Chapter 36
CORPORATIONS - MERGER, CONSOLIDATION and TERMINATION

WHAT THIS CHAPTER IS ABOUT

This chapter covers corporate mergers, consolidations, purchase of another
cor­poration's assets, and purchase of a controlling interest in another
corporation. The chapter also touches on the reasons for, and methods used
in, terminating a corporation.

CHAPTER OUTLINE

1. MERGER AND CONSOLIDATION

Whether a combination is a merger or a consolidation, the rights and
liabilities of shareholders, the corporation, and its creditors are the same.

A. MERGER

1. What a Merger Is

The combination of two or more corporations, often by one absorbing the
other. After a merger, only one of the corporations exists.

2. The Results of a Merger

The surviving corporation has all of the rights, assets, liabilities, and
debts of itself and the other corporation. Its articles of incorporation are
deemed amended to include changes stated in the articles of merger.

B CONSOLIDATION
In a consolidation, two or more corporations combine so that each
corporation ceases to exist and a new one emerges. The results of a
consolidation are essentially the same as the results of a merger.
C. PROCEDURE FOR MERGER OR CONSOLIDATION
1. The Basic Steps

(1) Each board approves the merger or consolidation plan; (2) each firm's
shareholders vote on the plan at a shareholders' meeting; (3) the plan is
filed, usually with the secretary of state; and (4) the state issues a
certificate of merger or consolidation.

2. Short-Form Mergers
A substantially owned subsidiary corporation can merge into its parent
corporation without shareholder approval, if the parent owns at least 90
percent of the subsidiary's outstanding stock.

3. Appraisal Rights

If provided by statute, a shareholder can dissent from a merger,
consolidation, sale of substantially all the corporate assets not in the
ordinary course of business, and (in some states) amendments to articles.

a . Procedure
A shareholder must file written notice of dissent before the share­holders
vote an the proposed transaction. ff the transaction is ap­proved, the
shareholder must make a written demand for payment.

b. Fair Value
Value on the day before the date the vote is taken [RMBCA 13.01]. The
corporation must make a written offer to buy the shareholder's stock. ff fair
value cannot be agreed to, a court will set it.

II. PURCHASE OF ASSETS

A. IS SHAREHOLDER APPROVAL REQUIRED?
A corporation that buys all or substantially all of the assets of another
cor­poration does not need shareholder approval. The corporation whose
as­sets are acquired must obtain approval of its board and shareholders.

B. ASSUMPTION OF LIABILITY
An acquiring corporation is not responsible for the seller's liabilities,
urdess there is (1) an implied or express assumption, (2) a sale ammounting
to a merger or consolidation, (3) a buyer retaining the seller's personnel
and con­tinuing the business, or (4) a sale executed in fraud to avoid
liability.

111. PURCHASE OF STOCK

A purchase of a substantial number of the voting shares of a corporation's
stock enables an acquiring corporation to control a target corporation. The
acquiring corporation deals directly with shareholders to buy shares.

A. TENDER OFFERS
A tender offer is a public offer. The offer can turn on the receipt of a
speci­fied number of shares by a specified date.

1. The Price Offered for the Target's Stock

Generally higher than the stock's market price before the tender offer. May
involve an exchange of stock or cash for stock in the target.

2. Federal and State Securities Laws

Federal laws control the terms, duration, and circumstances in which most
tender offers are made. Most states also impose regulations.

B. TARGET RESPONSES

1. Good Faith Decision

The directors of the target firm must make a good faith decision as to
whether the shareholders' acceptance or rejection of the offer would be most
beneficial. The directors must fully disclose all material facts.

2. To Resist a Takeover
Among other tactics, a target may make a self-tender (offer to buy its own
stock). A target may also sell its most desirable assets or take other
defensive measures (such as a poison pill: give its shareholders the right to
buy additional shares at low prices).

IV. TERMINATION

A. DISSOLUTION

1. Voluntary Dissolution

a. To Initiate Dissolution
Shareholders can initiate dissolution by a unanimous vote. Directors may
propose dissolution to the shareholders for a vote.

b. To Dissolve
The corporation files articles of dissolution with the secretary of state
[RMBCA 14.031. The effective date of dissolution will be the date of the
articles. The corporation notifies its creditors and sets a date (at least
120 days following the date of dissolution) by which all claims against the
corporation must be received [RMBCA 14.06].

2. Involuntary Dissolution

· By the State
In an action brought by the secretary of state or the state attorney general,
a corporation may be dissolved for [RMBCA 14.201-

1) Failing to comply with corporate formalities or other statutory
requirements.

2) Procuring a charter through fraud or misrepresentation.

3) Abusing corporate powers (ultra vires acts).

4) Violating the criminal code after a demand to discontinue the violation
has been made by the secretary of state.

5) Failing to commence business operations.

6) Abandoning operations after starting up.

b. By a Shareholder
The articles of a close corporation may empower any shareholder to dissolve
the corporation at will or on the occurrence of a certain event (such as the
death of another shareholder).

c. By a Court
Courts can also dissolve a corporation when a board is deadlocked or for
mismanagement [RMBCA 14.301.

B. LIQUIDATION
Corporate assets are converted into cash and distributed among creditors and
shareholders according to specific rules.

1. Board Supervision
If dissolution is by voluntary action, the members of the board act as
trustees of the assets, and wind up the affairs of the corporation for the
benefit of corporate creditors and shareholders.

2. Court Supervision
If dissolution is involuntary, the board does not wish to act as or
shareholders or creditors can show why the board should not act as trustee, a
court will appoint a receiver to wind up the corporate affairs.

TRUE-FALSE QUESTIONS

(Answers at the Back of the Book)

1. If a parent corporation owns are least 90 percent of the outstanding
shares of its subsidiary corporation, the subsidiary can be merged into its
parent without the approval of the shareholders of either corporation.

2. Appraisal rights are available only when a statute specifically provides
for them.

3. Shareholders must normally approve actions that will substantially change
a corporation's business position.

4. Shareholders must normally approve the purchase of all or substantially
all of another corporation's assets.

5. Federal laws strictly control the terms, duration, and circumstances
under which most tender offers are made.

6. During the liquidation of a corporation, corporate assets are converted
to cash and distributed to creditors and shareholders.

7. Shareholders who disapprove of a merger or a consolidation may be
entitled to the fair value of their shares.

8. A corporation that purchases the assets of another corporation always
assumes the selling corporation's liabilities as part of the deal.

9. A board of directors can file articles of merger or consolidation without
shareholder approval.

10. Appraisal rights are not ordinarily available in sales of substantially a
II of a corporation's assets.

FILL-IN QUESTIONS
(Answers at the Back of the Book)

If provided by statute, a shareholder (can/cannot)
dissent from
becoming an unwilling shareholder in a corporation.that has been
substantially altered by a merger or consolidation. To do so, the
(corporation/shareholder) must file a written notice of dissent
(clfter/before) the shareholders vote on the proposed
change. If the change is approved, the shareholder must make a written
demand for
payment. The fair value of shares is usually their value an the day
(after/before) the date on which
(the change is made/the vote is taken).

*notes provided by West Business Law