Corporations: Fundamental Corporate Changes

Front 1

Fundamental Corporate Change:

Board can't do these alone

Back 1

- Action adopting resolution of fundamental corporate change
- Submit proposal to shareholders w/written notice at least 21 days before meeting
- Must be approv. by 2/3 of shareholders entitled to vote
- Doc delivered to Sec of State for filing

Front 2

Dissenting shareholder right of appraisal:

Right to force corporation to buy her shares at a fair value. Exclusive remedy unless fraud. Shareholder has right when corporate actions trigger (merger; sale of shares in share exchange; transfer of substantially all assets; conversion) --> no right if stock on national exchange/market or 2,000 or more shareholders

Back 2

Shareholder actions to perfect the right:

1) Before shareholder vote, file w/corporation written notice of objection and intent to demand payment;
2) Abstain or vote against proposed change; and
3) After vote, w/in 20 days of notification by corp, written demand to be bought out

W/in 20 days of demand, accept/reject. If reject, counters w/estim of fair val. If can't agree, S sues and court appoints appraiser.

Front 3

Amendment of Certificate of Formation requires board action and shareholder approval

For passage, requires 2/3 of shares entitled to vote

Back 3

If approved, deliver amended certificate to Sec of State

No dissenting shareholder rights of appraisal. But if amendment affects a class, must be approved by 2/3 of shares in that class, as well as by 2/3 of all shares entitled to vote ("class voting")

Front 4

Mergers require board action (both corps) and shareholder approval (both, usually). No shareholder approval if 90% or more owned subsidiary merged into parent corp (short form merger)

Successor liability: surviving company has rights/liabilities of constituents.

Back 4

If approved, deliver cert of merger to Sec of State

*DISSENTING SHAREHOLDER RIGHT OF APPRAISAL. Available to shareholders of both in regular merger and to subsidiary shareholders in short-form merger.

Front 5

Conversion: corp converts to another form of business organization.

Requires board of director action and approval by 2/3 of shares entitled to vote. Deliver certificate of conversion to Sec of State. Dissenting shareholders can demand appraisal rights.

Back 5

Combination Limitations

Issuing public corporations generally prohib from entering combinations with affiliated shareholder (owns 20% or more of outstanding voting stock)

Front 6

Transfer (sale/lease/exchange) of all or substantially all assets not in the ordinary course of business or share exchange (one acquires all stock of another).

** Fund. corp. changes for selling, not buying corp.

- Transfer not 'substantially all' assets if corp continues to engage in same business after transfer
- Generally, no successor liability in sale of all assets.

Back 6

Requires

1) Board action (both corp), and
2) Approval by selling corporation's shareholders (2/3 of shares of selling corp entitled to vote)

Dissenting shareholders' rights of appraisal for selling corp only.

Front 7

Voluntary termination:

- written consent of all shareholders OR board action and approval by 2/3 of shares entitled to vote;
- then notice of intent to wind up to creditors

Back 7

- follow liquidation process

- court can revoke termination if result of fraud; corporation may revoke anytime before corp existence ceases

Front 8

Involuntary (court ordered) termination

1) TX AG can institute for fradulent procurement of cert of form; ultra vires acts; misrep in req reports; or in public interest [v. rare]

2) Creditors can seek term based on irrep harm to unsecured creditors

Back 8

3) Cred can seek appointment of a receiver bc corp is insolvent and unsatisfied judgment or company admits in writing that amount is due

4) Shareholder can seek appointment of a receiver for insolvency; waste of assets; director deadlock causing irrep harm to company; shareholders deadlocked and failed at 2 ann mtgs to fill Bd position; illegal/opp/fraud acts by directors

Receiver serves 12 months; if not fixed at end, court can order term

Front 9

Administrative termination

TX Sect of State may issue cert of term for corporation's failure to pay fees or to maintain registered agent or file required reports. At least 90 days notice.

Directors/officers personally liable for debts incurred after forefeiture of right to do business

Back 9

If corp not reinstated, it's treated voluntarily terminated, and proceeds to liquidation

Comptroller of state may forefit corp privileges for failure to pay tax or file tax reports if corp doesn't cure w/in 45 days of notice. Corp can't sue or defend cases in state court; officer/dir pers liable for debts incurred after tax due

Front 10

Liquidation Process:
1) Gather all assets
2) Convert to cash
3) Pay creditors
4) Distribute remainder to shareholders, pro-rata by share unless there's a liquidation preference ("pay first")

Wind up managed by directors unless court-supervised

Back 10

After wind up, deliver a cert of term to Sec of State, including statements that debts paid in equitable manner, with remaining sums distributed to shareholders. Ends corporate existence.

Pre-termination claims against corporation can be asserted w/in 3 years