Fundamental Corporate Changes

Question 1

Fundamental Corporate Changes

Answer 1

Extraordinary changes that the board cannot do along. Examples: amending the articles, selling off all assets, merging.

Question 2

Four Requirements for Fundamental Corporate Changes

Answer 2

1) Board action adopting a resolution of fundamental change
2) Board submits proposal to SHs with written notice
3) Must get SH approval (majority of shares entitled to vote)
4) In most of these changes, we need to deliver a document to the Secretary of State

Question 3

Dissenting SH Right of Appraisal

Answer 3

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

Question 4

When will a SH have the right of appraisal?

Answer 4

If the company is doing any of these:

1) Merging or consolidating;
2) Transferring substantially all assets not in the ordinary course of business, or
3) Transferring its stock in a share exchange

BUT, there is no appraisal if stock is listed on a national exchange or the company has 2,000 or more SHs. THUS, the right of appraisal exists in close corporations.

Question 5

What do SHs do to perfect right of appraisal?

Answer 5

1) Before SH vote, file with the corp written notice of objection and intent to demand repayment;
2) Abstain or vote against the proposed change; AND
3) After the vote, within time set by corp, make written demand to be bought out and deposit stock with corp

Question 6

What happens if a SH and corp cannot agree on the fair value of the shares?

Answer 6

The corp sues and the court may appoint an appraiser.

Question 7

Amendment of the Articles

Answer 7

1) Board of director action and notice to shareholders
2) Shareholder approval (majority of shares entitled to vote)
3) If approved, deliver amended articles to Secretary of State
4) Does NOT trigger SH right of appraisal

Question 8

Mergers or Consolidations

Answer 8

1) Board of director action AND notice to SHs
2) SH approval (generally both corps - majority of shares entitled to vote)
3) No SH approval required if a 90 percent or more owned subsidiary is merged onto a parent corp (short form merger)
4) If approved, surviving corp delivers articles of merger or consolidation to Secretary of State
5) Triggers SH right of appraisal
6) Effect of merger or consolidation - surviving corp succeeds to all rights and liabilities of the constituents (successor liability)

Question 9

Transfer of all or substantially all of the assets not in the ordinary course of business or share exchange

Answer 9

1) Board action (both corps) and notice to selling corp’s SHs
2) Approval by the selling corp’s SHs ( majority of shares entitled to vote)
3) SHs of the selling corp have rights of appraisal
4) Deliver to Secretary of State articles of exchange in share exchange. Usually, there is no filing in a transfer of assets.
5) No successor liability because selling company still exists.

Question 10

Voluntary Dissolution

Answer 10

1) Board of directors action and approval by a majority of shares entitled to vote.
2) File notice of intent to dissolve with SS
3) Corp stays in existence to wind up
4) Notify creditors so they can make claims

Question 11

Involuntary Dissolution

Answer 11

Dissolution by court order

1) a SH can petition because of director abuse, waste of assets, misconduct; director deadlock that harms the corp; or SHs have failed at consecutive annual meetings to fill a board vacancy
2) A creditor can petition because corp is insolvent and he has an unsatisfied judgment or the corp admits the debt in writing

Question 12

Winding-up

Answer 12

Liquidating the corporation. Consists of:

1) gathering all assets
2) converting to cash
3) paying creditors
4) distributing remainder to SHs, pro rata by share unless there is a liquidation preference

Question 13

Liquidation Preference

Answer 13

“Pay first” - must be in the articles