Fundamental Corporate Changes

Question 1

General procedure for fundamental changes (KNOW THIS)

Answer 1

(1) Board action adopting a resolution of fundamental change; (2) proposal to Sh with written notice; (3) SH approval; and (4) delivery of the change to the secretary of the state

Question 2

SH vote required for fundamental change

Answer 2

meeting that constitutes a quorum where votes cast in favor exceed votes cast against

Question 3

Right of Appraisal

Answer 3

If corporation approves, Sh who dissent to the change may force the corporation to buy your shares for fair value

Triggered by : (1) merger or consolidation; (2) transfer of substantially all assets not in the ordinary course of business; or (3) transfers of shares in a share exchange

Question 4

Market Out Exception

Answer 4

appraisal is NOT available to Sh of publicly held corps or of corps with at least 2K shareholders and the shares have a value of at least $20M

Essentially, appraisal rights exist only in close corporations

Question 5

Perfecting right of appraisal

Answer 5

(1) before SH vote, file with the corporation WRITTEN NOTICE OF OBJECTION and intent to demand payment; (2) abstain or vote against the proposed change; and (3) after the vote, make WRITTEN DEMAND to be bought out and deposit stock with the corporation

Question 6

“Fair value” for right of appraiser

Answer 6

If Sh and corp cannot agree, court will appoint an appraiser

Question 7

Amendment of the articles procedure

Answer 7

(1) board action; (2) notice to Sh; (3) SH approval (standard); (4) amended articles delivered to Secretary of State

NO RIGHTS OF APPRAISAL FOR AMENDMENTS

Question 8

Mergers or consolidations

Answer 8

(1) board action of BOTH corps; (2) notice to SH; (3) SH approval (standard); (4) SURVIVING corp delivers articles of merger or consolidation to the secretary of state

NOTE: appraisal rights exist!

Question 9

When SH approval of surviving corp is unnecessary

Answer 9

Surviving corp Sh vote is not necessary if (1) AOI of surviving corp will NOT CHANGE; (2) each SH whose shares were outstanding prior to the merger will hold the SAME NUMBER OF SHARES with identical rights and preferences; and (3) the voting power of the shares issued will comprise of NO MORE THAN 20% of the voting power of the shares of the survivng corp

Question 10

When SH approval of merging corp is not necessary

Answer 10

not required if it is a short form merger of subsidiary (parent owning at least 90% of subsidiary merges it into itself)

Question 11

Successor liability

Answer 11

surviving corp succeeds to ALL RIGHTS AND LIABILITIES of its constituents

Question 12

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

Answer 12

“substantially all” = 75%.

FUNDAMENTAL CHANGE FOR THE SELLING OMPANY ONLY, NOT THE BUYER

(1) Board approval by BOTH corporations, (2) Notice to SELLING corp’s SH’s; (3) approval by SELLER’s SH

NOTE: NO DELIVERY to secretary of state

NOTE: rights of appraisal limited to SELLING company’s Shs

Question 13

Successor liability in asset sales

Answer 13

Generally, NO SUCCESSOR LIABILITY b/c selling company still exists, unless deal says otherwise

EXCEPTION: if sale is really a disguised merger, court might treat it as a merger under de facto merger doctrine and hold purchaser liable for seller’s obligations

Question 14

Voluntary Dissolution

Answer 14

If NO shares have been issued or biz has not commenced, majority of incorporators or initial directors may dissolve by simply delivering articles of dissolution tot he state

Otherwise, (1) Director action; (2) notice to SH; (3) approval by SH (standard); (4) file notice of intent to dissolve with teh secretary of state

NOTE: Must notify creditors so they can make their claims

Question 15

Involuntary Dissolution by AG

Answer 15

AG may seek judicial dissolution on ground that corporation FRAUDULENTLY OBTAINED AOI or is abusing its authority

SH may petition for involuntary dissolution because of (1) Director ABUSE, waste of action, or MISCONDUCT; (2) director DEADLOCK that is irreparably injuring the corp; (3) SH have failed at two consecutive ANNUAL meetings to fill a vacant board position; (4) directors are acting ILLEGALLY, OPPRESSIVELY, or FRAUDULENTLY

Question 16

Involuntary Dissolution by SH

Answer 16

SH may petition or court order for involuntary dissolution because of (1) Director ABUSE, waste of action, or MISCONDUCT; (2) director DEADLOCK that is irreparably injuring the corp; (3) SH have failed at two consecutive ANNUAL meetings to fill a vacant board position; (4) directors are acting ILLEGALLY, OPPRESSIVELY, or FRAUDULENTLY

Question 17

Involuntary Dissolution by Creditors

Answer 17

Creditor may petition for a court order to dissolute the corporation if corp is INSOLVENT and creditor has an UNSATISFIED JUDGMENT or the corp ADMITS THE DEBT in WRITING

Question 18

Winding up

Answer 18

Dissolution does not end the corporation. Starts the “winding up” process

(1) gather all assets; (2) convert to cash; (3) pay creditors; and (4) distribute remainder to SH, pro rata, unless if there is a liquidation preference

Question 19

Liquidation preference

Answer 19

“Pay first.” Creditors with liquidation preference get money first

MUST BE IN THE ARTICLES