1. Section 30.2

2. What You’ll Learn
How to distinguish among a merger, an asset acquisition, and a stock acquisition (pp )
How to describe a tender offer (p. 656)

3. What You’ll Learn
How to define a suitor and a target
(p. 656)
How to distinguish between the voluntary and involuntary dissolution of a corporation (p. 660)

4. What You’ll Learn
How to identify the circumstances under which a limited liability company can dissolve (p. 660)

5. Why It’s Important
Understanding the nature of corporate expansion and dissolution will help you determine your rights as a shareholder.

6. Legal Terms
merger (p. 654)
asset acquisition (p. 655)
stock acquisition (p. 656)
tender offer (p. 656)
suitor (p. 656)
target (p. 656)

7. Section Outline Increasing Shareholder Value
Types of Corporate Expansion
Merger and Consolidation
Asset Acquisition
Stock Acquisition

8. Section Outline Government Regulation of Corporate Expansion
Federal Regulation
State Legislative Regulation
Judiciary Scrutiny

9. Section Outline Dissolution of a Corporation Voluntary Dissolution
Involuntary Dissolution
Dissolving a Limited Liability Company

10. Pre-Learning Question
Why is it important for corporations to expand?

11. Increasing Shareholder Value
Investors buy shares in a corporation in order to make money through a return on their investment.

12. Increasing Shareholder Value
Investors make money when they receive profits in the form of dividends or when the value of their shares increases. One way to increase the value of a corporation’s shares is to expand the business.

13. Pre-Learning Question
What are some ways a corporation can expand?

14. Types of Corporate Expansion
buying new land
building new manufacturing plants
opening new sales outlets
expanding product lines
entering new fields of business

15. Types of Corporate Expansion
Growth and expansion can also occur by joining with another corporation through
a merger
an asset acquisition
a stock acquisition

16. Merger and Consolidation
Merger and consolidation are common methods of business expansion.

17. Merger and Consolidation
In a merger, one corporation continues its existence and absorbs another corporation, which gives up its corporate identity.

18. Merger and Consolidation
In a consolidation, two or more companies join to form a new corporation. The new company is a composite of the old companies.

19. Asset Acquisition
In an asset acquisition, one corporation agrees to purchase the assets or property of a second corporation.

20. Asset Acquisition
One advantage to asset acquisition is that the debts and liabilities of the selling corporation do not transfer to the buying corporation.

21. Stock Acquisition
In a stock acquisition, an individual or a corporation purchases enough shares of stock in a corporation to control it.

22. Stock Acquisition
A stock acquisition often begins with a tender offer to shareholders of the corporation. This is an offer to buy a number of shares at a specified price and is often called a takeover bid.

23. Stock Acquisition
The corporation making the tender offer is referred as the suitor.
The corporation to be taken over is called the target.

24. Pre-Learning Question
Why does government regulate corporate expansion?

25. Government Regulation of Corporate Expansion
During the 1960s and 1980s, many takeovers took place that involved bitter struggles between suitors and targets.

26. Government Regulation of Corporate Expansion
These takeovers created concerns that mergers
stifled competition
controlled markets and pricing
discouraged innovation

27. Government Regulation of Corporate Expansion
As a result, Congress, state legislatures, and the courts have become involved in regulating the corporate takeover process.

28. Federal Regulation
A federal statute known as the Williams Act strictly controls takeover bids.
It requires a suitor who offers to acquire more than five percent of a target to file a statement with the SEC.

29. State Legislative Regulation
State legislatures have dealt with stock acquisitions by:
passing antiliability statutes to protect corporate directors.
enacting antitakeover statutes to discourage suitors from targeting companies within their states.

30. Judicial Scrutiny
Sometimes courts must evaluate the decision made by a corporation’s directors and officers, if they successfully resist a takeover bid and are sued by dissatisfied shareholders.

31. Judicial Scrutiny
In these cases, the court may either apply the business judgment rule or the primary motive approach, which is to determine the directors’ and officers’ primary motive for resisting a takeover.

32. Pre-Learning Question
How do corporations come to an end?

33. Dissolution of a Corporation
The end of a corporate entity is often referred to as the dissolution of the corporation and can come about in two ways:
voluntarily
involuntarily

34. Voluntary Dissolution
Corporations may end voluntarily by
a unanimous vote of all of its shareholders
a vote by the directors, provided they get the support of two-thirds of the shareholders

35. Voluntary Dissolution
After the decision to dissolve is made, the corporation must notify:
the secretary of state’s office with a statement of intent to dissolve
creditors by certified mail
the public by publication

36. Voluntary Dissolution
Creditors are first to be paid.
If necessary, a receiver divides the assets among the creditors.
Articles of dissolution must be filed with the secretary of state.

