. Corp stays in existence for wind up and to inform creditors.

Question 15

When can a shareholder petition a court for involuntary dissolution of a corporation?

Answer 15

When there is:
1. Director abuse, waste of assets, misconduct;
2. Director deadlock that harms the corporation; or
3. Shareholders fail at consecutive annual meetings to fill a board vacancy.
Or a court could order the buying out of the petitioning shareholder in a close corporation.

Question 16

What does winding up of a corporation prior to dissolution involve?

Answer 16

1. gathering all assets;
2. Converting to cash;
3. paying creditors; and
4. distributing remainder to shareholders, pro-rata by share unless tehre is a liquidation preference.

Question 17

What is a liquidation preference?

Answer 17

Pay first, so it is similar to a dividend preference. Those stocks iwth preference are paid out first.