Business Law and the Regulation of Business Chapter 37: Fundamental Changes of Corporations By Richard A. Mann & Barry S. Roberts

Topics Covered in this Chapter A. Charter Amendments B. Combinations C. Dissolution

Charter Amendments n Authority to Amend – statutes permit charters to be amended. n Procedure – the board of directors adopts a resolution that must be approved by a majority vote of the shareholders.

Combinations n Purchase or Lease of All or Substantially All of the Assets – results in no change in the legal personality of either corporation. n Regular Course of Business – approval by the selling corporation's board of directors is required, but shareholder authorization is not. n Other Than in Regular Course of Business – approval by the board of directors and shareholders of selling corporation is required.

Combinations n Purchase of Shares – a transaction by which one corporation acquires all of or a controlling interest in the stock of another corporation; no change occurs in the legal existence of either corporation, and no formal shareholder approval of either corporation is required. n Going Private Transactions – a combination that makes a publicly held corporation a private one; includes cash-out combinations and management buyouts.

Purchase of Shares A B Shareholders of A $ shares of A

Combinations n Compulsory Share Exchange – a transaction by which a corporation becomes the owner of all of the outstanding shares of one or more classes of stock of another corporation by an exchange that is compulsory on all owners of the acquired shares; the directors of each corporation and the shareholders of the corporation whose shares are being acquired must approve. n Merger – the combination of the assets of two or more corporations into one of the corporations.

Merger n Procedure – requires approval by directors and shareholders of each corporation. n Short-Form Merger – a corporation that owns 90% of outstanding shares of a subsidiary may merge the subsidiary into itself without approval of shareholders of either corporation. n Effect – the surviving corporation receives title to all of the assets of the merged corporation and assumes all of its liabilities; the merged corporation ceases to exist.

Consolidation n The combination of two or more corporations into a new corporation. n Procedure – requires approval of the board of directors and shareholders of each corporation. n Effect – each constituent corporation ceases to exist; the new corporation assumes all of their debts and liabilities.

Dissolution n Voluntary Dissolution – may be brought about by a resolution of the board of directors that is approved by the shareholders. n Involuntary Dissolution – may occur by administrative or judicial action taken (1)­by the Attorney General, (2)­by shareholders under certain circumstances, or (3)­by a creditor on a showing that the corporation has become unable to pay its debts and obligations as they mature in the regular course of its business.

Dissolution n Liquidation – when a corporation is dissolved, its assets are liquidated and used first to pay its liquidation expenses and its creditors according to their respective contract or lien rights; any remainder is proportionately distributed to shareholders according to their respective contract rights.

Fundamental Changes