37. Involuntary Dissolution
The secretary of state can ask the state attorney general to bring a quo warranto action against a corporation if the corporation has repeatedly conducted business illegally.

38. Involuntary Dissolution
If such action is taken, the corporation could lose its charter and would no longer be authorized to do business in the state.

39. Involuntary Dissolution
Grounds for bringing quo warranto action include:
failure to file annual reports
failure to pay franchise taxes
failure to maintain a statutory agent for service of process

40. Involuntary Dissolution
A corporation may also be subject to a quo warranto action if it exceeds its authority or is formed fraudulently.

41. Involuntary Dissolution
Shareholders may also bring an action but must have appropriate grounds
evidence of illegal actions
evidence of fraud

42. Involuntary Dissolution
evidence of waste of corporate assets
evidence that a dissolution is needed to protect the shareholders’ rights

43. Dissolving a Limited Liability Company
State law also regulates the dissolution of a limited liability company because an LLC is, like a corporation, a statutory entity.

44. Dissolving a Limited Liability Company
State statutes generally outline the circumstances under which an LLC can be dissolved.

45. Circumstances of Dissolution
An LLC can be dissolved by
the unanimous agreement of members
the expulsion of a member
a member’s bankruptcy and his or her withdrawal

46. On January 31, 2001, shareholders of the Howard Dennis Corporation voted unanimously to end the corporation. Can this action dissolve the corporation? Why or why not?

47. ANSWER
Yes, because a unanimous vote by the shareholders is required to end a corporation.

48. On November 30, 2000, the directors of the H. A. L
On November 30, 2000, the directors of the H.A.L. Company voted unanimously to end the corporation. Can this action dissolve the corporation? Why or why not?

49. ANSWER
No, because two-thirds of the shareholders must also vote to end the corporation.

50. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
What are the differences among a merger, an asset acquisition, and a stock acquisition?

51. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
In a merger, one corporation continues its existences and absorbs the other corporation. In an asset acquisition, one corporation agrees to purchase the assets or property of a second corporation.

52. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
A stock acquisition occurs when an individual or a corporation purchases enough shares of stock in a corporation to control that corporation.

53. Reviewing What You Learned What is a tender offer?
Section Assessment
Reviewing What You Learned
What is a tender offer?

54. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
The first step in a stock acquisition in which an individual or corporation offers to buy a number of shares of a corporation’s stock at a specified price. It is often called a takeover bid.

55. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
What is the difference between a suitor and a target?

56. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
The corporation making a tender offer is referred to as the suitor and the corporation to be taken over is called the target.

57. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
What is the difference between voluntary and involuntary dissolution of a corporation?

58. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
Voluntary—a unanimous vote of all of its shareholders; directors vote and get the support of two-thirds of the shareholders.

59. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
Involuntary—the secretary of state can ask the state attorney general to bring a quo warranto action against a corporation, if that corporation has repeatedly conducted business illegally.

60. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
What are the circumstances under which a limited liability company can dissolve?

61. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
The members of a limited liability company can initiate its dissolution by unanimous agreement; can be triggered by the expulsion of a member; can be triggered by a member’s bankruptcy or withdrawal.

62. Critical Thinking Activity Asset Acquisitions
Section Assessment
Critical Thinking Activity
Asset Acquisitions
What advantages come with an asset acquisition?

63. Critical Thinking Activity Answer Asset Acquisitions
Section Assessment
Critical Thinking Activity Answer
Asset Acquisitions
One advantage to asset acquisition is that, in general, the debts and the liabilities of the selling corporation do not transfer to the buying corporation.

64. Legal Skills in Action Involuntary Dissolution
Section Assessment
Legal Skills in Action
Involuntary Dissolution
You have just discovered that a corporation in which you hold stock is going to be subject to a quo warranto action.

65. Legal Skills in Action Involuntary Dissolution
Section Assessment
Legal Skills in Action
Involuntary Dissolution
Write an entry in your Justice Journal outlining all of the possible reasons why the state may have decided to take this step against this company.

66. Legal Skills in Action Involuntary Dissolution
Section Assessment
Legal Skills in Action
Involuntary Dissolution
Also remind yourself of the possible consequences of this action.

67. Legal Skills in Action Answer
Section Assessment
Legal Skills in Action Answer
Involuntary Dissolution
Journal entries should include that the state may be filing a quo warranto because the corporation may have failed to file annual reports, pay franchise taxes, or maintain a statutory agent for service of process.

68. Legal Skills in Action Answer
Section Assessment
Legal Skills in Action Answer
Involuntary Dissolution
Also, it could have exceeded its authority or was formed fraudulently.

69. Legal Skills in Action Answer
Section Assessment
Legal Skills in Action Answer
Involuntary Dissolution
The consequences of a quo warranto may be that the corporation could lose its corporate charter and would no longer be authorized to do business in the state.

70. End of Section 30.2